There’s a lot going on in livestock markets but we can’t keep our eyes off the fed cattle market where prices soared again last week to another record high for the third week in a row. Surging live fed cattle prices are pulling calf and feeder cattle prices along for the ride. The cutout value is beginning to increase but there are not a lot of effects yet on retail beef prices. This week we’ll take a brief look at packer and retailer margins stemming from these changes in the live market.
Prices and Margins
Fed cattle prices got well into the $180s per cwt with $182-$183 in Iowa and Nebraska. Kansas and Texas were about $175 per cwt. The weekly 5-market weighted average was $180.44. The Livestock Marketing Information Center estimated cattle feeding average returns were positive from September through March 2023. The increase in fed cattle prices indicates that cattle feeding returns will continue to be positive in April.
The Choice cutout value averaged about $297 per cwt last week. But, it increased throughout the week, and by Friday it was $302 per cwt and $305 on Monday morning. The live-to-cutout price spread is often used to indicate packer margins. As such, it should be taken with a big grain of salt because it does not include the packer’s costs. It is simply the difference between the cost of the cattle and the value of wholesale beef plus the drop credit. The live-to-cutout spread was $259 in March compared to $385 a year ago. Recent price moves indicate a spread of about $237 in mid-April.
Similar to the live-to-cutout spread, we can calculate a cutout-to-retail price spread that reflects a retail (grocery store) beef margin. It, too, has to be taken with a grain of salt because it does not include their costs which includes the cost of product that does not sell. Retail beef prices have been relatively flat at about $7.60 per pound for more than a year. The March retail Choice price was $7.64 per pound. The cutout-to-retail spread was $1.47 in March compared to $1.65 in March 2022. The 5-year average spread was $1.17 per pound. It’s likely that this spread will tighten as the cutout increases. Keep in mind also that beef production is expected to decline by about five percent in 2023. The market will likely test the consumer’s willingness and ability to pay more for beef in coming months.