Been a while since one of these updates, but from this week's blurb, looks like we will have higher beef prices with us through the summer, even though live cattle is still in the 130 range as it has been all year. Nuts! "TRANSPORTATION WOES Beef is not a product that is manufactured one place then sent directly to the consumer. The path of animals, then beef, through the food chain is a long and circuitous route that relies at each turn on transportation to move from Point A to Point B. This translates into significant added costs to the beef product at the store. The journey might start with a calf raised in Florida that is sold to a cattle rancher in the Texas Panhandle for grazing, then transported to a local feedyard, then to a local beef plant. The beef cuts then are sent to a grocer’s distribution house, then to a retail store, then packed into a grocery bag for the trip to the consumer’s home. Each leg of the journey from birth to plate involves costly transportation and those costs are skyrocketing. The story of inflation always seems to focus on gas and food. Pick up any news source and you will find stories chronicling the new highs [either all time or decade records] for fuel. Fuel surcharges are placed on delivery costs for each segment of the journey for beef to the table. Those transportation costs represent an ever increasing percentage of the food dollar and of the gross sales price of beef. These direct costs are further impacted by indirect transportation cost of feed and all the other inputs into the beef production sector. Unfortunately, beef has more transportation costs associated with it than the competing meats. Both poultry and pork are produced in more contained production facilities where the animals are birthed, grown and harvested within close proximity to each other. They also, because of the nature of the meat product, allow processing facilities to take the ultimate product closer to consumer ready packaging at the processing plant. Many of these meat products are shipped directly to retail stores where they are presented pre-packaged as received. Beef processors also are now being called on to further process beef cuts and deliver more portion control processing at the plant. Everyone is struggling to overcome labor shortages. The transportation costs can be mitigated by these actions but ultimately the only solution is lower fuel costs. With the summer driving season in front of us and the Ukraine war still raging, relief may not happen soon."
Uh oh. Looks like inflation at the deli meat counter will be sticky, according to the cow side... This week's blurb... ------------------------ MASSIVE DECLINE IN BEEF SUPPLIES FOR 2023 USDA is forecasting US beef production next year to be 26.343 billion pounds, down 2.1 billion pounds or 7.3% compared to 2022 levels. This extraordinary decline reaches back in history to 1979 to find a similar decline. This will be the beginning of a tumultuous reset for the beef industry and the repercussions will be felt for years to come. This publication forecast a late year decline this year in cow slaughter from year over year increases. We were wrong. This has not occurred, and cow slaughter each week has topped last year, meaning when the culling ends, the impact will be more severe than many observers anticipated. The more severe the bottoming of the cattle numbers downward cycle, the more drastic the impact of the rebuild. The severe jolt will come when simultaneously cow culling ends and heifers are held back for breeding. This is now expected to begin in 2023 and last several years. During the period of rebuilding, replacement heifer prices will increase possibly causing heifer prices to exceed those of steers. Cooperation from Mother Nature will always be part of the rebuilding and it can not happen without forage for holding the nation’s breeding stock. In the meantime, beef consumption will go down. This will not be because consumers are concerned about global warming or the growth of vegetarianism. It will happen because fewer cattle are available, and we are producing less beef. Most processors and retailers are preparing for changes in the supply chain and the advent of smaller beef supplies. Export buyers will be seeking new sources for beef supplies. Losing market share is bad news for the beef business. It risks losing customers and having consumers change eating habits because the products we sell are not available or unaffordable. Navigating through this period with minimum damage to beef demand will be tricky and complicated. Beginning the herd rebuilding needs to start now.
An interesting read this week... -------------------- CURRENCY VALUES "Beef publications for years have cited the dollar index as being the driver for our beef imports and exports. It is true that the value of the dollar in relationship to the trade partner’s currency in a foreign exchange transaction has a significant bearing on the cost of the beef product. The problem is the proper dollar index cited when speaking of cross currency values. Most people reference the ICE exchange’s dollar index — the most traded futures price. Unfortunately, for the beef business, this index often misses the proper mix of currencies. The ICE index is a geometrically designed index, meaning it is weighed more to the EU where we do very little beef business. The other currencies in the index are the Swiss franc, British pound, Swedish Karona, Japanese yen and Canadian dollar. A more appropriate index would include the Chinese Yuan, Aussie and New Zealand dollar, Brazilian Real, Mexico and Argentinian pesos. Those currencies would more accurately measure the value of our beef against the appropriate trading partners. A change of 5% in the dollar vs. the Chinese yuan means the beef product purchased in immediately 5% cheaper of higher depending on the direction. Most recently, large purchases, of American corn by Mexico users, were assisted by the rising value of the peso. The dollar remains the most important world currency and is the currency of choice when investors seek safety. Movements are underway to digitize the dollar making it easier and cheaper to trade in foreign exchange. Apart from the value of the product or value of the currencies, transaction cost is important to overall cost. Trading platforms designed to deliver cross currency ease will go a long way to reducing payment costs. Pay pal facilitates cross currency transactions and lowers cost for many. Elon Musk is planning to add this feature to Tweets and enable the social media platform to handle foreign currency transactions..." ================ But here is the more intriguing bit... "Grain Futures. Corn prices leveled out at week’s end. Farmers are encouraged by futures to market grain in the first quarter of the coming year. The emphasis will now turn to realigning the supplies of grain with the users by region of the country. Threats of a rail strike remain, and negotiations continue with government interference a possibility. Current basis offerings in Guymon, Oklahoma is $1.90 over the December contract. Dealers are offering JFM corn at $2.00 over the March contract basis Guymon. Now THAT is interesting. If the railroad strike comes, the price of most commodities should shoot higher, because they will not be transported, which means less supply, while demand has not changed.