By Theopolis Waters and Bob Burgdorfer
- Estimated beef plant margins largest of year-analysts
- Hefty margins may stem cattle price decline
- Cash cattle prices down 11 percent since April
CHICAGO, May 26 (Reuters) – Profits at U.S. beef packing plants have swelled to their largest of the year due to a swift drop in cattle prices this month coupled with rising beef prices, livestock analysts estimated this week.
Colorado-based livestock analysis firm HedgersEdge.com estimated Thursday’s average beef plant margin at $82.50 per head of cattle processed into beef. That is the largest this year and up from $6.70 a week ago.
Sterling Marketing Inc of Vale, Oregon, estimated Thursday’s average margin at $81.50 per head, its largest of the year.
That profitability may firm cash cattle prices, which have dropped about 11 percent this month.
“You have about four things going on. The cutout (average beef price) has firmed, live cattle prices have gone down, the drop credit is still strong, and trimmings are higher,” said John Nalivka, president of Sterling Marketing.
The drop credit refers to prices for non-beef items such as hearts and livers that are popular overseas. Trimmings refers to the beef used to make hamburger.
At the Chicago Mercantile Exchange cattle futures LCc1 have fallen 15 percent since April 5 when they peaked at a record 122.875 cents per lb.
This week’s profitability is good news for beef companies such as Tyson Foods Inc (TSN.N), Cargill Inc [CARG.UL], JBS SA (JBSS3.SA) and National Beef Packing Co LLC., which buy the cattle and sell the beef.
Both Wilson and Nalivka expect beef plant margins to narrow from this week’s level later as beef sales normally slow near mid-summer.
CATTLE PRICES MAY STABILIZE
Cattle in Texas and Kansas traded at $104 per hundredweight this week, down from $117 in late April. That decline has been attributed to more cattle this year and sluggish beef sales early this month.
Beef movement had been hurt by high gasoline prices and cool, wet weather that disrupted spring cookouts.
Now, beef plants are selling more beef at slightly higher prices, which has improved their margins and may encourage them to bid cattle steady or higher next week.
USDA on Thursday reported the average price for wholesale choice beef at $178.44, up from $175.59 a week ago.
“It’s possible cash (cattle) is close to stablizing, supported by current market fundamentals, said Jim Robb, director of the Livestock Market Information Center.
However, cattle price increases in the months ahead may be limited, because there are more of them this year. Last week the U.S. Department of Agriculture reported 7 percent more cattle were being fattened for slaughter on May 1, the most in four years.
“I think the cattle prices are probably going to stay where they are at. We have more cattle coming at us for the next several months,” said Nalivka.
(Reporting by Bob Burgdorfer and Theopolis Waters; Editing by Lisa Shumaker)
Source: Reuters
Posted by Haylie Shipp
