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The Beef Angle

Extremely tight supplies keep beef prices firm

Extremely tight supplies keep beef prices firm
Weekly slaughter totals continue to run smaller than last year, while the choice cutout and cash cattle prices continue to push toward record highs.

SO the livestock markets are back in business with both eyes on the road now that the U.S. Department of Agriculture’s market reporting apparatus is fully operational. The two-week federal government funding lapse had kept the markets essentially flying blind, absent important daily livestock reports from the Agricultural Marketing Service (AMS), as well as other crop and feed reports from the National Agricultural Statistics Service and World Agricultural Outlook Board.

What do we know at this point? Basically, that we’re right where we thought we were: with tight cattle supplies and adequate demand keeping prices on a fairly bullish trajectory.

With limited supplies of cattle and consumers willing to pay near-record retail prices for beef, the choice cutout has remained resilient over the past month, and the cash cattle market continues to improve. Prices, in fact, are now flirting with record high prices set earlier this year as the lingering effects of the multi-year drought are now coupled with the big questions raised by this month’s freak blizzard in South Dakota and the surrounding states.

USDA reported cash cattle trade established last week between $129-131 per hundredweight. Our records at Feedstuffs show that the market set a high during the first half of the year at $130 per cwt., and have been building back toward that mark in recent weeks.

The choice cutout yesterday jumped $2 per cwt. according to AMS, hitting $198.29. The first-half of 2012 saw an all-time high of $211.37 set in late May; boxed beef prices this month have firmed more than $5 per cwt.

Industry sources continued to estimate daily slaughter at roughly 123,000 head during the shutdown, and AMS confirmed that last week’s slaughter – including Saturday’s kill of 26,000 head – was 617,000, down 25,000 head from last year. Year-to-date, slaughter is running about 1.4% smaller than last year.

Any way you slice it, the cattle market is extremely tight right now and in fact is probably getting tighter. Simply looking at the futures market as one indicator, the trade is clearly anticipating continued shortness, with another $4/cwt. of upside priced into the November and December contracts.

USDA will not release its monthly "Cattle on Feed" report until Oct. 31 — a two-week delay necessitated by the extended shutdown — and the trade is expecting that report to show a sharp reduction in the number of cattle on feedlots as of Oct. 1. Analysts predicted a more than 7% drop in the inventory figure, although they are expecting slightly larger September placements than last year and a more than 4% hike in marketings.

"Supplies in feedlots are particularly tight, with September inventories down 7.2% from the previous year," economists Steve Meyer and Len Steiner said at the Daily Livestock Report. "While feedlot inventories were tight as of Sept. 1, placements in the summer months were skewed toward heavier placements, implying that the marketing window will be front-loaded."

Add to that observation last week's news that Cargill will close and sell its 62,000-head feedlot in Lockney, Texas, as the latest casualty of the multiyear drought in the region.

While the news itself wasn't all that surprising given that the yard largely supplied the company's now-idle beef processing plant near Plainview, Texas, it underscores the fact that the number of cattle in the Texas Panhandle is far, far smaller than the supply available just a few years ago.

An open question for the market is the impact of the unexpected blizzard that rocked South Dakota and parts of surrounding states earlier this month. With USDA offices offline and available information largely based on anecdotal sources, it is hard to know exactly how many cows and calves were lost to the storm.

South Dakota's state veterinarian could only certify several-thousand head last week, though he acknowledged that producers' reporting of such losses is a lengthy process and that the true extent of the damage to the state's cattle inventory may not be known for some time.

Suffice it to say, however, that if the number is as large as some speculate, it would be yet another reason to assume that a robust rebuilding of the nation's cattle herd is still years away.
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