A monthly column written for Beef Central by US meat and livestock market commentator, Steve Kay

THE beef chain in most countries, from ranch or farm to retail and restaurant, depends on consumers to keep paying up for beef.

But seldom, if ever, do all links in the chain make money at the same time. Right now in the US, ranchers and cattle feeders are making excellent profits. But it is questionable whether fed beef processors or retailers are making money. Retail margins on beef have evaporated as wholesale beef prices at the start of May were 15 percent higher than the same time last year.

This scenario has produced trepidation among those on the production and processing side of the chain. The annual US grilling season began in early May, a month that sees the best beef demand of the year. The month leads to the week and weekend of the Memorial Day holiday (May 29 this year), which historically records the largest retail beef sales of the year in the US

I wrote this column well before retailers revealed what beef items they were going to feature for Memorial Day. But I suspect they will lead with middle meat items, notably ribeye steaks. Because of their current lack of margins on beef, the big concern was how aggressive the features would be and whether they would generate the sales seen in past years.

The second concern is whether retailers will raise their everyday beef prices in June. They appeared to do so in April, as USDA’s average retail beef prices increased sharply from March. The Choice price averaged US$7.75 per pound, up US11c from March. The All Fresh price averaged US7.33 per pound, up ten cents. The Choice price was up one cent from April last year while the All Fresh price was down 4c. Beef cutout values at the wholesale level are historically high versus the pork cutout. This has led analysts to speculate that retailers will turn to pork in June and feature it more than beef, as pork enjoys considerable competitive advantage in terms of pricing.

A third concern is how Americans will respond if retail beef prices work their way towards the record levels of October 2021. The USDA Choice price that month averaged US$7.90 per pound and the All Fresh price averaged US$7.55 per pound. Right now, it is unclear whether the anticipated reduced beef production in the second half of the year versus last year will push retail prices as high as in 2021.

Recent history however has shown that Americans do not significantly reduce their beef purchases in the grocery store because of price, says Derrell Peel, Oklahoma State University. It does not appear that consumer beef-buying behaviour has changed significantly thus far this year despite higher retail beef prices. There is little indication of consumers trading down, i.e., switching to lower value products and away from more expensive beef cuts, he says.

Retail beef prices have been mostly steady since late 2021, says Mr Peel. The 12-month moving average of monthly prices has been above US$7.25 per pound since April 2022. This indicates strong beef demand given record beef production in 2022 and the highest beef consumption per capita at 58.9 pounds since 2010. Retail All Fresh beef prices averaged US$7.30 per pound in 2022, the highest on record and were up 5.1pc on 2021 average prices. Wholesale prices continue to be led by strong middle meat prices, with tenderloins and ribeyes up 12-15% year-over-year, Mr Peel says.

Cattle prices soar, then stall

Strong beef demand is vital at all times but especially now because cash live (grainfed) cattle prices in mid-April soared to new record highs. The average price of US$180.44 per cwt live for a five-area steer was up 24pc from the same week last year. But the price advance then stalled and saw a retreat into May. Any rally in live cattle prices going forward will depend on retail beef sales, the size of US packer margins and packers’ willingness to keep paying higher money for their raw material.

US packer margins in 2023’s first quarter were something of a mystery. Tyson Foods, the largest processor of grainfed cattle, said it made no money in its beef segment in the January-March quarter, versus operating income of US$638 million a year earlier. JBS SA reported that JBS Beef North America had adjusted EBITDA in the quarter of US$18.5m, versus US$792m a year earlier. In contrast, HedgersEdge.com data showed that fed beef margins in the January-March quarter were positive by US$89.50 per head.

Tyson last week significantly lowered its forecast for its fiscal 2023 beef margins. Only three months ago, it forecast that margins would be 2-4pc for the year.

But based on the deterioration in current market dynamics in its beef segment, Tyson now expects margins to be between a loss of 1pc and a gain of 1pc for the fiscal year, CFO John Tyson told financial analysts.

This would be a stunning comedown from the 12.6pc  operating margin that Tyson Beef enjoyed in fiscal 2022.