CAB Insider: Market Update

From a cash price perspective, both cattle and beef markets have continued on a relatively bullish run the past few weeks. 

The fed steer price has increased $9.37 per hundredweight (cwt) since the week of Jan. 23, yet the pace of this increase has been doggedly slow. This is potentially a better pace for cattle feeders versus large upward jumps followed by downward corrections. 

At $265 per cwt, dressed carcass prices were more attractive than the live steer price at $165 per cwt during the week of March 1. This is due to muddy pen conditions pulling dressing percentages lower than normal. 

The $265 per cwt market average is equivalent to a $168 per cwt live market at a 63 percent dressing percentage.

Packers have rated the pace of fed cattle slaughter quite well for a number of weeks now, as 2023 weekly head counts have pulled well under a year ago. 

Certified Angus Beef Brand (CAB) noted the pullback in March 4 slaughter schedules, which have shrunk to average just 7,000 head over the past three Saturdays. This compares to a 35,000 head Saturday average for the same weeks last year.

Packer margins relatively unaffected

The one dollar increase in the fed cattle price didn’t hurt packer margins during the first week of March as the comprehensive price was up $7.05 per cwt on the week prior. 

The CAB cutout was up $3.80 per cwt, Choice was up $4.98 per cwt, and Select was up $6.55 per cwt. Strength in Select and Choice pulled the quality price spreads a bit tighter. 

Narrowing of the Choice-Select price spread has been rapid since the beginning of the year, but the average of $15.13 per cwt for the first week of March remains record-wide for this week of the year. 

Similarly, the CAB cutout spread over Choice is historically wide with a  $16.28 per cwt value for the first week of March, which is $3.32 per cwt higher than a year ago. 

The Prime cutout premium to Choice is $1.70 per cwt higher than a year ago at $36.24 per cwt, greatly reduced from the October peak of $92.21 per cwt.

Quality holds up under lighter carcass weights

Fed cattle carcass weights have tracked a decidedly lower course this winter with the steer/heifer mix 18 pounds lighter since Jan. 1. Winter weather has left a lasting mark on feedyard performance this season as feed efficiency has slipped away and industry production pounds followed lower.

This reality easily leads to a discussion about the weather impacts on carcass quality grades and CAB carcass certification rates. The logical initial perception might be prolonged cold weather events and muddy, icy feedlot pen conditions would result in decreased marbling deposition. 

From several recent years of observation, extended periods of winter weather extremes suggest the industry quality grade mix and associated marbling scores are not harmed during these periods. In fact, Choice and Prime quality grades, along with CAB acceptance rates, are often improved above normal seasonal expectations during significant cold weather events.

This is not especially intuitive when set alongside the more obvious detriment to weight gain and efficiency.

On the other hand, an analysis of carcass weight trends shows heavier carcasses, on average, tend to result in higher marbling scores. 

A relatively recent study of nearly half a million head of fed cattle shows the top one-third of carcass quality groups were 14 pounds heavier than the average. Quality grade and CAB acceptance rates improve, on average, at higher pen average carcass weights. 

This is a counterpoint to the more generic observation about winter weather impacts described above.

Several feedyard managers have stated recently harvested fed cattle are showing carcass results in-line with expectations. The only difference is the lighter finished weights and disappearance of 30 days of performance, or a similar sentiment anyway. 

This is painful on the bottom line, but at least there’s a silver lining on the grid payment sheet. 

Quality spreads have been healthy with Prime premiums exceptionally high along with very good values on CAB and Choice carcasses as well.

Recent data drives this point home

The latest data shows the national percent Choice grade at a record-high of 75 percent of the total for the week of Feb. 20. Prime, at 9.6 percent of the mix, is fractionally lower than the same week last year where 10.1 percent was achieved. 

The CAB acceptance rate for brand-eligible cattle has been pressing higher, touching 40 percent, equal to the 2021 record for the same week. 

While smaller slaughter levels are testing the customer base and pushing cutout values higher, the proportion of high-quality carcasses in the mix is providing a short-term assist. 

We’ll see the seasonal peak in carcass quality during March, if the historical trend holds true.

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