April 20, 2009

Consumers hold the key to the timing of this spring's seasonal fed cattle price peak as thin pipeline supplies of beef make the industry vulnerable to a surge in product booking.

The seasonal peak has been moving back for a couple of years, but a jump in beef orders could strain the system to supply the product needs over the short term and delay the peak, according to Jim Robb, agricultural economist at the Livestock Marketing Information Centre.

Ted Schroeder, Kansas State University professor of agricultural economics, said "April is usually the high in fed cattle prices. But there always are other trends involved that can change the seasonality." The seasonal highs, however, "are not extremely reliable," Schroeder said.

Analysts can disagree on when the peak occurs depending on the historical periods they consider.

The April high generally is only 102 percent of the annual fed cattle average price, Schroeder said, noting that isn't much of a difference.

Schroeder said the latest run-up in wholesale beef prices and gains in fed cattle prices is "a short-term phenomenon unless we truly get some good economic news."

Retail-level product sales over the next few weeks will dictate fill-in purchases by grocery stores and restaurants, Robb and others said. It will give these buyers a glimpse into the minds of shoppers and how they may observe the annual grilling rites of the Memorial Day holiday.

The recession has put many consumers' spendable incomes on the ropes, resulting in a general downward shift in the quality and quantities of meat purchased, economists and market analysts said. This has led retail grocers to resort to a more hand-to-mouth buying pattern at the wholesale level.

Restaurants also have cut back on wholesale meat purchases as consumers stay home for more meals, market analysts said.

The overall effect has been a decline in advance bookings of beef and more of a reliance on the spot market, which also has declined in volume, the economists and analysts said. Grocers appear to be gearing up for more aggressive beef featuring in early May and likely will use sales information to finish booking their Memorial Day needs, they said.

Seasonally, fed cattle prices peak in early to mid-April, said Clem Ward, professor of agricultural economics at Oklahoma State University. Ward didn't expect much of a change in the timing of the peak this year since he didn't see beef demand changing significantly from the last few months because of the economy.

"There's not enough good news in the economy yet" for a delayed seasonal cattle peak, Ward said. "Too many people are out of work."

Fed cattle weights are up from a year ago, so even though the pace of slaughter has been trimmed, there still is plenty of beef production to meet a modest increase in demand, Ward said.

The seasonal high could come this week, or in another two to three weeks, Ward said. But he said it is close.

Robb said price charts over the last five to 10 years show the seasonal peak tending to occur in March. Rising feed costs, though, are encouraging a shift in the average weight of feeder cattle going into the feedlots. That is pushing back the seasonal peak in pricing as a result, he said.

So while a mid-April peak is more likely, given the trends, it wouldn't surprise Robb to see a mid-May peak given the thin pipeline supplies and the possibility of renewed consumer interest.