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CME: Beef Cutout Trending Lower

10 June 2013

US - After hitting all time record highs in late May, the beef cutout has been trending lower and, judging from market’s reaction, the expectation is for beef prices to continue to drift to lower levels in June and July as the flurry of Memorial Day features subsides, write Steve Meyer and Len Steiner.

USDA quoted the choice beef cutout on Thursday afternoon at $203.63/cwt, $6.23/cwt (+3.2 per cent) higher than a year ago but down about 3.7 per cent from the peak on May 23. The surge in prices in late May was mostly related to specific retail promotions for high quality choice beef cuts. Select beef has not fared as well as choice.

The select cutout on Thursday was pegged at $184.84/cwt, just 0.3 per cent higher than a year ago. Looking at the contribution of the various primals to the value of the cutout, it is obvious that beef prices continue to be driven by a) middle meats (steaks) and b) Asia export items. Round cuts, on the other end, continue to be particularly weak. The round primal value on Thursday was quoted $154.60/cwt, down 4.2 per cent from a year ago. Ribs and loins, on the other hand, are +7.2 per cent and +5.8 per cent higher than the same period a year ago. Will middle meats continue to carry the cutout? This has been the worry in the market since late April and it remains today.

Live cattle futures are at about the same level today as they were in early May. Future s are pricing live steers for late June at around $120/cwt, which would imply a cutout value below $195/cwt. Could we see wholesale beef prices pull back another four to five per cent in the next few weeks? It is possible, especially if middle meats pull back as they seasonally do at this time. The rib primal is down about 3 per cent in the last three days alone and loins also have been weaker recently.

The value of items such as short plates and some chuck items that go to export remains well above year ago levels but these represent relative ly small parts of the carcass and the effect remain marginal at best . Packers continue to fret about the weakness for round cuts. While demand for rounds at this time of year is generally weak, prices have performed even worse than one would expect, indicating demand at foodservice and in the retail deli counter for roast be ef and similar items is soft. Lower ham and turkey breast prices remain particularly problematic for round cuts, highlighting the price discrepancy between beef and other meat proteins in the deli case.

Cattle sup- plies are higher in June compared to earlier in the year (see chart) and the increase in the supply of fed beef also seasonally weighs on beef prices at this time of year. The daily steer/heifer slaughter is currently hovering at about 98-99k head per day, compared to about 90-92k head per day in March and April. Daily steer and heifer slaughter still is expected to run about 3-4 per cent below year ago levels in June and July. Steer and heifer weights remain above year ago levels but the rate of growth in cattle carcass weights has been slowing down.

USDA pegged steer dressed weights for the week ending 25 May at 846 pounds, 0.8 per cent higher than the same week a year ago. In Q1, steer dressed weights averaged 1.7 per cent above the previous year and in Q4 of 2012 steer weights were growing at 2.6 per cent rate. Cow slaughter remains a wild card. So far, drought in key production areas an d poor pasture conditions have pushed more cows to market. Should weather conditions improve, it could limit the number of beef cows flowing to market and help further reduce the supply of grinding beef available.

Daily Livestock Report - Copyright © 2008 CME. All rights reserved.

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