At one point or another, cattlemen of all backgrounds have received the basic rundown of Economics 101 and how supply and demand affect the marketplace.
Maybe your first understanding of the concept was when your old man neglected to find the time to market the ranch's steer calves, so that year your family hauled them to town in the heat of the fall run. Supply outweighed demand and the market aligned perfectly for those eager to buy cheap calves, but was an utter disappointment for the ranch.
Or maybe your experience with the market's core fundamentals were harvested at college where you studied graphs and looked at thousands of market variables.
Although the markets aren't as simple as they once were, the basics of supply and demand deemed true even after rigorous years of studying.
A couple of weeks ago we chatted about the beef industry's rising carcass weights and, unfortunately, the trend has continued. For the week ending Sept. 12, steer carcass weights averaged 920 pounds, 10 pounds lighter than the all-time high established in October of 2015 of 930 pounds.
Cattlemen would jump up and down for some "all-time high" achievements. All-time high exports would be amazing; all-time high domestic beef demand would be stellar, and who wouldn't love seeing higher calf prices? But all-time high carcass weights are not an achievement; if anything, it's another hurdle that the market will have to overcome.
Near all-time high carcass weights beg the question of why? Why are cattle heavier now than they were a year ago? Two years ago? Three years ago? Four years ago? And almost steady with levels seen nearly five years ago?
Although there's hardly ever one singular answer to such a bold question, the disruption in this year's supply chain early this spring left feedlots with no other option but to continue to feed cattle. They had nowhere to go with them, plants were shut down and thankfully corn prices were manageable.
Friday's Cattle on Feed report outlined that vividly. Thankfully, the market didn't bat two eyes at the bearish report and has let this week's market move past its findings, but the staggering fact wasn't necessarily that placements were up 9% from a year ago. With fewer calves sold and marketed this spring, it only makes sense that those cattle would be working their way into the system now. But the problem with Friday's report was its finding of somewhere between 200,000 and 300,000 cattle that have been on feed upwards of 150 days, which is also where the market's heavier weights are coming from.
Feedlots have done a tremendous job at working through the backlog and marketing cattle as vigorously as possible. But when there are colossal changes to the marketing system, these problems tend to linger for a long time, much longer than we'd like.
I understand that hearing more bearish news in the current world we live in isn't necessarily appreciated, but being blindsided by an unknown is even more problematic.
Moving forward, cattlemen, consumers and the beef industry have a tough road ahead. Moving significantly more product (and by more product, I mean by the tons) isn't an easy feat. The country's prime grilling season is over, the food service industry is still lacking, and Thanksgiving and Christmas aren't major beef-dish holidays. However, if there are some positive antidotes that the market can lean on, it would be the support brewing in boxed beef prices and total movement.
After desperately needing to correct spring's absurd prices, boxed beef prices may be finding some traction and are drawing consumers to choose beef products. Last week, choice cuts on averaged gained $0.99, averaging $2.16, and select cuts gained $1.71 to average $2.06. However, the volume of boxed beef cuts moved was potentially even more noteworthy. Knowing that additional tonnage is going to be hitting the marketplace is problematic, but if the industry can keep moving the product, the problem becomes manageable. Last week's movement alone almost reached 700 loads, totaling 698 loads for the week.
Navigating through the remainder of the year and into the first quarter of 2021 is going to be challenging for the beef industry. Moving front-end supplies continues to be extremely important and consumer demand will always be a key to long-term success.
ShayLe Stewart can be reached at ShayLe.Stewart@dtn.com
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