Market update

In a Sept. 21 Certified Angus Beef (CAB) Insider, federally inspected steer and heifer slaughter picked up a brisk pace since the conclusion of Labor Day. In the past two weeks, the weekday head counts have averaged 5,300 head (5.3 percent) more per day than the same period a year ago. 

One week ago featured a 77,000 head total in an effort by packers to replenish the supply chain during a holiday-shortened week.

Carcass weights have mirrored 2021 trends since May with last week’s steer weights unchanged on the week prior at 904 pounds. The latest heifer weights are 84 pounds lighter than steers at 820 pounds each.

The fed cattle market has been steady for three weeks in a tight range around $143 per hundredweight (cwt). Price variation from north to south in the cattle feeding belt has narrowed since July and August. 

The range in both regions can be boiled down to roughly five dollars per cwt range with most of the market consolidated once again. This occurred despite the failure of Northern packers to see premium beef grading trends return to the lofty levels of the past two years.

Prices have fallen quickly over the past two weeks on the boxed beef side of the business. The Choice cutout is down eight dollars per cwt in that period with this week’s early quotes down to $252 per cwt. 

The CAB cutout value, reported Sept. 15, was down more than four dollars per cwt in a two-week trend. The seasonal expectation is for continued lower prices into the early part of October in the spot market before fourth quarter demand begins to stare retailers in the face. Prudent protein buyers are making out-front purchases now given the opportunity to procure product at lower prices today for 21-up to 90-day delivery periods. 

Breaking down the CAB carcass cutout in last week’s pricing report, the 0x1 strip loin jumps out with major price reductions in the past month. Strips set an all-time high wholesale price in August at $9.43 per pound but dipped to $7.65 per pound in last week’s report. 

Given the high-flying price point strip loins notched in July and August, the price reduction was justified, bringing the quote within the 2019 and 2020 price range in the mid-September timeline.

CAB ground chuck and round items, on the other hand, were slightly higher in price last week in reaction to both slightly smaller supplies of brand-qualified carcasses as well as consumers trading down to grinds in the beef offering.

Quality premiums

Late fall holiday demand heats up the cattle market, and it’s also when high-quality carcasses get extra bragging rights.

Demand alone doesn’t spur prices higher, there must be a degree of supply constraint to get dollar values moving. That’s the part of the high-quality market equation generating some uneasiness as U.S. Department of Agriculture (USDA) quality grade trends disappoint. Brand standards rely heavily on Premium Choice and Prime quality grade product, and 2020 data shows over 80 percent of carcasses fail to meet requirements due to insufficient marbling.

In the past 15 years, beef demand has improved dramatically, built on revolutionary carcass quality improvement. This allowed the brand to use science-based specifications to successfully build a following. 

It’s easy to forget today’s Premium Choice and Prime beef production volume is monumentally larger than it was in 2006 when just 14 percent of Angus-type carcasses met CAB specifications. That pales in comparison to the latest annual average of 36 percent. But, even small drops from record-high production volumes create supply concerns among grocers and restaurant partners in today’s demand-driven environment.

This brings a focus on carcass quality premium trends in the rapidly approaching fourth quarter. While we expect seasonal quality grade improvement in October, there’s no guarantee this develops sufficiently to meet market demand. 

The total USDA Choice category recently slipped to 71.3 percent of fed cattle carcasses, down one percentage point from a year ago. This is relatively minor compared to the USDA Prime and CAB brand declines versus the past two years. 

In early September, CAB carcass certification was 31.9 percent compared to 34.7 percent a year ago. This decreased the brand’s weekly carcass supply by 7.5 percent in the recent four-week period.

Both CAB and Prime (including CAB Prime) carcass production volumes remain the third largest on record in recent weeks. Yet, the Prime cutout and derivative Prime grid premiums suggest early fall supply and demand imbalance. 

The news for cattlemen is the Prime grid premium, which typically peaks in the fourth quarter, is out of the gate early this year. The current $29 per cwt Prime carcass premium is eight dollars per cwt higher than a year ago and $19 per cwt higher than this time in 2021. There is plenty of runway ahead for further advancements in the Prime premium as demand for highly marbled middle meats heats up in the next two months.

The latest CAB grid premiums have not yet adjusted higher in response to the supply void. This week’s $4.64 per cwt price is $0.57 per cwt cheaper than a year ago and a full one dollar per cwt lower than this week two years ago. Granted, the CAB premium range typically sees annual highs of $12 per cwt on some grids, but this week’s high reported by packers was eight dollars per cwt.

With a $23 per cwt Choice-Select spread, the net premium to feedyards on each CAB carcass is averaging near $11.50 per cwt over the commodity fed cattle price on a carcass weight basis. That’s an even $100 per head at the recent 870-pound average carcass weight. 

Not bad, but increased input costs have feeders potentially weighing input costs and efficiency improvements against quality premiums.  

Paul Dykstra is the assistant director of supply management and analysis at CAB. He can be reached at pdykstra@certifiedangusbeef.com.