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TheBeefSite Newsletter - 22 January 2014

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Wednesday 22nd January 2014.
Michael Priestley - Editor

Michael Priestley

Novus International

MSD Animal Health

Why The Spike In US Beef?

Historical beef and cattle highs have been reported across the US and, although not a huge surprise, have been more intense than anticipated.

USDA figures have reported beef cutout at $236.56/cwt and cattle at $144/cwt in the last week, leading some analysts to think the market must be “overdone”.

Analysts and traders have been particularly startled by developments over the last week, which Missouri experts Ron Plain and Scott Brown said ‘blew away’ record highs.

Last week, University of Mississippi Professor, John Michael Riley underlined the significance of the current price event and the ‘trepidation’ it can cause.

The main reason behind the trend is partly due to a combination of the long term supply effects of herd liquidation from the 2012 drought and the short term impact of the polar vortex earlier this month.

Regarding the 2012 drought, TheBeefSite analyst Jim Wyckoff said: “We are in an upcycle right now, and while some people suggest we are at a market top, there have not been many technical clues to suggest such yet.”

Going forward, Mr Wyckoff said he expects the market to trend sideways or higher until bearish clues surface.

The icy blast, which arrived on 2 January for many, disrupted cattle transportation and fattening when a nine day polar vortex brought record lows for the Midwest of -20 F (-29C).

Keeping cattle alive became the priority instead of weight gain and while this compounded the supply problem, experts have suggested inelastic demand and short covering are also at work.

In their daily livestock report, Dr Steve Meyer of Paragon economics and Len Steiner, Steiner Consulting Group, said: “We think this is a classic case of inelastic demand meeting a shrinking supply, with a dose of short covering panic thrown in for good measure.”

“We think demand is inelastic in the short term because this is the time of year when retailers tend to transition from holiday items, such as hams, turkeys and rib roasts, to more normal fare,” said the pair.

“There is also the tendency to plan based on last year’s performance and retailers remembered when beef prices dropped sharply between January and March of 2013.”

Additionally, there are packers making more from sales, the pair added.

With large beef quantities already committed, Dr Meyer explained that packers have more power in negotiations.

Retailers in the meanwhile could have to ‘take the price hit’ and hope to recover come spring.

Dr Meyer and Mr Steiner stressed the price surge, combined with a strong US dollar, ‘does not bode well for exports’.

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