Trade

Kay’s Cuts: Grass and not enough cows

Jon Condon, 14/07/2014

A monthly column written exclusively for Beef Central by US industry analyst, Steve Kay, Cattle Buyers Weekly

 

Steve Kay 2013 conferenceIT’S AMAZING what drought and rain will do to a cattle population and markets.

American cow-producers are reaping the rich benefits of both. But it has come at a price.

Several years of historic drought in the heart of Cow-Calf Country forced a massive reduction of beef cow herds.

Then it began to rain, and hard (especially in late May). Now some US ranchers have grass growing half way up their fences and not enough cattle to eat it.

The year began with the American beef cow herd dropping below 30 million head (to 29.0 million) for the first time in many years.

The 2013 calf crop at 33.9 million head was the smallest since 1949. The total US cattle inventory at 87.7 million head was the smallest since 1951. This guaranteed that the number of cattle available to be placed in feedlots would be the smallest number in years, and that prices would be record high.

Nobody though foresaw that demand from cattle feeders would be strong enough to push feeder cattle prices up so high in a counter-seasonal trend. Prices at the Oklahoma City livestock auction Monday ranged from US$207.50 to $210 per cwt for cattle weighing 825 to 850 pounds, up to $214-244 for calves weighing 600-650 pounds.

The acceleration in prices since early last year has been breathtaking.

The Chicago Mercantile Exchange’s feeder cattle index bottomed out in late-May last year at $132 per cwt, notes agricultural economist Nevil Speer. In just 13 months, the market has surged $80 per cwt, the equivalent of adding $600 per head.

With that in mind, a load of feeder cattle is now worth more than US$100,000.

A 25,000-head feedyard running near full capacity needs to purchase about 1000 head per week, he says. At current market values, this equates to investing more than $1.5 million just for feeder cattle on a weekly basis.

All this speaks to the ever-increasing capital required to operate and the general level of mounting financial risk that surrounds the beef complex, he says.

 

Remarkable summer rally

That’s why the remarkable summer rally in US cattle and wholesale beef prices has left everyone excited but a little scared about the consequences. Record high prices have renewed concerns about the impact on beef sales in grocery stores and restaurants, and to export markets.

The beef industry depends on consumer demand in all three sectors for its profits. All three have performed admirably so far this year.

Retailers have raised their prices but not so much that they forced their customers to buy other meats. Restaurants continued to slice and dice their beef offerings to attract patrons. Exporters have worked hard with foreign buyers to help them offer more moderately-priced cuts.

However, US beef is now the most expensive of that produced in the world’s main beef-producing nations.

Irish beef is set to enter the US this fall for the first time since a ban in 1999. It’s revealing that Irish Agriculture Minister Simon Coveney says the opening of the US market is exciting for Irish farmers as the price of beef in the US is now the same as the price of beef in the EU.

US beef buyers will welcome beef from any “new” supplier.

Apart from the challenge of record prices, they can’t line up the quantities of certain cuts that they want. That’s a function of reduced production (down 7.4pc year to date) and reduced overall availability.

Imports of Australian beef have surged this year but from low numbers last year. They are nowhere near enough to offset the huge year-on-year decline in US cow slaughter.

The result is an explosion in the price of domestic 90s, to a record $276 per cwt last Thursday.

I predicted several years ago there would be a scramble for raw material as the big hamburger chains expanded and new chains emerged. Forecasts early this year were for the price of 90s to briefly touch $250. No one was crazy enough to forecast the current prices.

The same has applied to live cattle and grainfed beef prices. Forecasts 60 days ago were for cattle prices to fall to a summer low of $136-138 per cwt.

No one imagined a four-week rally that added $13-14 to cash prices and put them at $158 per cwt live last Wednesday.

This is unprecedented for this time of year. As for beef, the weekly comprehensive cutout (cuts, grinds and trim) hit a new record of almost $241 per cwt last week. These prices will now force grocery stores to raise their prices even more, heightening concerns that beef might price itself out of reach of more consumers.

 

 

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Comments

  1. Chris Leeds, 14/07/2014

    There is no relationship between US cattle or beef prices and Australian cattle prices, that is something for Australian processors and exporters to concern themselves with! Oh and if you think we are at the bottom of Australian cattle prices we have a shock coming in the next few months with the coming Elino rainfall or lack there of impacting on the market will be cruel. “Sorry”

  2. No relationship, 14/07/2014

    The relationship is diluted due US consumers pay less for import product than domestic- same as any developed nation.

    Also consider you are not selling livestock to consumers, plus a market with forces that no one ever has a perfect grasp on.

  3. Ingrid green, 13/07/2014

    We struggle to understand the economics and relationship to producers in australia when we read about surging US beef prices and high cl90 values yet our prices are languishing.

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