Beef Supply and Demand Equation Driven by Packers

AMARILLO, TX – The monthly Cattle on Feed (COF) report was bearish but that report does very little about determining where we are now in the balance between supplies and demand for beef. Larger placements with a heavy weighting of light cattle will not be harvested for the most part until next year. Normal processing margins are in the $50/head range but these aren’t normal times and the industry suffers from under-capacity in beef processing plants. In normal times, jockeying back and forth to find prices, between packers and cattle feeders, drives the slaughter numbers. When packers dip into the red, they quickly pare back the slaughter in order to raise box prices. This in turn backs up feedlot supplies, until they can restore a margin and clean up feedlot supplies. Today those processing margins are in excess of $250/head. Packers will sacrifice some portion of the oversized margin to process all they can. It is the “all they can” that is the restraining point. Heavy reliance on a fickle labor force creates a bottleneck to ramping up the kill. Tired workers can’t work 7 days a week and the plants are old and require constant maintenance.
(SOURCE: The Cattle News)