Wholesale Beef and Fed Cattle Prices

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1 Louisiana Cattle Market Update Friday, November 16 th, 2012 Ross Pruitt, Dep a rtment of Agric ultura l Ec onomic s a nd Agrib usiness LSU Ag Center Wholesale Beef and Fed Cattle Prices Wholesale beef and pork prices typically exhibit seasonal weakness in the fourth quarter. Regarding beef, consumers turn their attention to other protein sources around Thanksgiving and increased hog slaughter during the quarter is the major factor pressuring wholesale hog prices. Wholesale hog prices have exhibited some counter-seasonal strength in recent weeks, but that strength could quickly dissipate in coming weeks. Counter-seasonal strength for the wholesale pork cutout has so far limited the downturn in wholesale boxed beef prices. Like the pork cutout, the wholesale beef cutout has at times exhibited some unexpected strength compared to its normal fourth quarter seasonal decline or staying flat. Since the beginning of September, the Choice wholesale beef price has rose about 1% compared to the average when prices fell about 4%. Compared to the same period last year, Choice wholesale beef cutout prices are 4% higher. Disruptions from Hurricane Sandy have contributed to declines in the wholesale beef price in two of the past three weeks and could mark the beginning of expected seasonal weakness. Like last year, seasonal pressures may be limited due to tight supplies. Much discussion has occurred this year about crossing and staying above the $200/cwt threshold for the Choice wholesale beef cutout. The daily, weekly, and monthly record wholesale beef prices were set at various points in time in 2012 and those records will have to be broken in 2013 in order to achieve the live cattle futures prices for contract months currently on the board. Given the monthly Choice wholesale beef cutout price is seasonally highest in April and that was the lowest price so far this year, it s unlikely that will happen two years in a row. The same can be said for beef cutout prices that are highest in June this year, which is not typical. The cattle market will be in uncharted territory next year, but that doesn t mean seasonality will completely disappear. Using normal trends from 2011 and the 5 year average from , Choice wholesale beef prices for April 2013 will need to be between $210 and $225/cwt (a 15% to 23% increase over prices in 2012) in order to support the current April live cattle futures price of $134.08/cwt. From now through October of next year, Choice wholesale beef prices would need to be about 8% higher given current live cattle futures prices. How realistic are these price increases? Packers are still facing compressed margins with the cutout only receiving 56% above the Kansas live steer price through October compared to 59% in 2011 and 67% in Packers estimated gross margins have been below year ago levels for most of the year and limited their ability to pay more for fed cattle while pressuring feedlot margins lower. The inability of the packer to pass on higher wholesale costs to retailers and the consumer underscores how difficult the current market environment is. Packers ability to raise the value of the wholesale cutout faster than the increased price pressure from higher fed cattle prices over the next few months will be tested.

2 Additionally, it will likely require better economic growth than posted in 2012 for Choice wholesale beef prices to reach $225/cwt or higher at the seasonal peak in April. USDA NASS November Cattle on Feed report summary: Pre-Report Estimates 1,000 head % of 2011 Avg. Range Placed in October 2, Marketed in October 1, On Feed November 1 11, This month s Cattle on Feed report contained no real surprises and should not impact the market on Monday. The increase in marketings reflects two additional slaughter days in Daily average marketings in October were approximately 5,200 fewer head this year than last year and only slightly lower than the average. Placement of cattle weighing at least 800 pounds was down only 2% compared to a minimum 10% year-on-year drop for the other reported weight ranges. This contributed to the smallest number of placements since the Cattle on Feed report began in its current format in The Environmental Protection Agency denied the request of several livestock and poultry organizations to waive the Renewable Fuel Standard today due to lack of a finding of severe economic harm. Corn finished lower on the week. Despite the decision to not waive the Renewable Fuel Standard, selling pressure from the soybean market impacted corn futures throughout the week. Improved weather conditions in South America also contributed to lower corn futures during the week. Live cattle futures were higher on the week. Technical trading ahead of cash sales and the Cattle on Feed report provided momentum to futures in addition to slightly higher boxed beef prices during the week. Feeder cattle futures were able to move higher on the week due to strength in the live cattle pit and lower corn prices. Light fed cattle cash sales occurred on Friday that was mostly a $1/cwt higher than a week ago. Live sales in Iowa and Kansas were $125/cwt with sales in Texas and Colorado at $126/cwt (Nebraska was $ /cwt). Dressed sales were $195 to $196 in Iowa and Nebraska.

3 $/Cwt Joplin, MO OKC Joplin, MO $/Cwt OKC Week Ending Friday, November 16, 2012 Feeder Steer Prices* $200 $150 $100 $50 $ lbs lbs lbs OKC $ $ Joplin, MO $ $ $ $ $ *Prices are for Medium and Large 1-2 Steers **Mississippi prices are for midpoint of steers Note zero values in table represent no reported sales for that weight group. Source: USDA AMS Mississippi Cull Cow Prices $80 $75 $70 $65 $60 Breaking Boning Lean This Week $73.00 $77.50 $68.00 Last Week $73.50 $77.00 $65.00 This Week Last Week Source: USDA AMS

4 Table 1. Futures Prices Live Feeder Month Cattle Change* Cattle Change* Corn Change* November December $ /4 January $ February $ March $ April $ $ May $ /4-12 June $ July 715 1/4-13 3/4 August $ $ September $ /2-23 1/4 October $ $ Source: DTN * Change is from the previous Friday s close

5 Table 2. State and National Market Information Commodity This Week Last Week Last Year 5 Area Fed Steer Price Live $ $ $ Dressed $ $ $ Oklahoma City Feeder Cattle Prices cwt Med and Large #1 $ $ $ cwt Med and Large #1 $ $ $ Boxed Beef Cutout Values (weekly average) lb Choice cutout $ $ $ lb Select cutout $ $ $ U.S. Pork Cutout Value $ $ $ Georgia Dock Broilers $ $ $ Georgia B/S Breasts $ $ $ Georgia Leg Quarters $ $ $ Meat production (million lbs) Beef Pork Slaughter (1,000 head) Cattle Hogs 2,366 2,361 2,369 Broilers/Fryers 160, , ,255 Average Dressed Weight Cattle Hogs /10/ /3/ /12/2011 Poultry Placements (in thousands) 1 LA Broiler Egg Sets 2,956 2,956 3,349 US Broiler Egg Sets 191, , ,224 LA Broiler Chick Placements 2,981 2,949 3,013 US Broiler Chick Placements 147, , ,174 Source: USDA Agricultural Marketing Service, USDA National Agricultural Statistics Service and Livestock Marketing Information Center 1 Note the placements numbers are lagged by one week prior to publishing.