Ground Beef Prices Help – for Sep. 6, 2010

Alberta steers were trading in the range of $88 to $90 in mid-August, up $4 to $5 from a month earlier. U. S. fed cattle were selling for $95 on a live basis and $150 on a dressed basis. At the same time, U. S. wholesale beef values remain firm with choice product trading at $154/cwt. Packers appeared to be gearing up for the Labour Day holiday as school resumes and business travel starts to increase during the fall period. Retail beef prices are making three year highs due to favourable barbeque weather and steady restaurant traffic. Unemployment remains rather high, but consumers are cutting out other items besides food. American socializing culture appears to be sustaining the retail beef market as the summer provides opportunities for neighbourhood activities. Tight supplies of pork are also contributing to stronger retail beef prices. The Canadian dollar has been trading in a narrow range throughout the summer as exports of fed and feeder cattle move through a seasonal slow period.

Cattle on feed numbers are expected to decline in Canada and the U. S. into September and remain under year ago levels into the fall period. Cattle on feed 120 days or longer are expected to tighten in October as feedlots are pushing cattle forward. Marketing weights remain sharply below year ago levels as feedlots take advantage of the current price structure.

Retail beef prices have risen for the seventh straight month, which is a positive sign for the packers and producers. Retail ground beef made three-year highs while middle meats such as USDA choice round steaks are near two-year highs. Higher-end cuts of meat continue to struggle with prices nearing three-year lows. This summarizes the retail market as the U. S. consumer remains in a frugal mindset. Lower priced cuts are in high demand while beef tenderloin consumption is soft. Over 50 per cent of all beef sold is in the trimmings category. U. S. beef imports from New Zealand and Australia are down sharply, which has supported the hamburger market. Hamburger is the largest end use of beef in the U. S. Pork bellies made fresh historical highs in early August due to stronger bacon demand and lower hog supplies. Hog production is also expected to be down sharply in the fourth quarter of 2010 and first quarter of 2011 which will limit competition for ground beef.

I’m looking for lower beef production in the fourth quarter of 2010 and first quarter of 2011. Economic headlines have been quite negative with many analysts forecasting a secondary dip in GDP growth. Lower consumer confidence, high unemployment levels and a spike in U. S. home foreclosures has made feedlot operators on both sides of the border very cautious when purchasing replacement cattle.

Feed grain prices are expected to trend higher into the winter period after the corn harvest. Earlier in summer, Canadian feeder cattle exports were expected to be up sharply over year ago levels in the fourth quarter but rising U. S. feed grain costs may temper buying enthusiasm for replacement cattle. Despite the lower income levels in the U. S., retail beef demand has remained strong, diverging from major indicators such as general retail expenditures.

Canadian feeder cattle values are eight to 12 per cent higher than last year as high-quality 800-pound steers reached $115 in August. Strength in the feed grains has weighed on the futures market, but cash values show no signs of subsiding. Lower supplies of feeder cattle are a major concern as feedlots try to purchase replacement cattle with a positive margin structure. U. S. and Canadian cow-calf producers show no signs of holding back heifers which suggests the North American cattle herd will stay in contraction phase into 2012. Cowcalf producers generally need one year of high prices before they feel comfortable holding back heifers. Feeder cattle futures reached historical highs this past spring but this did little to encourage expansion. There is a fair amount of uncertainty in the market looking forward and feedlot operators are wondering at what price will the cow calf producer move into expansion.

The next six to eight months are going to be very interesting in the cattle business. Lower feeder cattle numbers and lower feedlot placements will keep beef production under year ago levels. Feedgrain prices have potential to be quite volatile with a large U. S. corn harvest is offset by tight world coarse grain supplies. Beef demand will also be a large variable with lower consumer incomes, tight pork supplies and strong demand for ground beef tempered by lowered consumption of higher valued cuts. It is very difficult to forecast cattle prices in this type of environment.

GeraldKlassenanalysescattleandhogmarkets inWinnipegandalsomaintainsaninterestin thefamilyfeedlotinSouthernAlberta.For commentsorspeakingengagements,hecan bereachedat [email protected] or2042878268.

About the author

Columnist

Jerry Klassen

Jerry Klassen is manager of the Canadian office for Swiss-based grain trader GAP SA Grains and Products Ltd. and also president and founder of Resilient Capital, a specialist in commodity futures trading and commodity market analysis. He can be reached at (204) 504-8339 or visit his website at www.resilcapital.com.

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