Cattle prices and cattle futures struggled last week in the wake of the previous week’s record-high cash fed cattle market of $130/cwt.
There are plenty of moving parts, but the lion’s share of pressure continues to come from struggling wholesale beef prices.
Week to week, Choice boxed beef cutout values were $4.23 lower, while Select wholesale values were down 44¢. The Choice-Select spread all but evaporated from an already narrow $4.27 on March 2, to 48¢ this past Friday.
“High beef prices are meeting resistance in the grocery aisle, and grilling weather has not yet arrived to fully test demand potential at the new price levels,” analysts with the Agricultural Marketing Service (AMS) noted Friday.
“…While packer margins have been generally improving over the last few weeks, packers likely are still not all that happy with their returns right now,” explained John D. Anderson, senior economist with the American Farm Bureau Federation, in last week's In the Cattle Markets. “It is probably worth noting here that packer gross margins typically improve considerably from late winter through early summer as seasonal cattle price declines and seasonal beef demand strength generally work in their (the packers’) favor. Thus, a return to normal really means a return to steadily improving packer gross margins over the next couple of months. To achieve this, they (packers) will continue trying to increase the value of wholesale beef relative to live cattle. Over the last several weeks, that shift in relative value has been accommodated with higher prices on both. With both cattle and wholesale (and retail, for that matter) prices at historic highs, that trick will be increasingly difficult to pull off.”
That helps explain early-week squeamishness in the trading pits that drove futures lower and forced cattle feeders into early-week cash fed cattle trade at mostly $127/cwt., a smooth $3/cwt. lower than the previous week. By Friday, week to week, the front half of Feeder Cattle futures was down an average of $5.11 and the back half was down an average of $4.03. Also week to week on Friday, Live Cattle futures were down an average of $3.56 through the front four contracts and then down an average of $2.00 the rest of the way.
Calves and feeder cattle prices wilted some last week, too. According to AMS, feeder cattle sold weak to $4 lower. New-crop calves traded $2-$5 lower, especially in the Southeast, while long-weaned calves and old-crop stocker calves sold unevenly steady to as much as $5 higher.
“…The nation’s fourth mildest winter on record has most feeder cattle coming through the winter in a fleshier condition than normal, not what most backgrounders are looking for,” AMS analysts say. “They would rather purchase winter-weary turnouts with compensatory gain. At current price levels, cattle growers need to recoup a portion of the expense through cheap cost-of-gains early in the grazing season.”