MARKET UPDATE
Last week fed cattle prices extended the two-week upward turnaround from the short-term low of $181.07/cwt. the first week of September. At the hands of a jittery equity market correction, the early September bottom ended the month-long August slide that pulled cash fed cattle down by $12.43/cwt.
Harvested fed steer and heifer head counts outpaced the same weeks in 2023, with 501K and 492K in the past two weeks. Packers ramped up production on the heels of two very small weeks, including that of Labor Day.
Partial motivation for increased production came from estimated packer profitablity on cash cattle and cutout values–a rare feature this year, but present in the market for a handful of recent weeks. Some analyst estimates place packer margins back in the red this week as fed cattle and cutout values worked against each other in last week’s USDA data.
The September 1 Cattle on Feed report created little directional change in this week’s market as industry expectations for marketings, placements and cattle-on-feed head counts were aligned with the report’s outcomes. The number of cattle on feed, a statistic generating some concern among cattemen, was last reported at 11.2 M head, or 101% of a year ago.
Carcass weights took a big leap upward in the last report with steer weights up to 941 lb., just one pound below the record set last December. Given the continued financial incentive to to add pounds in the feedlot, there is reason for concern about potential for this fall’s heaviest weights to be extreme. If steer weights were to retain today’s 24-lb. year-over-year increase into November/December, this will signal a very uncurrent front-end fed cattle supply. Not only does that have price implications for fed cattle, but it would have a dramatic effect on the acceptance of carcasses into the Certified Angus Beef ® brand.
Dashboard Highlights Premiums and Discounts
In early August, USDA turned on a new internet dashboard tool providing user-friendly access to more detailed fed cattle pricing information. Using data already captured by the agency through Livestock Mandatory Reporting (LMR), the dashboard takes a big step in improving user access and utility of the data.
As one would suspect, the dashboard is most applicable to cattle feeders given it’s specificity to the fed cattle segment. The feature of interest to those selling cattle with high carcass quality is the focus the dashboard brings to premiums and discounts. For many years USDA has published two weekly reports (LM_CT169 and LM_CT155) focused on national and 5-Area premium and discount values. However, the LMR dashboard is an interactive site that illustrates further detail with each of the five regions segregated for easy comparison to the others. Comprehensive price by region is a feature, as well as premiums and discounts by region.
Users can toggle between quality grade, yield grade, carcass weight and “other” premium/discount categories revealing actual average prices paid for each, and on how many head. Confidentiality limits the data to regional information, rather than packing firm comparisons.
The page focusing on net price distribution for each of three marketing formats includes formula, forward contract and negotiated grid. Prices are reported in a bar chart for each of these three marketing types, with the volume of cattle achieveing premiums and discounts in $2/cwt. increments, up and down, as net price changes deviate from zero.
While reviewing the site it’s helpful if users understand two factors. First, the premium and discount values reported are a result of both the carcass quality of the cattle within the reported data and the premium or discount prices within each region. Second, there are both average premiums and average discounts reported in the data. Each carcass typically is only subject to one or the other, or neither, depending on grading and weight outcomes.
The national average data in the table, adapted from the site, shows that carcass quality premiums in the last six weeks have been more than four times larger than yield grade premiums paid. On the other hand, carcass quality discounts have only been 25% larger than yield grade discounts actually realized. Premiums for cattle in “Other” categories, were in specified management programs for label claims such as Natural, NHTC, GAP. These had an average premium just 30% larger than the average quality premiums. These “other” programs generally come with a sacrifice of feed conversion and average daily gain, and management costs. This suggests that quality-based premiums should be a primary consideration in value-based carcass pricing.
Cattlemen in each sector of the supply chain can stand to learn something from the LMR Live Cattle dashboard. Knowledge of the possibilities and most common results when selling cattle on a carcass value basis are key decision tools. The USDA LMR Live Cattle dashboard can be accessed here.
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Don’t Fade the Trend
The Choice-Select price spread has long been held as the industry’s barometer for the differential in consumer demand for high-quality, well-marbled beef and the leaner counterpart consisting of only slight degrees of marbling. However, using the current Choice carcass premium to Select as a gauge for consumer demand is misleading.
CAB Acceptance Rate Hits Seasonal Record-highs
Meeting the demand for the Certified Angus Beef ® brand during the 1980s was relatively easy—we would just add another packing plan to certify carcasses and increase brand supply. Today opportunities for supply growth are more challenging, given that 85% of the U.S. packing volume is licensed under the brand. Thus, supply dynamics come down to one fickle component: the quality of the cattle.
Quality Grades Continue to Run High
The fed cattle market was defensive last week, pressured by slippage in boxed beef values and an underperforming futures market. Taking a broader view, the USDA Prime grade has been the beneficiary of longer feeding periods with the national average Prime share at 10.5%.