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CME: Beef Trimmings Prices Unusually Stable So Far

21 May 2018

US - Beef trimmings prices have been unusually stable so far this year when compared to recent years, as well as beef cut prices at the wholesale level, reports Steiner Consulting Group, DLR Division, Inc.

The primary supply of lean trim material is cows and first quarter slaughter was up 8 per cent from a year earlier. Average cow carcass weights were 2 per cent heavier than a year earlier, supplementing the increase in head processed. Even with this increase in supply, lean beef trimmings prices have gradually moved higher.

The same theme applies to the fat beef trimmings market, where supplies generally come from steer and heifer slaughter. Supply during the first quarter was up close to 2 per cent from a year earlier, and 50 per cent lean trim prices ended the quarter higher than at the start of the year, with less variation than in the first quarter of prior years.

A salient factor in the market this year has been lower frozen product inventories and less of an orientation to liquidating those inventories. Given the perspective that beef production would be ample this spring and summer, driven by big placements of cattle into feedlots in the second half of 2017 and the first couple months of this year, expectations (e.g. the cattle futures market) have been that beef prices would plunge.

Understandably, this would be detrimental to the value of frozen inventory going into these months, which might prompt liquidation of this stock. In 2017, frozen beef inventories were reduced 100 million pounds during the first quarter. With less in storage at the start of this year, inventory liquidation amounted to only 24 million pounds from January to March, offsetting some of the increase in beef supplies from more cow slaughter.

Consumer demand for beef has been a positive surprise this year, providing a foundation for the confidence to hold frozen inventory. Given the pattern of frozen beef inventories last year, year-over-year increases in coming months should not be a surprise. The stability of trimmings prices will play a role in how much beef is in cold storage as the spring and summer progress.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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