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CME: Significant Margin Compression of Retail Beef Price Spread for Traditional Retailers

20 December 2017

US - We remind readers that USDA’s National Agricultural Statistics Service will release three major livestock-related reports this Friday at noon (Eastern Time): monthly "Cattle on Feed", monthly "Cold Storage", and "Quarterly Hogs and Pigs". This newsletter highlights three cattle/beef items from late last week, writes Steiner Consulting Group, DLR Division, Inc.

First, we look at a calculation that uses the retail beef price as developed by USDA’s Economic Research Service (link to the data is here). Specifically, we note the difference between the Choice cutout value and the retail beef price on a per 1000-pound live animal basis. That is a depiction of a margin for retail grocery, and it has been below a year ago most of 2017.

In November, that margin or price spread was about $125.00 below a year earlier per 1000-pounds or $12.50 per cwt. live animal basis (see graphic below). That is significant margin compression for traditional retailers, even if one wishes to debate the limitations of the retail beef price collection procedures and calculations.

Our assessment is that a battle for customers is the major factor behind the year-over-year decline in the cutout to retail beef price spread. The grocery business is very competitive. Not only is there competition among traditional grocer's, but increasingly with online sales of "hard goods". So, using pricing of fresh items like beef is being used to entice buyers into stores.

Second, last Friday afternoon cash fed cattle prices jumped up (USDA’s Agricultural Marketing Service on Monday reported many Friday trades over $120.00 per cwt.). So, the official steer weekly average price (5-Market for all grades) came in at $119.71 per cwt. That was up $2.25 per cwt. week-over-week and $8.32 above a year ago.

Finally, CanFax released their monthly Canadian Cattle on Feed numbers last Friday; they provide timely and useful data and market analysis on their website (see here). For November, the number of cattle placed into surveyed feedlots was over 51,000 head larger than 2016’s . At about 321,300 head, placements during November were the largest since 2012. The number of animals on-feed as of 1 December was about 104,000 head above a year ago, the largest for any month since April 2014.

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