Grilling season sizzle inevitably gives way to the dog days of summer, when Americans stay indoors and eat cold cuts rather than steaks. This means the live cattle and wholesale beef markets usually put in their summer lows in late July. As temperatures moderate, beef sales pick up and allow the cattle and beef markets to start to rally.
Last month (July) looked like following this seasonal pattern (although this was written with two weeks of the month to go). The U.S. beef complex entered the month with the most positive supply-and-demand fundamentals in two years. Cattle feeders continued to sell cattle aggressively despite cash prices dropping to an average US$116.74 per cwt (basis USDA’s five-area steer price) the third week of June.
This initially looked like being the summer low. But the dysfunctional and extremely negative futures market dragged down cash prices the first two weeks of July, with second-week prices averaging US$117.01. Prices were expected to decline below this, meaning a new summer low and possibly the weekly low for the year.
The latter possibility will depend on cattle feeders continuing to market aggressively. Selling cattle in a down market is always challenging. It’s doubly so in the face of a deeply discounted futures market. But U.S. cattle feeders kept their focus in June and July on staying “current” in their marketings, knowing they will have more cattle to sell the rest of this year than in the first half.
Interestingly however, USDA in July raised its forecast for 2016 beef production but left its forecasts for second-half live cattle prices unchanged from its June forecasts. Its new production forecast of 24.945 billion pounds was up 270M pounds from its June forecast and was up 5.3 per cent on 2015’s 23.698 billion pounds. USDA’s forecast though is as much as 150 million pounds higher than most analysts’ forecasts.
Fed steer prices averaged US$131.84 per cwt in the first quarter and US$127.68 in the second, according to USDA. They will average US$120-$124 and US$120-$128 in the third and fourth quarters, respectively, it says. As for an annual price, USDA left that unchanged at US$125-$129. Notably, its second-half price forecasts were more than US$10 per cwt above where the August, October and December futures settled on July 18. This suggests that USDA believes U.S. beef will continue to sell well at home and abroad and not push live cattle prices lower than it forecast in July.
Wholesale beef prices followed a similar trend in July. Retail beef sales in the week up to and over the July 4 holiday were better than last year. But boxed beef prices, led by the Choice cut-out, seasonally declined as the summer heat hit. USDA’s weekly comprehensive cut-out (comprised of cuts, grinds and trim) by mid-July had declined nearly US$10 per cwt from mid-June.
The silver lining though was that wholesale prices were 13.5 per cent lower than at the same time last year. That’s despite beef production year to date being up only 3.8 per cent on the same period last year. The much lower prices have allowed retailers to feature beef more aggressively this year than last year. So the additional beef and cattle are clearing the market without a price collapse.
The lower prices have also allowed retailers to set even more aggressive beef features for August and into September. The U.S. live cattle and wholesale beef markets have had their share of challenges this year. But it’s reassuring to see how Americans are responding positively to the lowest beef prices in grocery stores for several years.