Short Beef Supplies Keep Upward Pressure On Prices

Short Beef Supplies Keep Upward Pressure On Prices

Record boxed beef prices last week hint at strong Memorial Day sales and a decent summer, says one analyst.

In an unexpected move, Choice boxed beef reached record levels above $200 per hundredweight last week and fed cattle prices weren't far behind.

The late spring rally comes after boxed beef and fed markets appeared to have topped in March, says Derrell Peel, Oklahoma State University extension livestock marketing specialist.

"Extended cold weather, abundant supplies of competing meats, high gas prices and increased payroll taxes have all played a part in limiting beef demand this spring," Peel says, but he adds: "Several of those factors have now changed somewhat."

Record boxed beef prices last week hint at strong Memorial Day sales and a decent summer, says one analyst.

Peel thinks the rally in Choice boxed beef was part of beef buying for the upcoming Memorial Day weekend. Winter weather as late as last week has likely kept grilling demands pent up but Peel says the buying now seems to be insisting that the weather will warm up for the first big summer holiday.

He says beef demand is also getting some help in from lower gasoline prices and strength in competing meat prices. Broiler breast meat has made a strong increase to the highest prices since 2010. Ham prices have recovered dramatically since the Easter lows, although pork loin prices are still weak.

The supply side of the market also plays an important part of the recent rally, Peel says, and he adds it will play an even larger role in the coming weeks. Despite year-over-year increases in steer and heifer slaughter in the last two weeks of data, combined steer and heifer slaughter is down 2.3% year to date.

Total cattle slaughter is down only 1.5% this year, due mostly to a 1.7% increase in cow slaughter, Peel says. Although feedlot marketings and cattle slaughter increase seasonally in May and June, it is likely this year's increases may be muted. It's probable that steer and heifer slaughter will continue relatively tight given lower placements in recent months.

Further, Peel says he and others expect cow slaughter to decrease, especially after the unexpected increase in beef cow slaughter the last five weeks.

Peel adds that carcass weights are up from year-ago levels but only modestly higher compared with last year's big increases over the year before.

Total beef production should be down roughly 2.5% in the second quarter but is expected to drop by 5% in the third quarter and even more in the fourth quarter of the year, he says.

Both boxed-beef and fed-cattle prices are expected to decrease seasonally into the summer but Peel says the real question is by how much?

"Reduced cattle slaughter moving into the third quarter will provide supply support," he says. "There is reason to expect a smaller fed-cattle price decline than would be normally expected this summer. Fed prices may pull back below the $125/cwt. level for summer lows and then rebound back toward the $130/cwt level in the fourth quarter of the year."

Peel says demand is the key and thinks a warm Memorial Day holiday with strong beef sales could spur stronger beef demand through the summer.

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