Labour Day and the week preceding it have the third-largest beef sales for the year in the U.S. Sales this year were stronger than normal and different from prior years. Retailers normally feature mostly ground beef and hot dogs ahead of the holiday. But this year they heavily featured bone-in rib steaks, T-bone steaks and briskets (regionally).
Retailers also featured ground beef but they sold more steaks because American consumers have been buying more of them this year. This reflects consumers’ confidence in the economy, rising wages and lower unemployment levels. Americans have more disposable income than at any time since the 2008-09 recession. At that time, they traded down in their beef buying. Now they are trading up, a key reason why retail chicken sales have been softer than expected in recent months.
In addition, quick service restaurants focused on featuring burgers rather than chicken, as Tyson Foods noted when it announced its fiscal 2018 third-quarter results. Other poultry companies also noted the impact of beef sales on chicken sales. Steakhouse chains are also said to be seeing strong sales and more store traffic than a year ago.
The record supplies of protein (beef, pork and chicken production are all up on last year) have been a boon for meat lovers, and they have responded with their wallets. But the only two sectors in the beef chain to reap the rewards of that increased spending have been retailers and beef packers. Retailers have been able to maximize their margins on beef and make a lot of money because beef margins are much larger per pound sold than on pork or chicken. Packers likely saw record operating profits in the third quarter, after a record-breaking second quarter.
Packers in August were able to buy live cattle cheaper each week, while the daily and weekly boxed beef cut-outs were firm to higher. But the live cattle and wholesale beef markets both faced a likely slump in prices following the Labour Day holiday. Cash cattle prices last year put in their weekly low for the year at US$104.66 per cwt live, basis a five-area steer, the week ended September 3. They then advanced the next four weeks. This year looked like being the opposite. Prices averaged US$107.18 live the week before the holiday and were expected to fall to US$103-$105 by the end of September.
Until the holiday, boxed beef cut-out values held up better than expected. The comprehensive cut-out the week before the holiday was 7.2 per cent above the same week last year. But beef began to face increased competition from pork, as production headed towards its seasonal peak. Hog slaughter began to run close to or above 2.5 million head per week and might remain at this level through October.
Retailers in September were expected to turn to mostly pork and chicken features. Record-low cash live hog prices so far this century set the stage for lower pork cut-out values after Labour Day, and retail pork buyers were mindful of the fact that the average seasonal decline in the pork cut-out from the start of September to the seasonal low in December is about 14 per cent. The increasing pork competition will come as front-end supply of live cattle continues to grow. This supply on September 1 was estimated to be the second highest on record and 468,000 head above a year earlier. Cattle feeders might want to convince themselves that forward supplies are manageable. But that larger number of cattle will be hard to sell without producers accepting lower prices.