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CME: Boxed Beef Values Skyrocket Following Tyson Fire

29 August 2019

US - With the fire at the Tyson plant, boxed beef values have skyrocketed in the last couple of weeks, reports Steiner Consulting Group, DLR Division, Inc.

The fire was on 9 August 2019, a week where the choice boxed beef cutout closed at $216.04 per cwt. The following weeks have shown the weekly average climb $14.38 the first week and added another $9.45 per cwt last week. The choice cutout last week settled at a weekly average of $239.87, and early data of Monday and Tuesday this week imply the rising trend should continue again this week.

Across the primal values, increases have largely been in tandem. Brisket has increased the least in the last two weeks, but it has also seen some of the highest price appreciation this year. Brisket primal values have been above a year ago for the last 20 weeks, averaging $23 per cwt higher per week over those 20 weeks.

Packer margins spiked with the run-up in boxed beef and lower live prices over the last several weeks have further increased the spread between live and cutout values. LMIC calculates packer gross margins (does not include packer processing costs, transportation, etc.) on a 1000 lbs. of steer basis.

Ahead of the Tyson fire, packer margins averaged weekly $287 per 1000 lbs. through July. Summer values were slightly higher than earlier in the year, hitting the high $300s in June. The week of the Tyson fire LMIC calculated the weekly gross margin to be $361 per 1000 lbs. of steer.

The first week after the fire the margin jumped $136 per 1000 lbs. to $497.70, followed by last week’s increase of over $50. Packer margins are expected to sit above $500 per 1000 lbs. of steer again this week, as cutout values are not expected to come down and live cattle prices should not drop precipitously.

Fed prices have adjusted on a smaller scale to the black swan event. Prices in Dodge City, ahead of the fire, were $111 per cwt on a live basis for steers. The weeks following the fire saw decreases in live prices to $105 and $106 per cwt. Futures market anticipates more bearish action ahead as the October contract sits under $100 per cwt.

The October contract looks to be an overreaction by our estimate and should increase once slaughter logistics and Labor Day rush has sorted through the dynamics. Still, packer margins are likely to approach record highs this fall.

The last two weeks are the highest live to cutout spread calculated to date since this dataset began in 1991. The spread has only been higher than $400 per 1000 lbs. of steer on a weekly basis 6 times in that 18 year span.

On a monthly basis, the previous record high was $392.88 per 1000 lbs. of steer in June 2018. We would expect August of this year to calculate over $400, eclipsing that value. Large margins for packers are expected to continue throughout the remainder of 2019, with little in the forecast to push those values back down.

Supplies of boxed beef are expected to be tighter and the lower capacity will slow the demand for live cattle, depressing prices until Tyson rebuilds or more permanent capacity is added.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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