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Kay’s Cuts: Industry experiences dashed expectations

Beef Central, 03/06/2013

 

A monthly view of the North American beef industry with Steve Kay, publisher of Cattle Buyers Weekly, Petaluma, California.

 

What a relief that much of Australia has finally received some soaking rain.

But the rains came too late for the many cattle stations that had to turn off cattle prematurely, many of whom ended up as meat.

I don’t need to tell anyone how this battered cattle prices for a few weeks. It might have been lot worse but for China’s new appetite for Australian beef.

Unfortunately for US cow-calf producers, drought also continues to determine cattle movement and prices of young cattle.

The year began with expectations that prices would be higher again this year – largely because the national cattle herd on January 1 this year was down 1.468 million head from a year earlier.

In addition, far fewer Mexican feeder cattle were expected this year because of large numbers imported in 2012 and 20111 due to drought in Mexico.

The price of a 700 to 800 pound steer sold at the Oklahoma City Stockyards (a widely used measure of young cattle value) averaged US$146.39 per cwt in 2012.

This was up 9.5pc from 2011’s average price and a similar price increase was expected this year.

But heavy cattle feeding losses so far this year and enforced movement due to drought has dashed these hopes. The average price in the first quarter was only US$141.36 per cwt, compared to US $152.81 in the year-earlier quarter. The average Oklahoma City price for a 700-750 pound steer the week before last averaged $133.04 per cwt, down 13.5pc on the same week last year.

As USDA noted in a May 16 report, continuation of the drought in the Southwestern and Southern Plains states generated fiscal pain for cow-calf producers as feeder cattle and calf prices began to deteriorate. Feeder prices began to drop as a result of declining summer pasture prospects and increasing hay and other feed costs.

Feeder cattle sales have been averaging 5pc above year-earlier sales since the start of March, says USDA.

Not surprisingly, USDA and private analysts have reduced their forecasts for young cattle this year.

USDA forecasts an annual average for 700-800 pounders of $145-150 per cwt. Respected analyst Jim Robb of the Livestock Marketing Information Center has a lower forecast, $140-142. I suspect his numbers will be closer to the actual market if the widespread drought forces more cattle prematurely into feedlots.

Drought continues in all the key cow-calf states. In mid-May, 53pc of all beef cows in the US were in states with at least 40pc poor or very poor range/pasture conditions.

As USDA points out, another result of the drought is the continued high level of cow slaughter relative to January 1’s cow inventories. Beef cow slaughter for the year to May 11 was nearly the same as last year. That’s remarkable, considering the industry lost 862,600 beef cows in 2012.

Dairy cow slaughter is up about 5pc year-on-year and imports of Canadian cows year to date are more than double those of last year.

US producers wanted to expand their cow herds in 2012. But key inhibitors included: severe to exceptional drought; high input costs, notably feed; the average age of producers and their aversion to risk; and lack of financing.

The US beef cow total might decline another 400,000 to 800,000 head by January 1, 2014. So it’s unlikely that the US will see any herd expansion until 2015 at the earliest.

 

Holiday is more fizzle than sizzle

As well documented already in Beef Central, the unexpectedly large cow slaughter in the face of soft beef demand has depressed the wholesale price of domestic and imported lean manufacturing beef.

The price of fresh 90CL beef averaged US $199.86 per cwt the week before last, the first time it has been below US$200 in a long time. The price the same week last year averaged US$230.00, although this price was inflated by lean finely textured beef (LFTB) being taken off the market due to a media furor about it.

A cold, wet spring had already impacted beef sales of both cuts and ground (minced) beef. So everyone was hoping that the weekend around the Memorial Day holiday on May 27 would prove to be a beef sales bonanza.

The holiday officially starts the summer grilling season. Grocery chains across the US featured beef items aggressively before the holiday to take advantage of the fact that steaks and burgers top the list of foods that Americans grill first.

Unfortunately, wetweather again rained on the beef parade. The weekend proved to be more fizzle than sizzle for retail beef sales. Wet, cool weather in parts of the Northeast and Midwest deterred consumers from firing up their grills.

It was even wet in San Francisco (near where I live), which had its first rain on Memorial Day in 20 years. Now the industry will have to rely on Father’s Day on June 16 and the Independence Day holiday on July 4 to hold the market before it moves into the so-called “dog days of summer” when beef sales grow weaker.

 

 

 

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