US: LFTB fallout: Beef packers losing nearly $100 a head
Posted: April 4th, 2012 - 10:40pm
U.S. beef packer margins were already suffering from expensive cattle, but the recent lack of demand for lean finely textured beef (LFTB) and similar products is costing packers as much as $40 per head, pushing already negative margins to a loss of nearly $100 per head, according to analysts contacted by Meatingplace.
John Nalivka, who calculates and publishes the Sterling Beef Profit Tracker, estimates that on average beef packers lost $96.48 per head in the week ended March 31, compared to a loss of $60.80 per head the previous week and a loss of $42.22 a month ago. By contrast, he estimates that in the same week a year ago beef packers were earning $48.76 per head. Nalivka’s calculations use a weighted average by volume of Choice and Select pricing.
“The ‘pink slime’ thing has wreaked havoc on this industry,” Nalivka said. “The question I have continued to pose is: How long are packers going to be able to maintain these losses? You’ve either got to pay less for the cattle or get more for the beef. ”
Andy Gottschalk, owner of HedgersEdge.com, said he calculates beef packers would lose on average $100.40 per head processed today. Last Thursday he put the average loss at $101 per head, which he said was the largest loss since Jan. 23 when he calculated the per head loss at a record $102.05 — the widest loss since he started tracking these prices 22 years ago.
Gosttschalk estimates the portion of that loss that is due to lack of LFTB demand is “likely in excess of $30 per head.”
Meanwhile, live cattle prices remain high. According to analysts’ estimates, packers had to pay on about $125 per hundredweight over the past two weeks. That would translate to about $1,030 for an 825-pound steer.
Rising cattle weights are also weighing on margins. Nalivka estimates average steer and heifer weights at 828 pounds, compared to 799 pounds a year ago. “You’ve got 29 more pounds of carcass against a lower price. And there is more fat that is worth less.”
Which brings it back to LFTB and the lack of a market for fatty trim without demand for LFTB, which separates the lean from that trim and uses it to create lean ground beef products.
No one knows how the media and social media scare is actually going to play out in terms of consumer demand for ground beef as the summer grilling season approaches. Gottschalk said it’s hard to say. “We know it’s causing a problem right now.”