A North American view of the meat industry. Steve Kay is publisher and editor of Cattle Buyers Weekly
Prices are expected to remain strong in May and June, the two best beef demand months of the year. The only concern is how the high wholesale prices in March and April will affect retail sales
I seldom write about the U.S. market in this column because of the time lag between writing and publishing. But March’s price rally, which carried over into April, is one of the most startling I’ve seen in my 23 years of covering the markets.
The origins of the rally lay in the adverse weather that hit cattle feeding in the corn belt back in October. The weather stayed miserable for months. Adverse weather then hit the High Plains in December and did not abate until late February. Market watchers began talking of a “weather market” in January but the real impact wasn’t realized until carcass weights fell dramatically through February from year-earlier levels. Overall carcasses in the week ended January 16 were seven pounds lighter than the year before. By the week ended February 27, they were 27 pounds lighter. This differential remained well into April.
Given that packers sell pounds of beef and not head of cattle, the weight loss forced them to kill more cattle to maintain sufficient productions levels to match orders. Overall cattle slaughter for the year to April 3 was 1.1 per cent higher than for the same period last year. But beef production was down 1.3 per cent. This decline coincided with an increase in exports and a sharp decline in imports. So total available beef supplies (known as disappearance) were down nearly four per cent in the first quarter from last year. March saw the smallest disappearance since 2001. Forecasts were for April disappearance to be down five to six per cent on a year ago.
These tighter available beef supplies allowed packers to force boxed beef cutout values $15 per cwt higher from March 1 through the first week of April. This in turn generated a $10-percwt rally in live cattle prices. They topped $100 per cwt the first week of April for the first time since early-August 2008. At time of writing, the rally in both beef and cattle prices seemed likely to continue, although history suggests that cattle prices won’t remain above $100 for very long.
All boats rise in the tide and so the rally rippled through the U.S. calf and feeder cattle market, and through the Canadian market. Don’t let anyone tell you we don’t have a North American cattle market. The remarkable March rally has benefited both U.S. and Canadian cattle producers. It couldn’t have come at a better time for the latter, as the loonie briefly reached parity with the greenback at about the same time.
Tighter beef supplies allowed U.S. packers to increase fed beef and manufacturing beef prices. But the added dimension to the live cattle rally is that feedlots have remained extremely current in their marketings despite the adverse winter weather. That’s contrary to what has occurred in most previous weather markets. In 1992-93, severe snowstorms delayed marketings. Cattle eventually came to market in a flurry and caused prices to decline sharply. The opposite has occurred this year. Feedlots have sold cattle in advance of their marketing dates, in part because supplies of market-ready cattle were tight anyway.
Demand has now taken over from supply as the key market driver. Prices are expected to remain strong in May and June, the two best beef demand months of the year. The only concern is how the high wholesale prices in March and April will affect retail sales. Retailers saw their margins erode so began raising their everyday beef prices in April. They might feature beef less aggressively during May and for the Memorial Day holiday at the end of May. Let’s hope consumers are able to spend more on beef than this time last year.
Cattle Buyers Weekly covers the North American meat and livestock industry. For subscription information, contact Steve Kay at P.O. Box 2533, Petaluma, CA 94953, or at 707-765-1725, or go towww.cattlebuyersweekly.com.