May 2024

By Cassie Fish, http://cassandrafish.com 

The industry is one week away from what is typically the seasonal low in fed cattle carcass weights. Today the USDA released the latest data and steer carcasses stood at 921 pounds, a whopping 36 pounds over a year ago and down 2 pounds from last week. The 5-year average stands at 882 pounds. What will happen next? Normally, weights increase around 50 pounds from their spring low to their Q4 high but that would seem a stretch for this year. Or is the industry going to find out in 2024 just how big is too big?

The number of yield grade 4 and 5 cattle is already running record high at the same time YTD cow slaughter is down +340,000 head from 2023. These two fundamentals can be clearly understood in a glance when observing the beef 90s (chemical lean point) chart alongside the beef 50s chart (the 50/50 fat/lean trim that comes off the fabrication floor). See below.  A tight supply of lean beef has also kept the choice/select spread much narrower than usual for late May because of increased demand for select cuts.

 

 

Boxed beef values managed to gain a little more ground this morning, making a new high for the move by pushing up over $314 with the rib and loin leading the way. At the same time, the negotiated fed cattle trade has yet to get underway in earnest. Cattle feeders are pricing cattle higher and packers are hoping weak futures help their cause as they continue to fight red margins week after week.

An overbought cattle futures market extended its downtrend today, taking out yesterday’s lows rather easily. If 2024 plays out to be more seasonal than 2023 did, then this is likely the beginning of the summer slump. Will the market hold in mid-range around the 40-day moving average or take trip back to the bottom of the trading range?

Managed funds certainly added to longs up until yesterday and they remain hyper-sensitive to any negative news, whether meaningful or not. Normally, but not always as we learned in 2023, cash fed cattle prices and boxed beef prices weaken into summer. Will the cash cattle and beef markets trapse sideways again this summer as it did last year or not? One important difference is packers were black in June 2023 and they look to be red in June 2024 after a very red April and May. How boxed beef values perform—or don’t perform this summer will have a lot of sway over slaughter levels, which is what drives packer needs.

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