The following article is from the CME Group:
A warm winter and cattle backing up in feedlots have dramatically increased the weight of steers coming to market. Steer weights are currently running at around 850 pounds per carcass, compared to 829 pounds per carcass a year ago and 828 pounds for the five year average. Overall cattle carcass weights (this includes steers, heifers and cows) was last quoted at 791 pounds per carcass, about 18 pounds per carcass heavier than last year. The increase in weights has added about 11.1 million pounds of beef into the supply chain, or the equivalent of almost 20,000 more head of cattle coming to market. In addition to bringing to market heavier cattle, slaughter in the last three weeks also appears to have increased, further adding to the supply of beef coming to market, pressuring prices lower. While packers were able to cut back hours in mid January through mid February, steer and heifer slaughter recently has recovered and is at about the same level as a year ago (see chart). Weekly steer and heifer slaughter in early February was running at around 457k per week, about 37k head or 8{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} below year ago levels. Our latest numbers show steer and heifer slaughter at around 490k per week, about the same as a year ago.
The increase in carcass weights disproportionately increases the amount of trimmings coming to market relative to muscle cuts. Cattle, like people, tend to add more fat rather than muscle when they gain weight. This has been a particularly mild winter across the US, with minimal snowfall and warm temperatures in the Central US where most feedlots are located. As a result, cattle have not had to spend a lot of energy to stay warm and this shows up in the carcass weight data, which look more like mid October rather than early March (the latest steer weight data is for Mar 3). Ample fat trim supplies have pressured prices lower and this tends to negatively impact overall cutout values. Even as cattle prices remain well above year ago levels, the price of 50CL beef trim, the benchmark price for fat trimmings, is currently some 19 cents a pound or 17{962fe9be9a8a5c386944bfa41f48d98b010325707b70b1fa6182bcabd27c5d7f} below last year’s levels. Also negative for the fat trim market has been the recent furor about LFTB, which is a by-product of fat trim. With less demand for LFTB, it is likely that packers have had to change some of their trim practices and generate more 50CL beef rather than 30CL or so. As a result, we are now seeing significant premiums paid for lean and extra lean product (generally from cows) and discounts for fat. This is not a good combination when feedlot cattle are coming to market with 22 more pounds on them. Heavier weights also point to the possibility that cattle in feedlots are backing up, which would tend to put downward pressure on steer and heifer values coming into the spring. Feedlots have been able to hold the line to this point but judging from the action in futures, it appears the market believes that their position is becoming more tenuous, as the live cattle contract has now lost almost 700 points since February 22.
Source: CME Group
Posted by Haylie Shipp
