MARKET UPDATE
In the past two weeks, fed cattle values have inflated at a rapid pace as packers continue to discover bullish feedyards and fewer market-ready cattle that will hit the higher percentages of Certified Angus Beef and Prime. As the feeding sector marked another record-high market average price, with steers in the six-state region averaging $188.56/cwt., competition in that area was very stout last week.
The price spread from north to south has narrowed a bit in the past couple of weeks as southern feedyards caught up to the packing sector’s position, demanding values a few dollars closer to prices attained in Nebraska and Iowa. Kansas negotiated steer prices averaged $185.52/cwt. while Nebraska and Iowa averages were each $190/cwt. and change. Texas feedyards sold just 5,092 steers at an average $184.56/cwt.
Besides record-high prices, the notable news in fed cattle last week was the large amount (95,200 head) that packers collectively purchased last week in negotiated cash and grid formats. Over 30% of these cattle were purchased for forward delivery in 2-4 weeks. Packers consequently increased their purchased inventory; and given their smaller head count, needs will likely be harder to trade with this week. A steady to lower market is the most obvious prediction for this week, with all other factors remaining equal.
The heat has turned to white-hot in the boxed beef trade with daily advances last week giving us reason for pause. Urner Barry’s Choice cutout value increased by $17.79/cwt. last Monday through Friday, a 6% move. The CAB cutout, reported weekly, shows the latest weekly average change at $26.62/cwt., an 8.6% move higher. This widened the CAB-Choice cutout spread to $26.45/cwt. on the week.
It’s a bit difficult to reconcile the sharply higher price spread but the Choice cutout average for the week is $5 to $6/cwt. cheaper than Friday’s quote. This erratic price behavior brings to mind that we don’t know the load count volume on CAB product sold in last week’s market but it causes us to consider that it may be quite small with shorter availability driving the price action briskly.
A review of the cuts increasing the most in price last week reveals what one might expect in the buying period ahead of Father’s Day. The final spring holiday featuring steak items on the grill pushed ribeyes, short loins, strip loins and sirloins to lofty levels. The latter three items hit 52-week highs last week. However, end meats didn’t lag behind much as higher values were seen across the carcass with course grinds the only CAB item at steady prices.
Marbling Resilient, Premiums Tempered
In the last Insider, we looked closely at the timing of carcass weight and marbling annual lows. The spotlight was the near-term probability of the national average Prime percentage falling dramatically. This supposition fits nicely given that carcass weights continue to decline in latest data and that Nebraska packers have been pursuing Kansas cattle to ship north. Nebraska’s supply of cattle that will grade up-to-par with boxed beef sales commitments have tightened.
With all of this said, the northern quality grade is only materially slipping as compared to the quality-rich years of 2020 and 2021. Compared to a year ago the Nebraska Prime and Choice grades combined are only 0.66 percentage points behind the same week last year. In fact, the latest Nebraska Prime grade share is currently higher than this time last year by half of a percentage point at 8.7%. The deficit at Nebraska packing firms resides in the Choice grade, giving up 2.2 percentage points to the increase in Prime and “Other” (no-rolls). Notably, the latest Kansas Choice and Prime grade combined average is 2.1% higher than a year ago with Texas packers down 1.3% in the same year-on-year comparison.
There are packing plants in many more states than the “big three” but we’ll just efficiently summarize by stating that the national average Prime grade average of 9.0% is almost 1 point higher than a year ago, which marks the third highest point ever behind the two backlog years of 2020-2021.
Nuances in carcass quality trends are moderately interesting outside of major shifts, but they do have implications. Despite recent spikes in boxed beef values the response in quality price spreads between grades and Certified Angus Beef carcasses has not been as dramatic as we might have expected. Yes, the CAB cutout premium over Choice jumped to $26.45/cwt. in the weekly average data, but small sales volume on small slaughter totals makes for big changes on light movement. Last week’s CAB cutout was matched this Monday by the Choice cutout, so throw some of the price quotes out and watch the weekly trends to get the best feel for the market.
Packers have not adjusted their grid premiums outside of the expected range for this time of year. This proves true of this week’s reported premiums featuring Prime at just $16.08/cwt. over Choice, CAB at $4.45/cwt. over Choice, and Select a $19.15/cwt. discount to Choice. All of these are well within seasonal expectations for the current period and slightly narrower than a year ago. Exceptional quality premiums are not a theme in this record-high fed cattle market but above average cattle have never been a liability.
Read More CAB Insider
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