The market for fed cattle in the U.S. is now out of intensive care. But it remains in recovery mode after the COVID-19 pandemic had an impact on cattle prices from mid-April through mid-July. Prices advanced US$7.05 per cwt live (based on USDA’s five-area steer average) in the four weeks to the week ended October 10. The US$108.26 per cwt price was down only 0.9 per cent from the same week last year. But it was well below the spring high of US$117.06 per cwt price in the third week of May and far below the likely weekly high of the year of US$124.47 per cwt set the second week of January.
U.S. cattle feeders had started the year full of optimism, which was largely satisfied in the first quarter. Prices in the quarter averaged US$118.32 per cwt live. But they plummeted in the second quarter to US$105.79 per cwt live and were even lower in the third quarter at US$101 per cwt live. Prices are likely to be stronger in the fourth quarter and might average US$112 to $115 per cwt live. But this would still mean an annual average of US$110 per cwt live or less, well below 2019’s annual average of US$116.78 per cwt live.
The main impetus for an advance in prices in the fourth quarter is that fed-beef processing margins remain around US$280 per head after averaging above that throughout September. Packers also know that October begins a seasonal rally in wholesale beef prices that normally extends into December. The Choice boxed beef cutout last year advanced US$25 per cwt in five weeks after the second week of October. However, the rally will likely be far more muted this year. COVID-19 restrictions will severely curtail holiday dining out, company parties, banquets and other such events. So the cutout will not get anywhere near as much support as last year.
Americans seem to have taken higher retail beef prices in their stride this year and retail beef demand has remained strong. That is in large part because they transferred a lot of their food dollars from foodservice to retail establishments and continue to do so because restaurant reopening remains very slow.
The FMI-Food Industry Association’s 2020 Power of Foodservice at Retail report notes that dollars spent for at-home food and away-from-home food quickly flipped with the onset of the COVID-19 pandemic. Food-at-home dollars moved from 50 per cent in February to 68 per cent in April, and food-away-from-home dollars went from 52 per cent in February to 32 per cent in April. Retail foodservice dollars were down even further at 17 per cent of dollars spent March through July, says the report.
Meanwhile, the U.S. beef industry is producing a record percentage of USDA Prime beef. The downside to Prime’s record is that it has reduced the premium that Prime beef receives over Choice beef. Also having an impact on the premium is that the COVID-19 pandemic shut down white tablecloth restaurants and other outlets that normally buy a lot of Prime beef.
The percentage of steer and heifer carcasses grading Prime so far during 2020 has outpaced normal levels, says Josh Maples of Mississippi State University. The average percent Prime for the first seven months was 10.6 per cent, the highest January-July average on record, and about two per cent higher than during the first seven months of 2019, he says. While Prime percentages increased, the weighted average carcass premiums for grading Prime decreased, says Maples. USDA’s five-area weekly premiums and discounts report showed the average carcass premium for Prime from April through July 2020 was US$8.37 per cwt. This was US$3.52 lower than the same period in 2019.