Disconnect Remains Between Fed Cattle and Boxed Beef

AMARILLO, TX – There’s a disconnect between the cash market for fed cattle and the futures market according to The Cattle Report, an online daily newsletter focused on the cattle markets.

It is not the only disconnect, however, as there’s also a significant disconnect between fed cattle prices and boxed beef products.

“The composite cutout represents the primal breakout of fed animals and, as a direct passthrough of value in a matter of a few days, should be directly linked to the price paid for fed cattle.”

Boxed beef prices have been signaling the need for more cattle each week but processors are running at full capacity and unable to service the demand for beef.

This certainly is not a result of insufficient animals available in the nation’s feedlots, rather the Report suggests that the packers are in a unique position as gatekeepers to a restricted number of slaughter slots.

Cattle owners across the country have held cattle on feed, pressing limits of weight and high-cost feed, attempting to participate in shared profits from the high demand for beef but this situation has caused many of the cattle to be forced to the threshold of overweight threatening even larger discounts.

There comes a point in the feeding cycle of each pen of cattle when the sellers lose bargaining power because the cost and penalties of adding another week are too severe. Too many people are finding themselves in that position and forced to accept a price that fails to share the extra margins of higher boxed beef prices.

Meanwhile, the processors enjoy margins in excess of $300/head. Unfortunately, the only solution is more slaughter capacity and while small additions to slaughter capacity are being added, a more substantial capacity is needed.
(SOURCE: All Ag News)