Taking notice of the drivers in cattle markets

Prime Cuts with Steve Kay

When markets behave unexpectedly, it’s valuable to look back and see what the key drivers were to create such conditions. That’s just as true for cattle and beef markets as it is for financial markets. In the case of the first two in the U.S, aggressive feedlot marketings and better than expected beef demand at home and abroad led to a much more successful first quarter than expected. It also boosted live cattle prices in Canada.

Cash live cattle prices week after week were much higher than had been forecast at the start of the year and boxed beef prices rallied strongly from mid-February to the end of March. Cattle feeders helped their cause by marketing cattle as aggressively as possible. This kept them current in their marketings and allowed carcass weights to decline seasonally much more than last year. For example, the second last week of the quarter saw steer weights average 868 pounds, down 19 pounds on the same week last year, and heifer weights average 816 pounds, down 10 pounds.

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Record heavy carcasses in the fall of 2015 sank the market so cattle feeders vowed not to let this occur again. Feedlots began this year with aggressive marketings in January. The number of cattle marketed out of feedlots 1,000 head or larger was up 57,000 head or 3.6 per cent on January last year. The pace quickened in February, which saw 162,000 head or 10.2 per cent more cattle marketed. March also saw a strong year-on-year increase. Early forecasts of March marketings put them up about 90,000 head or 5.4 per cent on last year, after subtracting 4.5 per cent for one more slaughter day this year than last.

The market began the year with forecasts that cash live cattle prices would average US$114 per cwt live. But cash prices (basis USDA’s five-area steer price) put in their weekly low for the quarter the first week of January at US$117.67 per cwt live and never looked back. They rallied strongly from mid-February to put in a high for the quarter of US$130.91 per cwt the week ended March 26.

They declined more than US$3 per cwt the week after that. But they still averaged US$123.02 per cwt for the quarter. This was down 8.3 per cent from the $134.81 per cwt average of 2016’s first quarter. But analysts had forecast prices to be down 15.4 per cent from last year. Analysts’ early January forecasts were for second-quarter prices to average US$112 per cwt live. But barring a big price collapse, which appears unlikely, second-quarter prices might average around US$117 per cwt, according to analysts’ upwardly revised forecasts.

Boxed beef prices during the quarter also far exceeded expectations, also from mid-February when they advanced in tandem with live cattle prices. USDA’s comprehensive boxed beef cutout, which includes cuts, grinds and trim, averaged US$198.33 per cwt the first week of January. It declined to a low for the quarter of US$190.37 per cwt the week ended February 10. But it advanced each of the next six weeks to an average of US$216.60 per cwt the week ended March 24 before declining slightly the following week.

Interestingly, the Choice cutout exceeded the overall cutout in only two of the quarter’s 13 weeks. So the real strength in the cutout came through the Select cutout and a big rally in the price of grinds and trim. Fatty trimmings from steers and heifers (50CL) more than doubled in value during the quarter. Demand for all types of beef certainly made the quarter better than expected for cattle feeders and packers.

About the author

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

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