Cattle Market Kicks Off Beef Month With A Bang

May is Beef Month as it represents the kick-off for the primary grilling season. And the cattle and beef markets have been celebrating with new records. 

Cha-Ching!

Fed cash cattle prices began May by surging to a record $222.52 per cwt. Tighter supplies of feeder cattle and surging fed cattle prices continued to send the CME Feeder Cattle Index to new highs, topping $296 on May 5 and within spitting distance of $300. The USDA’s Feeder and Stocker Cattle Summary, which provides a comprehensive overview of live cattle and feeder cattle markets each week, continues to highlight strong demand to keep pens full and capitalize on current conditions. 

Feedlot margins are doing well at the start of May. Producers closed out April with an estimated profit of $548 per head, up from $513 the previous week and $377 seen a year ago, according to the Sterling Beef Profit Tracker. Feedlots have benefited from higher leverage compared to meat packers, where beef packer margins were estimated at a loss of $191 per head, closing out April. 

Margins were less negative compared to a month ago. However, boxed beef prices have been unable to counter record fed cattle prices, keeping packers in the red. That is only becoming a larger issue for replenishing beef supplies.

We’re beginning the primary grilling season with seasonally low beef inventories. Beef held in cold storage at the end of March totaled 427 million pounds, up 1% year-over-year. Aside from last year, inventories are the lowest since 2014, driven by tighter cattle supplies. But lower supplies aren’t the only driving factor.

Feeding the Beast

Strong domestic demand has kept inventories tight despite a decline in exports. Consumers have proved to be willing spenders for purchasing beef as prices continued to rise to new records.

The well-watched University of Michigan Consumer Sentiment Index fell to a reading of 52.2 in April, the lowest level since inflation peaked in June 2022. Meanwhile, consumer spending indices remain at lofty levels. Much of that strong spending has gone to beef. The more concerning side of demand is exports.

Exports have been fairly resilient but questionable after China refused to renew registrations of U.S. beef plants for exporting supplies to the country. U.S. Census data showed year-to-date beef exports fell 0.6% through March. However, the value of those exports is up 2% from a year ago, as countries have been bidding up to secure supplies. 

Hold the Heifers

Cattle producers could yet be in for a while ride. Cow slaughter is down nearly 20% from a year ago, according to the most recent USDA data. That statistic indicates liquidation is slowing dramatically.  Last month’s Cattle on Feed report showed the percentage of heifers in feedlots fell to 37.6%, the lowest since October 2020. The 4% year-over-year drop in heifers is key evidence of producers retaining females for breeding. 

Heifer retention likely means tighter feeder cattle supplies are on the way. Year-to-date feeder cattle auction receipts are already well below last year and the five-year average. Tighter supplies of feeder cattle continue to contribute to rising cash prices, which hit new records over the past week.

Beef prices are climbing due to tight cattle supplies and strong domestic demand. Heifer retention suggests even tighter cattle supplies ahead, allowing the market to heat up further as grilling season kicks off.

--

PAST PERFORMANCE IS NOT INDICATIVE OF FUTURE RESULTS. FUTURES TRADING INVOLVES SUBSTANTIAL RISK AND IS NOT SUITABLE FOR ALL INVESTORS.