Packers Compete; Price Discovery in Real Time

By Cassie Fish, http://cassandrafish.com

Packer competition is alive and well in the cattle industry. Price discovery is occurring at this moment as packers up bids to secure inventory to fill slaughter schedules. It is not the threat of any legislation that is motivating packer behavior but it is the fact that market-ready supplies of fed cattle are tight and the industry has achieved currentness. Currentness is the cattle feeding industry’s greatest currency.

Multiple packers are widely bidding $133 in the south and the north. Cattle feeders in the south have sold at $133 while many in the north are passing. A $134 bid was just reported in Texas. The highest dressed bid is $210. Packers are chasing grade and have big slaughters scheduled between now and the week ended December 18 and even though they purchased 119k head in the negotiated market last week (the largest trade volume in 2021) the tighter supply coupled with substantial needs is supporting an aggressive pursuit of inventory.  

It is good to see as many had lost hope after the historic difficulties faced by the cattle feeding industry in 2019 and 2020. Packers too were tested by Covid-19 and changing labor market conditions. But the packing industry has utilized Saturday slaughter to offset the loss in daily throughput as aggressively as possible if one studies the data. 

Both end users and cattle feeders have been frustrated all year, but the fact is 2021 will see the largest domestic beef production in U.S. history consumed at a record number of pounds domestically and internationally. Some people are under the impression that record high wholesale and retail prices occurred due to a shortage of beef production. Nothing could be further from facts.

Finally, wholesale boxed beef prices are experiencing a long overdue correction, as unusual in November as the rally that occurred in August. As such, the relationship between boxed beef prices and fed cattle prices is also experiencing its overdue correction, one that should continue to occur as a trend through Q1. It’s important to remember that the beef processing industry has been abnormally profitable in 2021, beating last year by at least $250 gross, per head. The coming correction does not imply that packing industry margins will be negative, only that a correction of that relationship- cutout values to fed cattle prices- skewed since the Tyson Fresh Meat’s fire at their Finney County facility has begun in earnest.

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