Meat Matters

Packers Continue To Fuel The Price Run On Live Cattle

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How consumers respond to record-high beef prices in the grocery store this grilling season will set the tone for the live cattle market for the rest of the year.

Fed beef processors have been trying all year to douse the red-hot live cattle market. But it seems they’ve been using gasoline instead of water, because the first quarter of 2014 saw new price records repeatedly set in a period unprecedented in the modern history of the market.

Consider these numbers. Prices set record highs in more than half the 13 weeks of the quarter (seven weeks for live prices, eight for dressed prices). Live prices and dressed prices, respectively, went from $134.22/cwt. and $212.55/cwt. the last week of 2013, to $152.21 and $243.53 the last week of March. That’s a 13.4% and 14.6% increase, respectively. Even more eye-popping is that live and dressed prices the last week of March were 19.2% and 19.9% higher, respectively, than those prices the same week last year.

Such numbers reinforce two truths about the fed beef business.

• The first is that when supply and demand is in balance, the live cattle market is extremely competitive. Some people in the 1990s complained bitterly about what they perceived was packer power over the market. Try advancing that argument today and you’d be laughed out of the feedlot. The fact is that historically tight fed cattle supplies have led to record-high live cattle prices. The converse was true when there were cyclically large cattle supplies.

• The second truth involves beef demand. The first-quarter rally wasn’t entirely supply-driven. Beef demand, especially at retail, played an important role and will continue to do so.

Fed beef processors were able to push wholesale beef prices to record levels in seven weeks of the first quarter of 2014. The weekly comprehensive cutout (which consists of beef cuts, grinds and trim) began the year at $201.20/cwt., and hit $238.21 the last week of March. This and record-high byproduct values allowed packers to pay record prices for their raw material.

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All wealth comes to the beef industry from consumers. And how they respond to record-high beef prices in the grocery store this grilling season will set the tone for the live cattle market for the rest of the year. So far this year, consumers have shown a remarkable willingness to keep paying higher prices. In fact, USDA’s March All Beef price averaged $5.36/lb., up from $5.27 in February, and $4.92 in March 2013.

This was before price increases forced on retailers by record-high wholesale prices in late January began to more fully show up. April retail beef prices are also expected to be record high again.

I heard grumblings from retailers in March about how hard it was to sell beef, and especially to feature it. But sales in volume terms were obviously going to be down on last year because there was simply less beef available to sell. Less availability will also be the reason why U.S. beef export values and volumes will decline this year from last.

Now we are on the cusp of the annual grilling season. Given the brutal winter many Americans endured, perhaps many people have already fired up the charcoal to celebrate warmer, sunny weather. As you read this, beef sales might already have taken off in the grocery store, and boxed-beef and live cattle prices might once again have set new record highs.

Despite this possibility, I’m confident May and June will be strong beef demand months. The Memorial Day weekend is the biggest beef sales event of the year.

Consumers know their beef dollars go much further in the grocery store than in the restaurant. You can rest assured that retailers will find beef cuts to feature for consumers to put on the grill and give them their beef fix.

Steve Kay is editor and publisher of Cattle Buyers Weekly (www.cattlebuyersweekly.com). See his weekly cattle market roundup each Friday afternoon at beefmagazine.com.

The opinions of Steve Kay do not necessarily reflect those of beefmagazine.com or the Penton Farm Progress Group.

 

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