JULY 3, 2009
Cash cattle traded higher in all regions of the country. In the north, cattle sold for $82 live and $132 in the beef -- both prices a dollar higher. In the south, cattle sold for $83.50 or one and a half dollars higher than last week. Volumes were barely moderate as packers resisted higher prices.
Box prices leveled out at week's end. The choice cutout was quoted at $138 while the select was at $132 with a $6 discount. Lighter slaughter numbers this week should be positive for inventories.
Higher feeder futures and lower corn prompted renewed interest in feeder cattle. Futures prices have now staged a major rally mainly driven by lower corn prices. Hot weather will start to affect some of the pasture conditions across the south. Calf offerings were fleshy and the mix contained fewer weaned calves and the prices have discounted fleshier offerings. June placements continue the declining numbers posted in May.
Corn prices crashed after USDA raised corn acres 3 million acres and posted additional losses as the week closed. Corn is now trading a 40 cent premium basis to the July contract in the southern plains. Corn is now pricing into most rations at $7.00 cwt.. Corn has dropped well over a dollar a hundred in the past week.
The beef story has not been pretty, but the story is not complete without a portrait of the retail side. No one questions the lack of demand for high quality steaks and the loss of sales in the food service outlets for high quality beef. Nonetheless, the main channel for beef sales continues to be retail and at retail margins are just fine.
It is easy to see the live sales of fed cattle lagging prior year by well over a hundred dollars a head. The box comparisons maintain the same relationship to last year and margins in feeding and processing have been dismal. Retail is another story. Beef prices at the grocery story have varied very little from last year. Consumers who are eating out less, still rely on the grocery market for purchases of most of their food needs.
It is only on the high end that retailers have adjusted prices. Steaks and upper end choice cuts have found buyers at lower price points while the everyday meat and potatoes cuts are unchanged from last year. The spread of choice loins over chucks has dropped in half during the past year. Very few features have helped stimulate demand.
Probably more of a problem for the beef industry at the supermarket has been the relationship of beef to pork. Pork is selling at a record breaking discount to beef currently. Pork prices are at a low for the year. The pork industry has suffered the same problems as cattle feeding plus the onus of swine flu. This problem creates problems for beef because it offers little incentive to retail stores to offer special beef features.
Finally, government programs to bolster pork and poultry purchases have not been expanded to include beef. With 5% less beef available and prices 10% lower, beef is in need of a stimulus. The best options are those that generate long term demand such as opening more and better export markets, but also marketing partnerships with the retailers to remind the consuming public of the value of America's favorite meat.
FEEDER METER
The Cattle Report introduces the FEEDER METER. The chart is interactive and updated every 15 minutes in real time based on changes in futures markets in grain and cattle. Corn basis information is based on current trade prices adjusted every two weeks. Feeder prices and fed cattle sales are par the appropriate futures contract.
TEETER METER
The Cattle Report introduces the TEETER METER. TEETER means to waiver unsteadily as markets will do. This report generated from industry averages attempts to simulate a typical close out based on prevailing purchase prices for a feeder steer 150 days ago. The close out assumes grain was purchased at market each month. Selling prices and interest rates are based on prevailing benchmark quoted prices. This chart will change weekly.
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