Beef prices weather the weather

Prime Cuts with Steve Kay

The U.S. beef market is proving to be remarkably resilient this year. Summer heat has finally given way to cooler weather. But beef demand held up remarkably well in the heat and domestic demand in July was actually better than last year. Now the market has the Labor Day holiday behind it, which usually boosts retail sales, and will have to wait until October to see much of an uptick.

Apart from winter blizzards, summer heat is usually what hits beef sales most. Americans, like Canadians, love to grill and they are prepared to sweat it out in the pursuit of the perfectly cooked steak or burger. But if the heat is too oppressive, they will stay indoors and eat cold cuts with their salads. Grocery store sales of fresh beef cuts and other meats decline somewhat as a result. But this summer saw no drop-off, despite retail prices for USDA Choice beef being up slightly on this time last year.

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Wholesale beef prices in early August were up three per cent on last year but retailers and restaurateurs paid these higher prices because sales in both sectors were better than expected. That’s partly a function of higher-quality offerings. Nearly 80 per cent of all U.S. beef is graded USDA Prime or Choice. The industry hopes that solid demand will continue, as market-ready supplies of fed cattle will start to increase year-over-year in September.

Beef producers and anyone in production agriculture know that adverse weather conditions have always been the biggest risk they face. Whether it is drought or floods, frigid temperatures or searing heat, producers have to deal with weather extremes that can have a significant impact on their bottom lines.

Adverse weather conditions have played a part in this year’s U.S. fed cattle market. Early July saw extremely high temperatures in parts of cattle feeding country, which caused cattle feeders to sell due to concerns about heat stress on their cattle. The temperatures fortunately moderated quickly. But this was just one example of how weather can have an impact on feedlot performance and costs of gain.

A much bigger impact on cattle feeding up north began last winter and continued into this spring, first with a brutal winter and then widespread and devastating flooding. The lingering effects continue to have an impact on the number of cattle-on-feed in the region. The four northern states that report monthly cattle-on-feed (COF) data — Iowa, Minnesota, Nebraska and South Dakota — continue to have fewer cattle-on-feed than last year. Their combined COF total on July 1 was down 175,000 head from July 1 last year. This is equivalent to losing 3.5 days of fed steer and heifer slaughter supply in the region.

This is why market-ready cattle there are selling at a sizeable premium (as much US$5 per cwt) to cattle down south. Part of this premium includes the fact that the highest-grading cattle are in the Corn Belt and packers are paying premiums for them. Throw in the fact that warehouse giant Sam’s Club is making a big push into selling USDA Prime beef to compete with rival Costco. The result is that the weekly price spread between Prime and Choice was a startling US$45 per cwt at the start of August, although this was on a small spot market volume. Sam’s and Costco are paying much less than this as they are on fixed pricing.

Meanwhile, corn growers struggled to plant crops this spring because of flooding. Producers who use corn now face sharply higher prices and cattle feeding margins will suffer the rest of the year as a result.

About the author

Contributor

A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly.

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