Cattle Call is an original production of the Nebraska Rural Radio Association and is presented Blue Chip Herefords – Oxford, Nebraska.
The cattle market has no shortage of warning signs this week, but perhaps none more unusual than a major beef packer taking two days off at a time when slaughter margins have improved and boxed beef prices have surged.
Brad Kooima of KKV Trading says the decision is raising questions about whether the latest rally in beef prices can last, particularly if packers aren’t confident they can move product.
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- A packer is going dark for two days despite profitable slaughter margins and sharply higher boxed beef prices — raising questions about whether demand is keeping pace.
- The choice/select spread has blown wide open, adding to the surge in boxed beef values but potentially signaling the rally may not be as durable as it looks.
- Cattle producers are losing leverage according to Kooima as packing capacity shrinks, futures weaken and more cattle remain on feed longer, putting pressure on the market heading into fall.
Speaking to the packer schedule, Kooima said: “Correct. And not because they’re broke down… At a time where it appears to be profitable, at a time where you just jacked up the box beef, what, $23, $24,” Kooima said. “And the reason seems to be the inability to move beef.”
Kooima says the situation is especially notable because the spread between boxed beef values and live cattle prices has widened dramatically. Normally, that kind of margin would provide an incentive for packers to increase slaughter rather than cut back.
The question is whether packers will respond to stronger margins by adding Saturday kills and additional hours, helping work through cattle that have been on feed longer than desired.
Kooima says the industry needs that cleanup to restore some of the negotiating leverage that feedlots have lost.
“Let’s get them cleaned up. Let’s get current. See if we can improve this thing going closer to year end,” he said.
The unusual packer schedule comes separately as the industry continues to adjust to Tyson Foods’ announcement that it will close its beef plant in Joslin, Illinois, and its case-ready facility in Eagle Mountain, Utah, while putting its Pasco, Washington, plant up for sale.
The closure also comes as the cattle market heads into a period when technical indicators have turned increasingly bearish. Kooima says the August futures contract is nearing expiration, with October cattle trading at a sizable discount, potentially damaging longer-term chart patterns that had been intact since the COVID era.
He says that has contributed to a lack of speculative money supporting the market.
“Unfortunately, I hate to make price projections. It’s hard enough to figure out if it’s going to go up or down, but you know, I think the market’s vulnerable down to the $205 area here by fall,” Kooima said.
That does not necessarily mean cash cattle prices will follow futures lower dollar-for-dollar, but Kooima says the technical weakness is another reason producers should remain cautious.
The industry is also waiting for Friday’s monthly Cattle on Feed report. Kooima expects August placements could come in above the trade estimate, in part because cattle are staying on feed longer and being marketed at heavier weights.
He also believes the growing influence of beef-on-dairy cattle may mean the number of cattle effectively occupying feedlot capacity is higher than official numbers suggest.
Other topics Kooima discussed:
- Tyson’s Joslin, Illinois, closure and the impact on cattle marketing in the region
- Cargill’s Fort Morgan, Colorado, reopening and why the ramp-up will be gradual
- The widening choice/select boxed beef spread
- Whether the recent boxed beef rally is sustainable
- Packer margins and the possibility of increased Saturday slaughter
- The August Cattle on Feed report and potential placement surprises
- Heifer retention and dry-lotting bred heifers
- Heavier carcass weights and longer days on feed
- Beef-on-dairy cattle and their impact on feedlot inventories
- Weak futures technicals and the lack of speculative fund support
