Wholesale beef values seem to be returning to more realistic levels as prices continue to steadily fall from May highs. Continued pressure is expected to develop soon, hopefully bringing retail prices back in line and limiting demand erosion.
Boxed beef values have started to show more intense market pressure over the week, although the trend for lower wholesale beef values has become well established since prices hit historic highs on May 12. Choice beef cuts surged from $2.22 to $4.75 per pound in a month's time as the market focused on the shutdown of beef production facilities across the country and concern that short- and long-term shortages would be seen in all beef segments.
Although retail reactions were significantly delayed, a ripple effect has been seen over the last couple of weeks with surging beef values at retail locations. The price of many of these meat products has nearly doubled and is likely having a significant effect on consumer buying habits.
In late March, I purchased a whole beef brisket for smoking, and it cost me $52. Last weekend, I priced the same cut of meat at $123 -- that's a 136% increase -- with most other beef products following the same market price trend. At this point, retail prices haven't seemed to start sliding lower; some are expecting higher prices to hold through the summer months.
The sticker shock of meat prices has resulted in many consumers seeming to leave more product in the store over the last couple of weeks, and this is likely the main reason behind the abrupt shift lower in wholesale beef values. Currently, choice boxed beef values are trading at $295 per cwt ($2.95 per pound), falling $68 per cwt in just the past three days. This rapid reduction in price is likely to create significant shifts in all segments of the market, pulling futures prices away from recent support, as well as creating potential softness in cash cattle prices during June.
It is important to understand that, just like the price packers pay for cattle, negotiated cash cattle trade is a small portion of the overall volume of cattle. The same relationship takes place in wholesale meat values. Meat wholesalers and retailers only buy a portion of their needed product on the negotiated cash markets, with much of their needed and expected product sales bought as a part of earlier contracted prices. This quickly skews the overall price levels of beef on the market, as retailers are trying to keep adjusting prices to consumer needs as well as stay attuned to market conditions.
Estimated daily slaughter on Wednesday was at 114,000 head, just 6,000 less than year-ago levels, which could be a sign of a return to steady beef supplies at retail levels. This is offsetting concerns of scarce supplies.
Foodservice demand remains under pressure, given that many restaurants have either not fully reopened or are running at reduced capacity in order to comply with social-distancing regulations. In addition, current prices of retail product is limiting budget-constrained shoppers from returning to previous buying patterns.
Given the fact that wholesale beef values have posted such intense losses, it is likely that retail prices will follow suit over the next week or two. This will likely create additional short-term uncertainty. But, long term, more sustainable price levels are expected to be beneficial to demand growth and the cattle industry.
Rick Kment can be reached at email@example.com
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