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CME: Beef Rib Primal Value Collapses, but Pullback in 2019 More Significant

28 December 2019

US - USDA reporting disruptions caused us to delay issuing the normal production and price summary, which is usually included with the Monday DLR, writes Steiner Consulting Group, DLR Division, Inc.

We have added the latest numbers on page 2. At this time we do not know if USDA plans to issue their reports on Monday but if they do we should be back to a normal schedule next week.

One of the USDA reports that was issued with a delay yesterday was the comprehensive beef cutout report, offering an update of the wholesale price that packers received for the week ending 20 December.

While we normally get a daily update on the average wholesale beef price (cutout), the weekly data includes some additional detail, including the value of beef that was sold to export markets as well as the volume of beef export sales and domestic sales for delivery past the 21-day spot. This is important in order to gauge product flow at the start of the year.

The latest data shows that the comprehensive cutout is now trading at a $3 premium to the choice cutout and 2.7 percent higher than a year ago. This is important when looking to understand packer revenue as the choice cutout alone is now down compared to last year.

According to USDA, the choice cutout yesterday was $210.15. $5.15/cwt or 2.4 percent lower than the same time a year ago. This is quite a turnaround for the beef cutout that was flying high in mid November, propelled by normal seasonal demand for holiday items, such as beef ribs as well as strong demand for lean end cuts.

Rib primal value has collapsed, as it does every year but the pullback this year has been even more significant than last. Yesterday the value of the rib primal was pegged at $334.25/cwt, down $21.73/cwt or 6.1 percent from a year ago. The primal rib value is now down $84.52/cwt or 20 percent from early December.

Last year the pullback for the same time period was 14.5 percent but the year before that it was 23 percent. So the rib seasonal is alive and well although it will move around a bit from year to year. The big unknown at this time is the performance of end cuts come January and February.

In November, we noted a significant increase in the supply of some round cuts that were booked for delivery in Q1. That and the strong featuring of end cuts and ground beef during November helped prop up the chuck and round primal during that time, also bolstering the overall cutout.

For the beef cutout to gain traction in January end cuts would need to once again carry more of the value. Higher beef prices in the world market and lack of imports should be supportive but it is far from a sure bet. The big unknown is how retailers feature beef roasts and ground beef in Q1.

One could argue that the higher rings that beef provides will continue to make it an attractive feature item. The economy continues to outperform the doom and gloom talk from some quarters and the partial trade deal with China could also open the doors for more US beef trade in 2020. On the other hand, there are some reasons for concern.

The most significant is the slowdown in beef sales for delivery 22-60 days out. In the four weeks ending 20 December, forward sales in this category are down 23 percent from a year ago and also below both 2017 and 2016 levels. This could suggest retailers are planning on fewer features in the second half of January and in February.

Forward sales for the 61-90 day window during this period were down 18 percent and for delivery 90 days or further in the future were down 34 percent.

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