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CME: Beef Demand Better in June Compared to May

11 July 2019

US - Fed cattle slaughter last week was estimated at 462,000 head, unchanged compared to year ago levels, reports Steiner Consulting Group, DLR Division, Inc.

Last year fed cattle slaughter increased sharply during late spring and summer and slaughter volume this year has been even higher, a function of a larger inventory of cattle on feed but also excellent packer margins.

Based on weekly fed slaughter data, since early May steer and heifer slaughter for non-holiday weeks has averaged 533k head/wk, 5k head or 1.2 percent higher than the same period a year ago. We expect fed cattle slaughter this week to be somewhere between 525k and 530k head, about 1.2 percent to 1.9 percent higher than a year ago.

On Monday fed slaughter was 98k head, as close to full capacity slaughter as we can get at this time. While the high slaughter pace may put some pressure on fed beef prices in the near term, it is ultimately positive for fed cattle prices later this fall.

Producers have done a good job in bringing down the front end feedlot supply (i.e. supply of market ready cattle) and this is already apparent in the weight of cattle currently coming to market.

One of the more interesting things in the cattle comprehensive report published by USDA yesterday is that the average weight of steers/heifers that came to market was 834.8 pounds, down from 836.6 the previous week and now 6 pounds or 0.7 percent lower than the previous year. This is one data point so it is too early to draw any conclusions but it is somewhat unusual to see fed cattle weights decline w/w at this time of year.

Next week’s report will be far more telling. If we see a significant upward correction then this week’s data means little. However, if this week's report is followed by another report showing lighter weights it would give credence to the idea that feedlots are slowly gaining some leverage as front end supplies decline.

Lower fed cattle prices during the month and a robust cutout has continued to bolster packer margins, which are currently above $400/head gross or +$200/head net. The robust margins should allow packers to maintain the slaughter pace, with daily kill running around 97k-98k head and Saturday slaughter in that 45k-50k head level.

One thing to note is that actual weekly slaughter since April has been higher than the initial reported numbers. This is not really that unusual, it happens every year at about this time. Since May the difference between the first reported weekly slaughter number and the actual number reported in the Thursday NASS report has been a little over 6k head wk.

The increase in fed cattle slaughter, the seasonal increase in weights and a slowdown in grilling demand tends to pressure wholesale beef prices during this time of year. The choice beef cutout was quoted at $214.73/cwt yesterday afternoon, down $5.7/cwt or 2.6 percent from a week ago but still as much as $7.4/cwt or 3.6 percent compared to a year ago.

The choice beef cutout underperformed a bit in early May as cool weather and high prices in the spring limited Memorial Day features. It appears, however, that beef demand was better in June, allowing the cutout to remain above year ago levels despite an increase in overall beef supplies. Much of the recent y/y increase in the value of the cutout is due to higher chuck and round prices, not middle meats.

Combined chuck and round primal values have contributed +5/cwt more to the cutout this year while the contribution from loins/ribs was actually lower y/y through June and only recently has increased by about +1.6/cwt. Ground beef prices/features will be critical for those end cut values in the next few weeks and a key driver for the overall cutout.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

TheCattleSite News Desk

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