MARKET UPDATE
Last week’s federally inspected cattle harvest of 615,000 head was 8,000 head lower than the week prior and 21,000 head below the same week last year. Fed cattle harvest in the past three weeks has been relatively strong, averaging 496,000 head, just 1,000 head shy of the weekly total a year ago.
Carcass weights, on the other hand, continued their record breaking ascent with steer weights making a massive 10 lb. weekly increase to average their heaviest ever weight at 960 lb. apiece., 18 lb. heavier than the previous record set last December. Heifer carcasses, last posted at 866 lb. each, are 14 lb. heavier than their fall 2015 record-high.
For the week of October 14, the carcass weight and head count equation places fed cattle carcass tonnage 1.7% larger than a year ago.
Live Cattle futures prices have suffered in the past week with the December 2024 contract down more than $4/cwt. from last Tuesday’s multi-week peak at $189/cwt. This pullback, however, concludes an arduous climb from the August/September fallout that took the December contract down to $173/cwt. The more recent correction creates a strong basis in the fed cattle market with last week’s cash price a $4/cwt. premium to the December futures. This incentivizes feeders to pull cattle ahead in the marketing schedule.
As fourth-quarter holiday buying demand has kicked in, boxed beef cutout values have rapidly progressed in the past three weeks on seasonal strength. The comprehensive cutout price lost $16/cwt. in value since mid-August to the end of September at $300/cwt., but has now recovered all of that in last week’s summary average price.
Seasonality Takes Over
The fourth quarter tends to be the period most prone to follow historical seasonal patterns for carcass cutout prices. Although annual price levels have certainly advanced to record levels, the pattern in spot market values from October through December tends to track a pattern. The expectation of elevating prices beginning in early October was met with the Choice cutout rallying roughly $20/cwt. This is driven primarily on middle meat demand shifting from a much reduced year-over-year price point this summer, now elevating to match 2023 levels.
On the supply side, carcass quality grades also tend to follow a strong seasonal pattern. The percentage changes in total USDA Prime and Choice carcasses tend to peak in March and bottom in September/October, varying on several factors including cattle age, type and environmental factors. The range in Choice and Prime was wide in 2023 with an 85% March peak and 78% October bottom. This year the same 85% peak was realized in March, remaining much higher than 2023 through September before slipping fractionally to 82%. In the past five weeks a more pronounced downshift kicked in with a two percentage point drop to 80% Choice and Prime, with Choice giving up ground to Select.
Certified Angus Beef ® brand certification rates follow seasonal grade trends with high sensitivity to Premium Choice and Prime marbling levels, essential to brand acceptance. As we’ve detailed in the Insider, heavy carcass weights, excessive ribeye size and external fat thickness tend to pressure brand acceptance rates in the fall when finished cattle weights peak. Since 2021 the range in brand acceptance has reached 40 to 42% for the March high and typically a 32% to 33% low by mid-October.
Percentage changes in the share of premium-grade carcasses can be hard to directly tie back to prices at the cow-calf level, given the more acute price mechanism of supply and demand for feeder cattle. Yet today’s Choice-Select spread, plus CAB premium, is generating roughly $95/cwt. for CAB carcasses on many grids. Buyers will, no doubt, adjust bids according to carcass outcome expectations.
USDA Prime grading remains resilient at the historic seasonal record of 10% of total fed cattle carcasses. Yet seasonal demand for Prime middle meats has driven the Prime cutout premium over Choice to $47/cwt., according to USDA. The latest report shows Prime grid premiums matching a year ago at $19.80/cwt. or $184 per head at the 930 lb. blended fed cattle carcass weight average. Record carcass weights have boosted Prime carcass tonnage to a calculated 17% surplus over a year ago. Even though a relatively small portion of subprimal cuts are marketed to end-users at a Prime premium, the steady premium on higher supply provides direction toward the future. This will be a key for added sales volume for the Certified Angus Beef ® brand Prime label, and higher gross values for calves and fed cattle.
Read More CAB Insider
Cow Harvest Unseasonally Low
Gross cow/calf returns have exceeded expectations as the shrinking calf supply and strong beef demand collude to drive higher receipts. Even so, turnaround from the depth of the latest drought that brought beef cow harvest to a cyclical peak in 2022 has been slow to develop.
Increasing Carcass Weights and Ribeye Size
Feeders will continue to reap rewards in the cost and return equation in a market that has recently moved to higher prices. Grid-sold cattle are, on average, capturing Choice and Prime quality premiums at a higher percentage rate this fall. Yet, yield grade and heavy-weight discounts threaten to devalue premiums for the heavy pens of steers, in addition to fewer CAB qualifiers.
10% of Carcasses Narrowly Miss CAB Certification
With U.S. beef cow numbers projected to decline by 200,000 head in 2024, supplying downstream brand partners with product becomes even more challenging. Understanding why roughly 64% of eligible carcasses are unsuccessful in reaching the brand’s 10 specifications is a big step toward informing cattlemen of their opportunity to capture more dollars through improved carcass quality.