Slow Motion

By Cassie Fish, http://cassandrafish.com

It’s summertime and the trading is sloppy and slow in CME cattle futures. The market is in a slow motion downward correction after becoming modestly overall. At the same time, OI continues to leak out as interest in trading cattle futures continues to decline. Today’s action has taken most contract months back to the 100-day moving average vicinity. Another sharp corn rally is taking a toll on feeder cattle values even though the feeder supply is down sharply from recent years.

In the cash market, packers have assembled 54k head in the negotiated trade, generally a buck lower live if not a little more. Packers see the opportunity, with good beef demand, to keep slaughter elevated while fed cattle supplies are ample, thus banking profits. The actual fed slaughter the week ending July 16 was 524,303 head, the largest fed slaughter for that week since 2019 and darn impressive. This slaughter pace is long-term friendly, as currentness continues to be maintained. Plus fed plants are running much better in 2022 after challenges in 2020 and 2021.

Steer carcass weights for that same week were 889 pounds, down 1 pounds from the prior week and up 1 pound from a year ago. In 2019, the last time the industry harvested that many fed cattle in mid-July, steer carcasses weights averaged 865 pounds. That’s why January through June 2022 saw record beef production. Retail prices have stayed over $7 per pound through this period of huge supplies, in itself mind boggling.

One thing to keep in mind as the cattle industry goes into very tight numbers in 2023 and 2024, is that carcass weights will beat 2014-2016 averages by a bunch. Those three years averaged 839, 865 and 859 pounds for steers respectively. What happened in 2015 was that when faced with excruciatingly low numbers of feeders cattle to place, feedyards started making them bigger. Today, genetically cattle are bigger leaving one to wonder how the industry will respond this next round of super tight numbers. Packers have had a lot of practice accommodating tight numbers and Saturday slaughters will be the exception not the rule as tight numbers dictate schedules.

Today’s boxed beef choice cutout drifted 0.42 lower printing at $267.57. This week’s slaughter was expected to clock in at 665k head, but one major plant lost a shift today due to issues that are expected to be resolved today.

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