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Vol. 11, No. 31 / February 13, 2013
Cattle futures were lower on Tuesday as a combination of 000 HEAD US STEER & HEIFER SLAUGHTER, OCT - MAR
PRELIMINARY DATA BASED ON DAILY SLAUGHTER ESTIMATES - 7 DAY RUNNING TOTAL
weak wholesale beef prices and lower grain values pressured both 600.0
live and feeder contracts. Nearby feeder cattle futures de- OCT 10 - MAR 11 OCT 11 - MAR 12 OCT 12 - MAR 13
clined as much as 155 points as corn futures continued to
drift and closed below $7 per bushel. Corn demand continues 550.0
to be a hot topic and the market, for the moment, is focusing on
what it can see, weak export sales and lower ethanol use. There
500.0
is plenty of speculation about the pace of feed use but we will not
know for sure until the March 1 grain stocks report is issued.
Crops in South America have so far avoided any major weather 450.0
events and this also has been bearish for corn. And then there is
the rampant speculation that with grain yields potentially return-
ing to trend (or at least close to trend), corn supplies will balloon 400.0
next year, requiring significantly lower prices to clear the market.
Thanksgiving Christmas
Wholesale beef prices have taken a tumble in recent days,
350.0
with the choice beef cutout closing on Tuesday afternoon at
188.00/cwt, down $4.55/cwt or 2.4% from year ago levels. It is fair OCT NOV DEC JAN FEB MAR
to say that few (if any) expected the beef cutout to be below year Cutout Steer
ago levels at this point. Just a month ago, the board was pricing $/cwt 2011-13 CHOICE BEEF CUTOUT VS. LIVE STEER (5-MKT) PRICES $/cwt
February live cattle at $133/cwt., a price point that would require 225
Li ve Steer
142
the cutout to be above $200/cwt. Even as live cattle has given Futures as of
215 Ja n 7, 2013 136
back about 5% in the last four weeks, the disparity between
wholesale and live values remains significant (see chart). 205 130
At this point, it appears that the market believes the gap is tempo-
rary. After all, the snow storm that hit much of the country last 195 124
weekend caused plenty of disruptions, causing product to back up Li ve Steer
and forcing packers to cut prices on spot loads to get product mov- 185 Futures as of
Feb 12, 2013
118
ing. If that theory is correct, then the choice cutout should recover
175 112
$7-8/cwt in the next couple of weeks. But the downward pressure
in the wholesale market did not happen this weekend, it has been 165 106
the story in the beef complex for the last four weeks, the storms Choice Cutout (left) Live Steer (right)
maybe exacerbated what has been a very dismal start to the new 155 100
year. Most beef primals are currently below year ago levels but
two are the more prominent: loins and round cuts. The loin pri-
mal is currently down $13/cwt or 5% from a year ago, accounting
for more than half of the decline in the value of the cutout. The items such as rounds, for instance, was off cattle futures in the
business environment for high value beef cuts has been difficult, mid 130s. Needless to day, retailers likely curtailed their beef ads
with the foodservice sector in contraction mode and retail custom- and those that booked those loads now have trouble clearing the
ers frightened by the sight of $15 steaks in the meat case. Round case when a five pound top round roast has a sticker of $30 or
cuts also have been hit hard. These are largely retail items that more. Finally there is the issue of beef supplies. The expectation
normally should help the carcass at this time of year. But again, is for beef supplies this year to be sharply lower than a year ago
with retail beef prices at record highs, retailers are struggling to but so far, that has not happened. Indeed, steer and heifer
feature less expensive protein. We also think that the quantity slaughter is running at about the same level as a year ago and
demanded was negatively impacted by the forward pricing last heavier weights are bringing more pounds to market. Unless we
fall and the resulting high cost of beef in the retail case. Retailers figure out a way to shift the entire beef demand curve, prices will
plan their features in advance and last fall, the forward pricing on be stuck in low gear with these kind of supply levels.
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