Fed cattle retreat from recent highs
Fed cattle trade last week was slow but steady for much of the early week period with small numbers trading in most areas through midday last Thursday. The light cash trade had backed down from the previous week’s exceptional levels by $2-2.50 in most areas. In the southern Plains, live trade was mostly in the $100 range. In Kansas, trade was reported at $99-100.50 last Wednesday. Colorado Live sales were down 50 cents to $1 in the $99-101 range. Dressed trade in the north had not been established by midday Thursday, but most analysts were expecting prices to decline to a range of $158-160, consistent with the declines seen in the south through the week.
Packers secured large numbers of cattle during the prior week’s buying spree, pushing the market sharply higher as they looked for Choice-grading cattle to fill big orders for product from domestic and foreign buyers. Once that demand was met, it left packers with some carry-over inventory coming into the week, so their immediate needs were light last week, allowing them to pick over offerings a little.
Cattle-Fax analyst Troy Applehans said last week that going into the first of the month, packers would have plenty of contract cattle to pull on, which was also limiting last week’s trade volume.
"We haven’t seen many cattle trade in the south yet, but that may be all we get this week," said Applehans.
There were several reports last week that after pulling cattle forward recently, show list offerings were perhaps a little "green" for buyers last week, so action was expected to be light.
"Feedlots are very current right now after pulling cattle forward for the past four or five months, so that’s also a factor right now," he explained, noting that both live weights and carcass weights continue to run below last year’s levels.
"We’ve been trading at a positive basis in the cash markets for the past several months, which has led to feedlots and risk managers pulling those cattle forward, so the cattle we’re marketing right now haven’t been on feed as many days and they’re lighter as a result," said Applehans.
The other factor slowing the markets last week was sluggish trade in the boxed beef markets. Retailers have had difficulty pushing beef prices higher and competing proteins haven’t been moving significantly higher in recent weeks either. Those factors have made it difficult to push beef into retail channels and as a result, wholesale marketings were very slow last week, marking some of the lowest movement levels of the year as causing prices to back off their recent highs.
At midday last Thursday, the Choice boxed beef composite cutout was trading 95 cents higher than the previous day at $162.32 while Select was down 4 cents at $154.51, with only 64 fabricated loads trading during the morning session.
Applehans said that cattle markets have been range-bound for the past several months and the next big market-mover was likely to be the Nov. 9 supply and demand report from USDA. That report will provide one of the year’s last looks at corn production and set the tone for the market into the end of the year.
"If USDA makes significant changes to corn production or use, it will have an impact on cattle markets," said Applehans. "What we see is about a 90 percent correlation between corn prices and fed cattle prices. So, a 25 cent per bushel increase in corn prices results in an increase of about $1 in fed cattle prices. So, even with the increase in corn prices this year, we’re seeing fed cattle prices keeping pace."
Looking forward into the first half of winter, Applehans said the futures markets might swing back to negative basis levels, similar to the markets we’ve seen over the past three years.
"If we get to that point in the December or January contract months, where they are trading higher than the cash market, then we could get into a situation where we start backing cattle up in feedlots while guys wait for a better price," said Applehans. "But, we’re at a point right now where feedlot inventories are very current, so it might not have that big an impact on the market."
Applehans said that the correlation between rising corn prices and rising fed cattle prices has been taking much of the pressure off of the feeder cattle markets thus far.
"Feeder cattle prices have managed to maintain pretty good levels this fall, even though we’ve seen higher corn prices," said Applehans. "That supply and demand report from USDA is going to be pretty important though."
The trend in grain prices remains to the upside as export levels have continued steady, with both corn and soybean sales to overseas buyers remaining strong. Market analysts have noted that volatility is likely to remain in both corn and soybean markets well into winter until prices reach a level that will ration usage. Last Thursday, midday December corn prices on the CME were trading slightly higher at $5.80 per bushel, with analysts noting that the $6 mark was a possibility, particularly with any downward adjustment in USDA’s November report.
Despite the rise in corn prices, cash feeder cattle markets last week were trading mostly higher after the prior week’s sharply higher fed cattle trade. Volumes were up sharply in many markets as producers shipped calves to sale, with many markets reporting very large numbers on offer. Most markets turned in results $1-3 higher than the previous week’s action.
At the market in Philip, SD, last week, a huge run of 10,300 head of western South Dakota cattle were on offer. According to reports, 400 lb. steer calves brought $130-$153 while 500 lb. steers brought $122-$135 and 600 lb. steers brought $117-$130. Yearling cattle were in short supply, however, they did sell one reputation string of 900 lb. heifers for $108.
Meanwhile in Oklahoma City, OK, last week, precipitation across the area improved buyer attitudes and wheat pasture grazing prospects at the same time. As a result, feeder steers traded $2-4 higher while feeder heifers sold steady to $3 higher. Steer calves were sharply higher, gaining $5-10 with some instances of as much as $13-14 higher than the previous week. Heifer calves sold mostly $5-8 higher, with some instances up to $12 higher. Demand was called good to very good on all classes of cattle.
In Torrington, WY, steers and heifers were called steady to $2 higher on good demand. On the West Coast in Galt, CA, feeder and stocker steers and heifers in all classes sold steady with the previous week. Steers in the 500-600 lb. class were selling between $115 and $136.50 while heifermates brought $100-119. Heavier steers in the 600-700 lb. class brought $100-121, while heifers in the same category sold from $95 to $112. — WLJ