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Kay’s Cuts: US market remains in recovery mode

Steve Kay, 07/10/2020

A monthly column written for Beef Central by US market commentator, Steve Kay, publisher of US Cattle Buyers Weekly

 

 

 

 

 

THE market for grainfed cattle in the US is now out of intensive care. But it remains in recovery mode after the COVID-19 pandemic impacted cattle prices from mid-April through mid-July.

Prices advanced US$7 per cwt live (based in USDA’s 5-area steer average) in three weeks to the week ended October 3. But the US$107 per cwt price was well below the spring high of US117.06 per cwt price in the third week of May, and far below the likely weekly high of the year of US$124.47 per cwt set the second week of January.

Prices plummet

US cattle feeders had started the 2020 year full of optimism, which was largely satisfied in the first quarter. Prices in the quarter averaged US$118.32 per cwt live. But they plummeted in the second quarter to US$105.79 per cwt live and were even lower in the third quarter at US$101 per cwt live.

Prices for fed cattle are likely to be stronger in the fourth quarter and might average US$112-115 per cwt live. But this would still mean an annual average of US$110 per cwt live or less, well below 2019’s annual average of US$116.78 per cwt.

The main impetus for an advance in prices in the fourth quarter is that fed beef processing margins remain around US$300 per head after averaging above that throughout September.

Packers also know that October begins a seasonal rally in wholesale beef prices that normally extends into December. The USDA Choice grade boxed beef cutout last year advanced US$25 per cwt in five weeks after the second week of October.

However the rally will likely be far more muted this year. COVID-19 restrictions will severely curtail holiday dining out, company parties, banquets and other such events this year. So the cutout will not get anywhere near as much support as last year.

Americans seem to have taken higher retail beef prices in their stride

Americans seem to have taken higher retail beef prices in their stride this year and retail beef demand has remained strong. That in large part is because they transferred a lot of their food dollars from food service to retail establishments and continue to do so, because restaurant reopening remain very slow.

Food dollars flip

A new report just released details how US consumers’ food dollars flipped from food service to retail establishments during March-July, because of the COVID-19 pandemic. The FMI-Food Industry Association’s 2020 Power of Food service at Retail report details how harshly the pandemic impacted the traditionally highly profitable category.

Food retail business owners navigated state and local challenges to operations and adapted by redistributing labor across the store,  says FMI’s Rick Stein. Food service employees embarked on their new roles maintaining sanitation and supporting shelf-stocking during times of unprecedented consumer demand for essentials, he says.

The report notes that dollars spent for at-home food and away-from-home food quickly flipped with the onset of COVID-19.

Food at-home dollars moved from 50pc in February to 68pc in April, and food-away-from-home dollars went from 52pc in February to 32pc in April. Retail food service dollars were down even further at 17pc of dollars spent March through July, says the report.

Another report, from USDA, says American consumers will pay 9pc more for beef and veal in grocery stores this year versus 2019. They will pay 5.5pc more for pork and 4.5pc more for poultry.

Meat and poultry prices overall will rise 6.5pc this year, more than double their usual rate. Grocery store prices for meat are declining after their spring-time coronavirus surge, but more slowly than expected, says USDA in its monthly Food Price Outlook.

Stubbornly high meat prices prompted USDA to forecast food inflation of 3pc this year, the highest rate since 3.7pc in 2011. Meat prices have continued to decline but the pace at which they are declining is not fast enough to achieve average 2020 prices below pre-COVID-19 levels, it says.

Record production of Prime grade beef

Meanwhile, the US beef industry is producing a record percentage of USDA Prime grade beef (roughly the equivalent of MSA marbling score 4 and higher – editor). The downside to Prime’s record is that it has reduced the premium that Prime beef receives over Choice beef.

Also impacting the premium is that the COVID-19 pandemic shut down white tablecloth restaurants and other outlets that normally buy a lot of Prime beef.

The percentage of US steer and heifer carcases grading Prime so far during 2020 has outpaced normal levels, says Josh Maples of Mississippi State University. The average percent Prime for the first seven months was 10.6pc – the highest January-July average on record and about 2 percentage points higher than during the first seven months of 2019, he says.

(Editor’s note: We asked Steve to elaborate on this increase, and the reasons behind it, Here is his response: 

Several factors  have been at play for the last several years. Severe to extreme drought 2010-2013 that caused significant beef cow liquidation led to producers replacing their cows with much better genetics. That eventually improved overall beef quality, with cattle producing more intra-muscular fat without more back fat. New technologies at the feedlot level, including carefully-formulated rations, boosted this trend. Another factor was an open or mild winter 2019-2020, in which cattle performed better than expected. The delay in marketings because of COVID-19 disruptions to beef plant processing was the final factor. Cattle actually recorded a record percentage of USDA Prime last year, so the trends were occurring well before COVID-19.)

While Prime percentages increased, the weighted average carcase premiums for grading Prime decreased, says Maples. USDA’s 5-area weekly premiums and discounts report showed the average carcase premium for Prime from April through July 2020 was US$8.37 per cwt.

This was US$3.52 lower than the same period in 2019. For comparison, the average Prime premium during April through July for 2015 to 2019 was US$14.03 per cwt. However, he forecasts that Prime’s premium will return to more normal levels in the coming months.

That hope is surely shared by the producers and packers who produce and sell Prime beef.

 

 

 

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Comments

  1. Rob Williams, 08/10/2020

    Just to clarify CWT in the US cattle markets equals 100 pounds, NOT 112.

    Thanks for the clarification, Rob. Confusing – in the old imperial measurements, a hundredweight (cwt) was 20-to-the-ton = 112 pounds. We’ll apply 100 pounds in any future conversions. Editor

    • John Gunthorpe, 08/10/2020

      2000 lbs to a US ton not 2240 as in imperial.

      Thanks John – point noted. Even a ‘ton’ is not a ‘ton’ in everybody’s language. Editor

  2. Stephen Blair, 07/10/2020

    Always a good read; and great to know the Editor reads it as well and seeks clarification on an important point.
    Why not include AUD$ per kg equivalent at current exchange rate in brackets after each USD$ Cwt quote ?!?

    Would take some work, but we’ll try to do some conversions in future, Stephen. Odd how the US continues to measure price in $/hundredweight (we think that is 112 pounds, or 50.9kg), but that’s tradition for you. Editor

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