US officials cautioned over beef prices, even as the industry gears up for the barbecue season, saying that exports rather than domestic demand offer brightest prospects.
The US Department of Agriculture acknowledged the prop that longer days and warmer temperatures will give to values, saying that “there is a seasonal tendency for beef prices to strengthen during the spring quarter as warmer weather supports grilling activities.
This rise, ahead of a barbecue season seen as starting on the Memorial Day holiday weekend in late May “should support values… in the weeks ahead” of the beef cutout – the wholesale value, which indeed rose $10.33 per hundredweight last week to $225.13 per hundredweight for better quality “choice” beef.
‘Supply and demand fundamentals both bearish’
However, such strength masked less bullish underlying fundamentals, with the USDA saying that “both supply and demand fundamentals are bearish for the beef complex”, underling an increase in output of the meat.
Last week, US beef output reached 454.7m pounds, up 4.0% year on year, thanks to gains in the weight of cattle as well as a 2.5% increase in the number of animals slaughtered.
The average live weight, at 1,371 pounds, was up 2.1% year on year – extending a trend which “suggest that extra gain in weight continues to supply the wholesale market with ample supplies of beef”.
‘Downward pressure on prices’
And there was evidence to suggest high carcass weights for cattle slaughtered in the autumn too, judging by Oklahoma National Stockyards data, which suggested a “potential April bulge” in placements of large cattle on feedlots this month.
“Feeder cattle placed on feed this month will likely be marketed in the late-third or early-fourth quarters at relatively high carcass weights,” the USDA said in a report.
This forecast reflected low grain prices, which make feeding cattle relatively cheap, and “only modest discounts for heavy carcasses” at slaughter.
“This will contribute to the increased beef supplies and downward pressure on prices in the latter part of 2016,” the briefing said, adding that values of both fed cattle and beef itself were vulnerable.
The comments contrast with more upbeat assessment on US beef export prospects with the USDA flagging that “expectations of stronger global demand appears promising” for the country’s producers – especially if values indeed do decline.
“Readily available supplies of US beef and declining wholesale prices should prove to be a favourable combination for foreign buyers in the months ahead, boosting global interest in US beef products.”
The USDA restated a forecast of beef exports hitting 660m pounds in the July-September quarter – a 22% jump over the figure from a year ago, when dollar strength and tight supplies were underpinning US values.
‘Prices to stay strong’
Analysis group AgResource voiced some caution over cattle prices too, despite terming them “deeply oversold”, saying that while cash values “will hold in the mid-$130s” per hundredweight “over the next several weeks”, a weaker trend will “resume through the summer”.
However, other observers issued a more upbeat take on beef complex values, at least in the short-term.
Paragon Economics and Steiner Consulting said in a briefing that while “the cattle market bears have had the upper hand for much of the last six months”, wholesale beef values “have been very strong in the last few days and the expectation is for prices to stay relatively strong through early May.
“Improving retail demand and robust foodservice business is expected to underpin the beef market in the near term.”
The briefing noted ideas that beef packers, whose margins are “in good shape”, “will be more willing to bid on cattle with prospects of better beef sales into the grilling season”.
Iowa-based broker US Commodities said that “boxed beef found seasonal demand last week beef should stay firm into early summer”.
(Source – http://www.agrimoney.com/news/us-officials-warn-on-beef-prices—on-eve-of-key-demand-period–9512.html)