CME: US Beef and Pork Markets Remain Strong

US - Livestock futures markets closed on a strong note last week despite wobbly equity markets and a general unease about the outlook of the global economy, write Steve Meyer and Len Steiner.
calendar icon 4 May 2010
clock icon 4 minute read

On the later point, it will be interesting to see how markets react to news over the weekend that Greece will receive upwards of $US150 billion in loans from the EU and IMF over the next three years. Despite the announcement, the value of the Euro currency has come under renewed pressure as speculation builds about the outlook of other countries threatened by rising debt re-financing costs.

There is also growing concern that the Chinese economy may be overheating and a bursting of the property bubble there could negatively impact the global economy. US beef and pork prices have been driven higher in part due to strong demand from Asian markets. China in particular has benefited from the resurgence in global economic activity. With over 20 per cent of US pork production going to export, the ongoing events in Europe and China represent an important factor that bears watching closely.

For the moment, however, US beef and pork markets remain strong as higher prices at the wholesale level continue to support livestock prices. The choice beef cutout value closed on Friday above the $170/cwt mark, almost $3 higher than the week before and $19/cwt or 12.6 per cent higher than a year ago (see summary table on page 2). Fed cattle supplies remain tight and are currently below year ago and notably lower than the levels seen in 2008, a year when cutout prices reached some fairly lofty levels. We estimate that for week ending 1 May, steer and heifer slaughter was 519,000 head, 19,000 head or 3.5 per cent lower than a year ago and 50,000 head or 8.8 per cent lower than in 2008. In addition to bringing fewer fed cattle to market (what’s driving prices for choice and select beef) producers also have to contend with lower carcass weights, which have further reduced the available beef supply.

The average dressed cattle carcass for the week ending 1 May was pegged at 760 pounds, down 9 pounds or 1.2 per cent from 2009 levels. Part of the reason for the lower weights may be because of a larger proportion of cows (which are lighter) in the slaughter mix. However, fed cattle weights also remain lower than a year ago and we estimate steer weights for the week ending 1 May at 808 pounds, down from 820 pounds a year ago and below the 814 pounds on 3 May 2008. The decline in fed cattle weights has especially impacted the market for beef trimmings.

Ground beef is one of the main features going into the grilling season and meat processors and food retailers are finding it increasingly difficult to source enough product. The price of fresh fat beef trimmings (50CL), one of the components going into ground beef production, was as high $110/cwt last week, the highest price we could find in the last 30 years. With lean beef prices also near record high levels, retailers will have to contend with some fairly expensive ground beef features this May. How retailers and ultimately consumers respond to these prices will eventually decide the direction of beef and cattle prices this summer.

Further Reading

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