Cattle Call is a regular agricultural market analysis show produced by the Nebraska Rural Radio Association and presented by Blue Chip Herefords located in Oxford, Nebraska
Cattle slaughter has slowed sharply in recent weeks, and growing pressure on beef packer margins is prompting some plants to reduce operating hours or temporarily shut down, according to cattle market analyst Brad Kooima of KKV Trading.
Kooima says the lighter slaughter pace is concerning because it comes as producers hold cattle longer following a recent heat wave that caused weight loss.
Last week’s estimated cattle slaughter totaled about 509,000 head, down from 512,000 the previous week. Kooima says last week’s beef production was the lowest of the year for a non-holiday week.
“I think that combination of producer not wanting to sell cattle at $233 or $235 because their break evens might be higher than that is creating some holding action and maybe as significant or maybe even more significant, having gone through this heat blast here that we had, there is certainly a desire by many of us to try to get some of that weight put back on that those cattle lost and they did lose,” Kooima said.
He says cattle that go off feed during extreme heat lose significant weight, creating an incentive for producers to hold them longer and put that weight back on.
At the same time, Kooima says beef packers are showing little willingness to increase production because of weak margins. He says at least two major plants have been dark on individual days, not because of maintenance issues, but because of profitability concerns.
“They’re not doing cooler cleanouts, they’re not broke down, it’s because they don’t like the margins,” Kooima said. “So the packer’s pretty dug in here, you know, so we’ll see who wins this little deal.”
The combination of fewer cattle moving through plants and longer-fed cattle remaining on feed could create problems later if supplies build, Kooima says.
He is particularly concerned that cattle being held back now could eventually create a larger supply of heavy, long-fed cattle, potentially weakening producer leverage.
“What I worry about is what if we get down the road here a few weeks and find out, oh, all of a sudden we seem to have this little bit of bulge of supply, long fed cattle that are plenty big,” Kooima said. “And, you know, we’re back to talking about that leverage piece. So I am a little worried about that.”
Kooima says the situation bears watching as both producers and packers weigh whether to keep cattle moving through the system or wait for better margins.
Other topics discussed:
- Potential plant closures and reduced operating hours
- Fort Morgan plant union vote and possible settlement
- Upcoming video auction offerings and larger feeder cattle numbers
- Risk of heavier, long-fed cattle building up in coming weeks
- Feeder cattle market potentially facing more softness
- Futures market vulnerability and declining open interest