May 27, 2011

 

 

Profits at US beef packing plants have swelled to their largest of the year due to a swift drop in cattle prices this month coupled with rising beef prices, livestock analysts estimated.

 

Sterling Marketing Inc of Vale, Oregon, estimated Thursday (May 26)'s average beef plant margin at US$81.50 per head of cattle processed into beef, its largest of the year.

 

That profitability may firm cash cattle prices, which have dropped about 11% this month.

 

"You have about four things going on. The cutout (average beef price) has firmed, live cattle prices have gone down, the drop credit is still strong, and trimmings are higher," said John Nalivka, president of Sterling Marketing.

 

The drop credit refers to prices for non-beef items such as hearts and livers that are popular overseas. Trimming refers to the beef used to make hamburger.

 

At the Chicago Mercantile Exchange cattle futures LCc1 have fallen 15% since April 5 when they peaked at a record 122.875 cents per lb.

 

This week's profitability is good news for beef companies such as Tyson Foods Inc, Cargill Inc, JBS SA and National Beef Packing Co LLC, which buy the cattle and sell the beef.

 

Nalivka expect beef plant margins to narrow from this week's level later as beef sales normally slow near mid-summer.

 

Cattle in Texas and Kansas traded at US$104 per hundredweight this week, down from $117 in late April. That decline has been attributed to more cattle this year and sluggish beef sales early this month.

 

Beef movement had been hurt by high gasoline prices and cool, wet weather that disrupted spring cookouts.

 

Now, beef plants are selling more beef at slightly higher prices, which has improved their margins and may encourage them to bid cattle steady or higher next week.

 

USDA on Thursday reported the average price for wholesale choice beef at US$178.44, up from US$175.59 a week ago.

 

However, cattle price increases in the months ahead may be limited, because there are more of them this year. Last week the US Department of Agriculture reported 7% more cattle were being fattened for slaughter on May 1, the most in four years.

 

"I think the cattle prices are probably going to stay where they are at. We have more cattle coming at us for the next several months," said Nalivka.