HAMBURGER LIMITS BEEF CUTOUT VALUE

The weekly 550 to 700 pound choice beef cutout value so far in 1998 averaged 4 percent below 1997 and 10 percent below the previous five-year-average. Lower prices are to be expected given higher beef production, the amount of other meats being produced and the international economic conditions. Even so, the underlying cuts that comprise the cutout
tell an interesting story about consumer preferences and demand.

Consumers do not choose to eat beef. They choose to eat steaks or roasts or hamburgers or hams or chicken breasts, etc. These choices filter down to the wholesale level in terms of bidding on the wholesale primal cuts that comprise the cutout value. The cutout value is an aggregation of primal cut prices converted to a carcass basis and is a determining factor
of packer bids for cattle.

So far in 1998, a number of cuts, such as the rib roast, rib roll, and tenderloins, posted weekly wholesale prices close to or above 1997's and well above the previous five-year average. Beef cuts, such as the top rounds, posted relative prices in line with the changes to the cutout
value. Other beef cuts, such as the brisket or chuck, posted prices well below either last year or the previous five-year average.

Some of the decline in fresh 50% trimmings was a bit offset by the fact that fresh 90% coarse ground prices were only 1 percent below 1997's and 16 percent below the previous five-year average. But, the wholesale price of 90% coarse ground beef prices have been relatively low for several years.

So high value products saw increased prices, intermediate value products maintained their value relative to the cutout and lower value cuts dropped in price at a greater rate. In any case, it is unreasonable to expect prices for all beef cuts in the retail case to decline or increase in similar manner to cattle price changes.
 

BYPRODUCT PRICES

Besides the cutout value, packer bids for live cattle are also dependent on the value of the hide and offal. With the economic crisis that developed in Asia late in 1997, hide and offal prices fell sharply. The spread of the crisis to other parts of the world have kept those prices low and pushed other offal prices down.

In recent weeks, some offal prices like the heart and liver have fallen 25 to 35 percent. Meat scrap prices currently are half the price of 1997's. For the week ending October 3rd, the average hide/offal value for a steer as reported by USDA hit $6.48 per cwt., $2.24 per cwt. (live animal weight) below a year ago. This is the lowest hide/offal value on record back through 1988 and seventh largest year-to-year decline (January 10 through February 14 weekly hide/offal values ranged from $2.57 to $2.92 per cwt. below 1997's). The hide/offal value will be a limiting factor to the upward movement in live cattle prices over the next six months to a year.

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