If the profit margins of beef-packer profits are any indication, Americans may be cutting back on steaks and hamburgers as inflation rises.
According to data from HedgersEdge LLC, Tyson Foods Inc. (JBS USA) and JBS USA make the most money per head of cattle killed in over two years. This is a sign of declining demand for luxury meat.
When the stock market is rising, consumers are more inclined to spend on steaks and chops. This is becoming more difficult as Russia’s invasion of Ukraine puts pressure on markets. Inflation is at its worst in 40 years, with meat prices leading to sticker shock for consumers.
Don Roose is president of U.S. Commodities Inc., West Des Moines, Iowa. “Will consumers choose to buy cheaper proteins or skip protein?”
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The profit margins of beef packers were estimated at $102.45 per head on Tuesday. This is the lowest profit margin since the coronavirus pandemic in 2020. Workers in slaughterhouses contracted the virus, which forced them to close. This limited the supply of beef and sent prices to new heights. The May 2020 peak of packer margins was $1,009.30/head, further highlighting the pandemic profiteering of meat companies.
As the war increases grain prices, the balance is shifting. The rising feed prices will force livestock farmers to reduce their herds and increase profits for slaughterhouses.
The Cattle producers are continuing to monitor developments in Eastern Europe to determine how they may impact prices. Andrew Griffith, an ag economist at the University of Tennessee, said that cattle marketings were slow to start March. This could have been due to a variety of factors.
He states that “the number of cattle being sold at weekly auctions was quite low.” “Some of this could have been because of weekend rain keeping trailers from pastures, but it was more likely due to the concern that Russia- Ukraine may significantly impact prices.”
Griffith claims that the war in Ukraine has caused more volatility for feeder cattle than it has for calf prices.
He says, “The volatility has increased in feeder cattle futures trading due to the crisis in Eastern Europe or Asia.” “However, the effect on the cash price for calves was not as obvious.”
Griffith states that it can be hard to understand the causes of this division.
He says, “It is hard to predict why buyers in cash markets reacted differently than buyers in futures markets.” “But, local cattle buyers didn’t react differently by not bidding as high as they would have if the crisis hadn’t been part of their decision-making. If there had not been global political turmoil, the calf market would have been in a stronger season. This could have meant that prices could have risen even further this week.
Griffith said that the outlook for calf prices is still good.
He says that regardless of the reason, calf prices will continue to rise in the coming weeks as grass cattle demand continues to grow. Cash prices will closely follow the futures market from a feeder cattle perspective as cattle placed at this time of the year tend to be off feed during the season.
Griffith suggests producers not overreact, and says that the fundamentals suggest that cattle prices should move higher.
He says, “Producers who are considering price risk management should not take a rash decision.” Although there is no way to predict how prices will move in the future, cattle fundamentals suggest that cattle prices can be supported by moving back towards their contract highs. Although this could be temperated if corn prices stay high, prices are likely to move higher in the coming weeks.