Cattle prices exposed after beef fails April test

by Agrimoney.com

The rally in cattle prices, which took them to record highs early in the month, appears to have failed the "April test", meaning that they may have further to fall, even after steep losses in the last session.

The results of the April switchover in beef demand, from cuts such as rounds popular in the winter to the summer barbecue items such as rib and loin, have "not been very positive", a note from Paragon Economics and Steiner Consulting said.

Since April 5, when cattle futures peaked in Chicago, wholesale prices of winter beef cuts have lost nearly half their advantage over values a year before, which might be expected given the seasonal switch in tastes.

However, summer cuts have failed to pick up the baton. Indeed, loin prices are only 4 cents a pound higher than a year ago, compared with 13.3 cents three weeks ago.

"[This] does not bode well for overall beef demand," the briefing said.

"In all, the weakness in beef prices in large part reflects the failure of high value steak cuts to carry more value and justify the lofty cattle prices.

"It is uncertain as to whether the consumer is willing, given cheaper pork and chicken, or able, given high fuel and related costs, to pay for that nicely marbled $15 steak."

'Move to slaughter'

The forecast was echoed by Purdue University economist Chris Hurt who noted "trouble signs on the horizon" for beef consumption as supermarkets in the summer pass on the spring rise in beef costs, taking retail prices, which averaged a record $4.64 a pound in the first quarter, "toward $5.00 per pound".

"Consumers are expected to become more reluctant buyers of beef as the spring and summer progresses," Mr Hurt said.

However, supplies could be boosted by stimulus that the drought in the southern Plains, which has affected areas housing one-third of the US cattle herd, is providing for livestock farmers to slaughter animals.

"Liquidation could become a factor. A number [of farmers] may move to slaughter, increasing the beef supply and edging cattle prices lower."

Feedlot dynamics

Broker US Commodities added that data out late on Thursday, showing a continued rise in cattle placements on feedlots, pointed to a rise in beef supplies from this source too.

"March placements are at a four-year high and cattle on feed in March are at a three-year high," teh broker said.

"Heavyweight placements advanced the most. Fed cattle supplies will now remain large through the summer."

Peak slaughter was "now ahead of us", with rates, in the last 21 years, peaking 13 times in June, seven times in May and once in July.

Yet demand was "slowing", highlighted by data showing a 16.5% rise, year on year, in the level of beef in cold storage in the US.

Live cattle for July, Chicago's best-traded lot, closed down 0.3% at 112.45 cents a pound, with the August feeder cattle contract 0.6% lower at 133.20 cents a pound.

See the original article >>