Meat&Poultry - June 2011 - 24

RED MEAT OUTLOOK

Analysts forecast that live cattle prices will decline at least 10 percent from the spring high to their summer low. This would take prices down to $111 per cwt. Should they decline to a more normal 15 percent, they would make a low of $105, possibly in late July. Packers will need to buy cattle at least this cheaply if wholesale beef prices also decline according to their seasonal pattern. It also appears by-product values have topped out for now after establishing new record highs every week but two of the fi rst 16 weeks of the year. The values reached $13.72 per cwt the week ended April 23, which was 27.7 percent higher than the same week last year. But they had declined to an average $13.59 the fi rst week of May. These record values, surging beef exports and higher wholesale beef prices all contributed to packers’ abil-

USDA says beef exports this year will total 2.475 billion lbs., 7.7 percent higher than last year’s 2.299 billion lbs.

ity to pay record-high prices for their raw material in the first quarter. They also had little choice at times because of tight supplies of market-ready cattle and live cattle futures prices that put in now life-of-contract highs at the start of April. Wholesale beef prices, as reflected by USDA’s weekly comprehensive cutout value, rose steadily throughout the fi rst quarter to put in a new high (for the data series) of $189.37 per cwt the fi rst week of April. This was $27.27 or 16.8 percent higher than the same week a year ago. On a daily or spot

market basis, the Choice cutout put in a high of $190.96 per cwt that week. This was about $8 below its all-time daily high in October 2008. One feature highlighted by data in USDA’s comprehensive report is that packers continue to sell more of their beef through formula pricing than by any other means. Second is selling on the spot market. Formula sales in the first quarter often exceeded 45 percent of all beef sold, while spot market (sold from zero to 21 days) taking 35 percent or more. This often left only 15 percent of sales as sold forward, reflecting packers’ inability to get beef buyers to commit to more out-front sales while boxed-beef prices remained so high.

Pork prices remain strong
Much of what has occurred in the pork complex this year mirrors the beef complex. The pork cutout peaked at $95.90 per cwt the second week of April and subsequently weakened the following month. Live hog prices though remained around the $90 per cwt level on a lean basis. So pork processors’ margins, after being solidly black for 18 months, were slim or even negative in April and early May. One big difference to beef is that supplies of market-ready hogs seasonally tighten into the summer. Another difference is that pork in April and May was under-valued relative to beef. Because of this, retailers increasingly turned to pork for their feature activity. Pork’s competitive advantage might be beef’s biggest hurdle the rest of 2011. Even though beef production is forecast to decline 3.5 percent in the fourth quarter versus a year earlier, there’s no guarantee this will mean record high boxed beef or live cattle prices. How consumers stomach record-high prices in the grocery store will be far more important. ■
Steve Kay is editor and publisher of Petaluma, Calif.-based Cattle Buyers Weekly (www. cattlebuyersweekly.com ). We would like to hear from you – to comment on this story or to request reprints, contact us by e-mail at meatpoultry@sosland.com.

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Meat&Poultry - June 2011

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