CME: Evaporation of Large Beef Packer Margins in December


CME Group

via The Cattle Site - 09 January 2020


US - Large beef packer margins evaporated in December after recording highs earlier in 2019, reports Steiner Consulting Group, DLR Division, Inc.


The Livestock Marketing Information Center (LMIC) calculates the gross margin for packers based on the live to cutout spread (including by-products) per 1000 lbs. of steer. Using this calculation, August was the highest gross margin on record, with data going back to 1987.


August posted $491.57 per 1000 lbs. of steer, and would see two of the following four months post gross margins over $400 per 1000 lbs. of steer. Over the last 10 years, the average monthly gross margin calculates to $168.86, only a third of the value of Augustís figure.


The principle driver to the aggressive slide in the gross margin has been the rally in fed cattle prices. The LMIC uses a live price from Western Kansas that posted a December average of $119.97 per cwt, a $4 per cwt increase from the previous month.


Since August the live steer price has risen over $14 per cwt. Also, working against packer margins in December was a notable decrease in choice boxed beef cutout value. The second half of 2019 was extremely volatile for the cutout value, producing two large price spikes 12 weeks apart. December however, hit a low point of $217.24 per cwt. The lowest monthly boxed beef average since July 2019.


Several factors have moved the cutout in the last six months of 2019. The first was the Tyson fire, which caught retailers and restaurants short only a few weeks before Labor day, the last big grilling holidays of the year.


The second spike likely had both demand and supply components. As boxed beef prices fell...


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