The summer of 2014 will go down in the record books as a perfect storm of tight cattle supply and surprising consumer demand pushing fed cattle prices to record levels.
Cash cattle in Alberta topped $164 per hundredweight last week, a remarkable $44.50, or 37 percent, higher than the same week last year.
A tight fed cattle supply has been with us all year, driving cattle prices to record highs.
Prices normally fall off in the summer when more yearlings become available and when soaring temperatures cause consumers to turn to lighter meals.
However, the cattle are not showing up in the numbers expected based on the monthly USDA cattle on feed reports.
Feedlots are up to date in their marketing and, with the price of feed grains falling, can easily wait out the market and force packers to come to them with stronger prices.
U.S. packers have slowed their kill lines, and weekly slaughter this July is the lowest since 1981.
The weather has helped turn the demand side bullish.
The weather has been cool in the eastern United States.
For example, the polar vortex, usually associated with a winter deep freeze, made a summer visit a couple of weeks ago. The high temperature July 17 in Wichita, Kansas, was only 19 C, 16 degrees below average for the middle of July.
This week, most of the Midwest was expected to have comfortable temperatures in the low to mid 20s C.
So even with high beef prices, consumers are lighting up the barbecue and putting on the burgers.
Actually, they are avoiding steaks and high-end cuts, and those prices are trailing off, but the price of cuts used to make hamburger soared last week. Rounds climbed by $21 to $23 per hundredweight, and chucks rose $12-$14.
Packers are using fed cattle to make hamburger because non-fed cows are also in short supply.
The wholesale beef price has yet to be fully passed on to the consumer.
In the U.S., the fresh beef retail average for June rose only .8 percent from May but was up 12 percent over the previous year.
Steve Kay’s Cattle Buyers Weekly newsletter said July’s monthly average would likely be a lot higher than June.
It is not just domestic consumers buying this beef. Beef exports from the U.S. and Canada are solid, adding to the overall demand.
We’ll see how long consumers continue to buy beef at these prices, but demand, which is a measure of quantity and price, remains strong. U.S. retail beef demand rose 6.7 percent in the second quarter.
Can this market strength continue?
It will need to stay strong if feedlots are to continue logging profits even as they refill their pens with feeder cattle bought at record high prices.
The market-ready fed cattle supply from September on is expected to be tighter than it is now.
In the Canadian Cattle Buyer newsletter from the George Morris Centre, Kevin Grier said marketings from feedlots in the fourth quarter would likely be down four percent from last year at the same time.
Feed grain costs are down but feedlots have had to pay more for feeder cattle, which means the breakeven for cattle placed in a feedlot this month and marketed at the end of the year will be about $170 US.
Fed cattle prices tend to peak in December, but $170 is a lofty goal.
Still, the market has surprised with its strength.