All that said, the discussion brings us to the outlook for the market in coming months. Last month’s column emphasized, “…the importance of consumer spending and its influence on the wholesale market – as the cutout goes, so goes the live market.” April live cattle have resurged back to the $132-133 level. Based on the last three years of data, that effectively implies the cutout needs to eclipse the $205 mark (and even more yet to work into a mid-$130 live market).

The cutout averaged about $192 in January, but finished the month at $185 (February’s first day of business started on a sour note with sales at $182.50). As such, Choice wholesale values need to climb about $20/cwt. to facilitate a $132-133 spring market currently being priced at the Chicago Mercantile Exchange. Historically speaking, that’s certainly doable (Figure 1).

weekly cattle market prices

However, there also needs to be some caution regarding beef’s pricing power in the current economic environment and the all-important overhead resistance at $200. For example, Tyson CEO Donnie Smith noted last week that the company is witnessing price resistance among consumers and some trading down,away from beef: “…maybe we are now seeing a legitimate shift from red meat proteins into chicken.” Only time will tell if that occurs in a significant way. If so, it will be translated fairly readily into the wholesale market and could provide a major challenge for this spring’s fed market. As such, risk management is especially warranted here.

Cargill’s announcement was especially timely given USDA’s recent inventory numbers. Not surprisingly, USDA declared the U.S. cowherd smaller yet again in 2013, down to 29.3 million cows. This represents an extension of an overall decline that’s been in play for 17 years (see this week’s “Industry At A Glance” chart on cow liquidation). Cattle cycles are a bygone era. Shortage of supply will continue to be an issue and the industry will witness further shuffling around because of it.

A Closer Look: Cargill To Shutter Plainview, TX, Beef Plant

Last, but not least, two important developments occurred on the international front:

  • Russia announced that all imports of U.S. beef and pork will be suspended due to concern about use of beta-agonists.
  • Japan has foregone its 20-month requirement for U.S. imports and will now allow beef products from cattle up to 30 months of age.

Russia represents roughly about $300 million in annual export value for the U.S. Meanwhile, Japan’s market will surpass $1 billion in 2012. But most likely, growth on the Japanese front will more than compensate for the loss of the Russian market until that issue is resolved. So, the export market is a mixed bag; it gives and takes away. That’s the frustrating nature of international markets – they demand constant and enduring attention. The dividends, though, are well worth the time, investment and energy.   

The business environment continues to generate new developments, considerations and complexities. Therefore, mentioned every month as an important reminder, there’s always the need to remain informed and maintain objectivity around all aspects of the business.   

february cattle price summary