What is in this article?:
- Cattle price pullback was likely even before LFTB discussion.
- Labeling changes and other ramifications could come from the LFTB discussion.
- Consumer reaction to LFTB will also be relatively short lived.
He said labeling changes and other ramifications could come from the LFTB discussion.
“The part that is less known and what may be a little more costly is change on the supply side – the cost of doing business,” he said. “At the extreme, if we quit using LFTB, and I don’t expect that will happen, but if we take that away from the toolbox, the cost of business goes up. If we add labeling, that’s an added cost, but not as expensive as removing it, and there are a lot of things in between.
“I think the net impact is the cost of producing ground beef and the cost of beef overall is going up from this, and that probably will have some staying power that goes beyond the negative demand aspects that lasts one or two quarters.” He said in March, prices for fresh 90 percent lean boneless beef trimmings dipped about 0.7 percent, but prices for fresh 50 percent lean trimmings (less lean) had fallen 17.6 percent ($83 per hundredweight) by March 31 compared to $101 on March 3. Fresh 50 percent lean prices fell even further the week before Easter, hitting $63 per hundredweight.
“The reason I mention this is that fresh 90 percent lean trimmings held up and stayed relatively flat during March. The less lean product, which is typically blended with or subject to LFTB, has been hammered,” Tonsor said.
“Estimates are that roughly 10 percent of beef on a carcass would fall into the fresh 50 percent lean category and if you use that 10 percent assumption and basically a $40 per hundredweight falloff in the value of that product during March, that amounts to essentially a $4 per hundredweight value pullback on fed cattle. That explains a decent portion of the pullback on fed cattle prices during March,” he said.
“If you go further and recognize there was discussion even before the LFTB about heavy cattle weights—we’ve had better growth than we expected—when we have heavier animals, we tend to have even more than usual fall into that fresh 50 percent lean category,” he said. “So at the extreme, if we had 15 percent of pounds falling into that 50 percent category – and I’m probably pressing the point here – if you had that you could explain probably a $6 pullback in fed cattle prices.
“The truth is, maybe somewhere between the $3 and $5 value pullback in fed cattle could be assigned narrowly to the drop in fresh 50 percent lean prices.”
Tonsor is still analyzing beef demand data for the first quarter of 2012 (January-March), but expects it will show a negative year-over-year picture. He said several analysts over the past few months, before the current discussion, were reminding that the tight supply situation was already known – kind of fixed – so the value of cattle is hinging on demand.
He expects the LFTB issue to continue to be sorted out and that it likely will still have an effect on beef and cattle prices for the short term.