Beef Market Trends: May 2017

The Choice cutout moved higher from late April through May as tight market-ready cattle supplies and strong demand for the grilling season and Memorial Day supported prices.  The late spring rally for the Choice cutout topped out at $2.48/lb. for the week ending May 19, before dropping slightly to $2.46/lb. for the week ending May 26.  For May 26, the Choice cutout was up 10% from 2016.  The Choice/Select spread seasonally widened through May and was the highest on record at $26.07/cwt for the week ending May 26, implying strong demand for Choice beef.  For the Choice primals, loins were even ($3.49/lb.), and all other primals were higher than last year: short plates ($1.90, +41%), flanks ($1.50, +21%), ribs ($4.19, +19%), briskets ($1.73, +18%), chucks ($1.91, +16%), and rounds ($1.82, +4%).  Ribeyes ($9.64, +18%) have been one of the main contributors to the increase in Choice cutout values in May along with 50% trim.

For other middle meat cuts, prices for tri-tips ($5.87, +4%) and ball tips ($3.18, +25%) were higher than 2016, while tenderloins ($10.15, -3%), NY strips ($7.98, -9%), and top butts ($3.54, -18%) were lower.  Prices for briskets (deckle-off bnls) ($2.34, +4%) were up slightly, and petite tenders ($6.39, +16%) increased from Jan – mid-May before starting to move seasonally lower at the end of May.  Values for flank steaks ($5.17, -6%) and top blade (flat iron) ($3.16, -6%) were down.  With strong export demand so far in 2017, prices for short ribs ($4.86, +9%), chuck short ribs ($3.52, +32%), top inside rounds ($2.30, +13%), chuck shoulder clods ($2.17, +11%), and chuck rolls ($2.68, +8%) were all above-year ago levels, but prices for chuck rolls, chuck shoulder clods, and top inside rounds have moved lower since mid-May, in line with the seasonal trend.  50% trim prices skyrocketed in May and peaked at over $2.00/lb. in the middle of the month.  Values were more than triple 2016 levels for most of the month.  The tight supply of market ready cattle led to dropping average slaughter weights as lighter heifers and steers were pulled forward for slaughter.  The lower weights led to lower supplies of fresh 50% trim, and that combined with the demand to fill Memorial Day orders, led to the ramp up in prices.  Higher 50% trim prices had a spillover effect to the short plate and flank primals, with short plates at the highest value on record (also supported by increased exports) and flanks at the highest value since 2014 in mid-May.  USDA expects 2017 beef production to be up 4.3% in 2017 to 11.93 million metric tons, after increasing by more than 6% in 2016.

2018 production is expected to be up 2.3% to 12.21 million metric tons.  At that level, 2018 production would be the second largest production on record behind only 2002.  Through mid-May, fed beef production was up 4.5% from last year, following an increase of 7% in 2016.  Choice beef production was up 7.7% through mid-May, after 2016 Choice beef production increased by 8.4%.  Through mid-May, 5.9% of production graded Prime, 71.9% Choice, and 17.6% Select.  Cash steer prices were down 5% from last year at $134/cwt at the end of May.  In May, the number of Cattle on Feed was 11 million head, 2% above 2016 and 2% above the previous 5-year average.  Even with the increase in the total number of cattle on feed, the number of cattle on feed over 120 days (ready for slaughter), remained tight and was down 10% from last year.  However, Jan – April placements were the highest since 2000, and this increase in cattle placed on feed should lead to increased supplies this summer, which is expected to pressure prices.  Cash cattle and futures prices trended significantly higher through April but have adjusted slightly lower in May (May 30 CME Live Cattle Futures closing contract prices with change from April 13): June: $122.98 (+$8.28), August: $119.85 (+$9.05), and October: $116.53.

Events

The Choice cutout moved lower for the second week in a row, but it was down just 1 cent/lb. from last week at $2.45/lb.  The Select cutout dropped 2 cents/lb. to $2.18/lb., and the Choice/Select spread increased to $27/cwt.  The cutout only dropped slightly, even as 50% trim prices continued to drop off (down 19 cents/lb. from last week), supported partly by record-high rib values.  For the Choice primals, all primals moved lower except for ribs, briskets, and rounds.  Rib values continued to push higher (+3 cents/lb.) as buyers needed supplies for Father’s Day features (see chart below).  The brisket primal increased by 7 cents/lb. from last week, supported by seasonal demand for smoking.  The round primal moved higher as buyers sought London broils for the 4th of July as a substitute with high rib and loin prices.  The loin primal value moved lower for the second week in a row (see cut charts below).  Although still at very high levels, 50% trim prices continued to moved downward this week, and prices dropped 19 cents/lb. from last week to $1.58/lb.  Weekly estimated beef production was 432.4 million pounds, down 10.6% from last week with the Memorial Day Holiday, but up 1.2% from last year.  Year to date production is up 3.8% with slaughter up 5.7%.  Weekly slaughter was 550,000 head, down 10.3% from last week but up 4.4% from last year.  Live weights averaged 1,308 lbs., down 4 lbs. from last week and down 28 lbs. from last year.  Dressed weights averaged 788 lbs., down 3 lbs. from last week and down 24 lbs. from last year.  Live steer prices were up $4.67/cwt from last Friday at $136.26/cwt.  With current high margins, packers have strong demand for cattle, but market-ready supplies are still tight (as discussed in the Cattle on Feed section last week), leading to higher cattle prices.  Futures prices also rallied this week: June: $130.83 (+$8.13), Aug: $126.05 (+$2.60), and Oct: $121.10 (+$4.42).