On a Roll?

By Cassie Fish, http://cassandrafish.com

Beef cutout values are barreling higher and likely just getting started. Up almost $5 for choice at $235.30, (about $13 higher than last week’s low) and up almost $4 for select, the lean cuts and fat trim are leading the charge. Even the rib primal is $10 off its lows as retailers respond to price and the calendar, as May draws near.

The week ended April 4, the cutout was $232, cheaper than today, and cash cattle prices were $109. Cash cattle this week have yet to trade in any meaningful volume- but it does present a quandary. The week ended April 4 the packing industry slaughtered 631k cattle, 5k more than estimated and 501,400 of them were fed cattle. Last week plant production was arbitrarily contracted because of coronavirus-related issues with labor and the F.I. slaughter was only 536K. It is a fact that packer expenses have increased because of the virus and efficiencies have declined with the drop in capacity utilization in some plants last week and this week. Yet the packing industry remains profitable.

Packers are working to restore production to normal and by next week, their efforts will be recognizable and will build from there. The call to reopen parts of the U.S. for business, including food service, is gaining momentum. The pipelines that serve that segment are empty and will need product.

Packers may not need many cattle now but that will change in the coming weeks. As has been mentioned here many times, the fed kill in Q1 over delivered and the industry could not have been in better shape on the front-end coming into this forced slaughter contraction- especially in the face of a very open winter. Still the stress of not being able to get a bid or schedule cattle is real and highly frustrating. Smaller feeders in the north are perhaps feeling the pressure the greatest.

Most packers are playing it cool and waiting until tomorrow to establish this week’s cash cattle price. Where will that price be? Despite some calls for lower, steady with last week’s $105 given the strength in cutout values seems a reasonable call during these highly unusual times.

CME cattle futures are triple digit green again today and continue to look ahead at brighter days, the reopening of food service over the summer, the grilling season of May and June. Given the extreme disaster Jun LC priced on its low, what’s a few more limit up days? After all the lowest cash cattle price since 2016 is $97. Prior to that it was $84 in 2010.

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