Live cattle prices have risen $8 to $122 per hundredweight since March and packer margins are up over $500 per head
Demand for beef is through the roof in the United States, and at least one analyst expects it to continue for months.
Rob Murphy, executive vice-president of research and analysis at J.S. Ferraro, said during a webinar that prices are surging along with the demand as some individual beef cuts trade in triple digits.
“We have been saying for a while now that the beef market here in the spring … had the potential to be explosive and I think it’s panning out that way,” he said.
Through April the Choice cut-out price rose about $50, he said, and he doesn’t see any pullback.
“I know there are other analysts out there saying this thing’s just so high it’s got to come down. I don’t think so. I think it continues on higher.”
Murphy said he expects to see Choice hit $290 per hundredweight, and says if he’s wrong, it’s likely that he is low.
The live cattle market is following along slowly, going up about $8 to $122 per cwt. over March. Some expect it to stall, but Murphy said he isn’t sure.
Packer margins have swelled to more than $500 per head.
“My thought process is if the beef market continues higher like I’ve got it forecast to do, then it’s going to be really difficult for packers to avoid paying at least some more for cattle, maybe $125, maybe $130,” he said.
The market should stay firm through May, he added.
Feedyard placements dropped 443,000 head year-over-year to the end of March. He said while supplies won’t shrink, they are tighter than normal. Trying to trace placement all the way through slaughter is tricky because they can be delayed or go to grass, so the tightness might come a little later.
Murphy expects that weekly steer and heifer slaughter dropped about 2.5 percent in April and will decline another 4.5 percent in May.
“That’s the additional snugness, if you will, in the supply, that should support both the beef and cattle market,” he said, adding that beyond May prices could sag.
He said carcass weights are a concern. They are stubbornly high after coming down about 20 pounds in mid-February, which is a caution for the cattle market.
On the beef side the story is demand. April 2021 was the strongest April ever, he said.
And the exact same thing is going on with pork.
Comparing the situation to last year doesn’t work because North Americans were stockpiling in response to the COVID-19 lockdowns.
Instead, Murphy suggests there is a change in consumer dietary patterns. He likened it to the Atkins diet fad about 20 years ago.
“I don’t want to say the Atkins diet has come back, but I will say that in this pandemic … a lot of weight gain has occurred, so it is quite possible consumers are moving back toward a high protein low carbohydrate diet as a way to lose some weight,” he said.
Another factor in the U.S. is consumer purchasing power and disposable income, which have been boosted by three rounds of stimulus cheques.
Some have suggested vaccination programs have inspired consumer confidence, and another possibility is the return of foodservice.
However, Murphy said the latter two reasons shouldn’t really drive such sustained meat demand.
Whatever the reason, he added, this is not the normal demand cycle that typically goes up and down based on retailer features.
He said April and June futures are still too low, but August onward futures are too high. He cautioned buyers to not extend beyond June right now.
Deferred futures look too high in part because he expects larger supply in fall and winter due to larger feedlot placements, particularly if cattle prices rise along with the beef market.
For pork, Murphy said he would extend further out because deferred futures in that sector are not as elevated.
Meanwhile in Canada, analyst Kevin Grier said the same excitement hasn’t hit Canadian beef markets.
“I don’t think beef demand has been very strong at all,” he said at the same event.
First quarter slaughter was up three percent, and he believes it will be lower in the second quarter.
“I see the second quarter being much tighter than I think most buyers would like,” he said.
“If you’re (a buyer) wedded to a Canadian program, you’ve probably got your hands full trying to get product that you need in this second quarter.”
He said Alberta prices are normally about $5 less than the U.S. price but have instead been the highest in North America through the first quarter of the year.
“The Alberta cattle feeders have been losing a lot of money, and I honestly do not know why we were so high relative to the United States,” Grier said.
Gross margins in the Canadian packing industry are “just off the charts,” he added.