US cattle prices to fall further still?

By Joanna Levin

THE Chicago August feeder cattle contract closed on Monday (8 June) at 74.5¢/lb, up slightly from the 74.1¢/lb close a week earlier. Many traders believe this is still not the market bottom, despite the precipitous drop from 83¢ in mid-December.

This is an unusual year for the US cattle industry as both producers and packers are losing money. Cattle slaughterers need a live cattle price of 61.75¢/lb to break even, based on overheads and beef prices, but year-to-date the average live price for finished cattle have been higher at 63.50¢/lb, according to analysts.

Packers are keeping their slaughter rate down because they are losing money. This in turn is slowing down clearing the backlog of “front-end” supplies in the nations feedlots. The dressed weight of slaughtered cattle is still 24 lb higher than last year, because producers are hanging on to their animals longer in the hope of better prices. Understandably, packers are reluctant to bid up for live cattle and this is preventing cattle producers from swinging into the black.

One factor that could help break the trend would be a jump in retail beef demand. The USA is in the midst of the barbecue season which is helping demand. However, it is worth noting that the retail beef margin has averaged 2.6% this year, compared with 3.2% for pork and retailers are likely to feature the more profitable alternative.

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