– Dr. Andrew Griffith, Assistant Professor, Livestock Marketing Specialist, Department of Agricultural and Resource Economics, University of Tennessee
If financially stressed, consumers can do one of two things or both: spend less and/or work more to generate additional income.
FED CATTLE
Fed cattle traded steady compared to last week on a live basis. Prices were largely $184 to $186 on a live basis and mostly $295 on a dressed basis.
The 5-area weighted average prices thru Thursday were $185.25 live, down $1.17 compared to last week and $295.00 dressed, up $0.37 from a week ago. A year ago, prices were $173.89 live and $279.56 dressed.
Cattle trade was slow to develop this week as struggles in the beef complex continue. Packers are unwilling to pay higher prices as boxed beef prices continue to underwhelm while cattle feeders languish the idea of selling cattle cheaper due to high feeder cattle prices and an increasing corn price. The cattle feeder is being forced to holdout on selling finished cattle and bidding lower on feeder cattle as margins are squeezed and bleeding red ink. This tug of war is unlikely to end anytime soon as both packers and feedlots compete for any positive margin in the industry. One would think cattle feeders will gain leverage as the quantity of market ready cattle declines, but there are no guarantees in any environment.
BEEF CUTOUT
At midday Friday, the Choice cutout was $294.20 down $1.19 from Thursday and down $0.72 from a week ago. The Select cutout was $284.91 down $0.85 from Thursday and down $3.58 from last week. The Choice Select spread was $9.29 compared to $6.43 a week ago.
Memorial Day is two weeks down the road and largely thought of as the unofficial beginning of summer. The weekend or the two days prior to Memorial Day tend to be the start of the grilling season. For anyone who understands logistics, it is clear beef purchases for the start of the grilling season have already been made. For those who are not familiar with the logistics of beef movement, it would be difficult for a packer to fill any order from a restaurant, grocery store, or any other food service entity in a two-week time period given a price must be negotiated, boxes filled, a truck loaded, travel time, a truck unloaded, and the meat placed on the counter. This is certainly an oversimplification of the process, but there is a lot to do to get beef from the packer to the final consumer. Simply think of the travel time. It is 1,600 miles from Liberal, Kansas to New York City. It would take 24 hours of drive time with no slowdowns to make such a trip. In trucker terms, this equates to two full days of driving and a couple extra hours the third day. The bottom line is do not expect beef prices to surge.
OUTLOOK
Based on weekly auction market averages, steer prices were unevenly steady compared to last week while heifer prices were also unevenly steady compared to the previous week. Slaughter cow prices were steady to $1 higher compared to the previous week’s weighted average price while bull prices were steady to $2 higher compared to the previous week. Price trends for calves and feeder cattle varied by the auction and weight class this week. The overarching trend appears to be buyers having a stronger interest or preference towards heavier calves. Thus, many buyers are looking for 600 plus pound calves that can be marketed during the late summer and early fall time period, when prices tend to be highest for feeder cattle. This does not mean lighter weight cattle are not still in demand, because they are still in demand. It is the simple fact of buyers attempting to purchase animals that will hit a specific market based on the marketing time frame. Confusion and uncertainty remain evident in the futures market for most all time periods. As has been noted here and elsewhere, there is concern when it comes to consumer demand and the ability to push beef prices higher. If one thinks about this issue from a logical standpoint, if consumers cannot afford to purchase beef now or at slightly higher prices then what else can they not afford to purchase or pay for. The inability to purchase beef due to high prices will just be the beginning of consumer struggles as mortgages and car payments will be in question. Similarly, what about summer vacation? Are consumers trying to save a few extra dollars by eating lower priced products so they can pay for vacation? In the business world, this is a cash flow problem, which tends to be one of the first signs of financial stress. Consumers can do one of two things or both: spend less and/or work more to generate additional income. These decisions will influence beef prices, which in turn will influence the direction of cattle prices the remainder of the year.