Beef Packer Margins Leaking
a Lot of Red Ink
U.S. beef packers’ margins are negative and getting worse.
In the week ended Nov. 10, beef packers lost, on average, $88.59 per head. This compares to a loss of $76.48 the previous week, a loss of $61.45 a month ago and a loss of $49.50 a year ago, according to John Nalivka, who calculates the Sterling Beef Profit Tracker.
Nalivka, whose calculations blend Choice and Select pricing, told Meatingplace that along with expensive feeder cattle, packers are also seeing lower drop credit, due to declining exports, where packers often receive a premium for offal.
“Some packers are doing better and some worse, but exports do generate quite a bit of value to that animal and, as these exports start to sag, we can really see it,” he said. “I don’t think we can carry prices with the domestic market.”
Nalivka doubts U.S. retailers will be willing to boost beef prices, noting some wholesale ribeyes are already up to $7 per pound (lb.), which could translate into steaks in the retail meatcase priced higher than $12 per lb.
Meanwhile, packers are trying to pressure cattle prices, but with reduced supplies, “that is not too easy to do,” he said.
Even as fed-cattle prices have climbed [averaging about $126 per hundredweight (cwt.) in the same week], feedlots are still losing money. Nalivka said it would take a fed-cattle price of about $133 per cwt. for feedlot owners to break even, given current feedgrain prices.
Editor’s Note: This article is reprinted with permission after first being published Nov. 16, 2012, at www.meatingplace.com.
