Cash prices decline
Cash priced continue to settle lower, making the second week this year where the cash fed cattle market did not set a new high record. Compared to the prior week which saw live prices at $144-146 and dressed prices at $230-232, the meager number of sales which had been recorded by last Thursday had declined to $139-141 live and $225 dressed. The move was called a continued correction in the cash fed market.
“Cash price supports exist at $142 followed by $136-$138,” said Andrew Gottschalk of Hedgers Edge early last week. Whether cash prices are on their way to that lower support price, or just came in low compared to the higher support price, is yet to be seen.
Along with cash prices, product values continued their downward hurtle. Over the course of last week (prior Friday to last Thursday), the Choice cutout lost almost $10 to close Thursday with $213.51. Select declined more over that time, losing $12.54 to see last Thursday afternoon at $212.31.
“Product values continue to decline with the first level of major support at $206-$210,” noted Gottschalk. He also pointed out that the upside of the downward fall of product value is that it could delay or pre-empt some pressure on retailers to raise beef prices commensurate with its recent $240 value.
“Bear in mind though, that a cutout at $206 minimized retail beef margins. As such, some retail price advance will occur to reflect the recent advance to $240. In order to fully restore retail beef margins at current retail beef prices of $5.04 per pound, the Choice cutout would need to decline to $194.”
He opined that the long-term price support level for Choice would be the $198-200 level, barring serious economy slowdowns which negatively affect beef sales.
Troy Vetterkind of Vetterkind Cattle Brokerage pointed out that cash beef prices for coarse ground formulations “collapsed” over last week, largely on declining demand from foodservice faced with the widespread harsh winter weather. Despite that, retail ground beef prices are still high relative to seasonal norms and—given that the American public consumes the majority of its beef in the form of ground beef (see Traci Eatherton’s story on the topic on page 16)—that is a problem for demand.
Purveyors of ground beef aren’t the only ones having problems recently. Steve Meyer and Len Steiner of the CME Daily Livestock Report reported that “white table cloth establishments” were also struggling. Add to this the upcoming period of Lent (March 5 through April 17) where beef is a common sacrifice and the issue of poor weather over Valentine’s Day, an often beef-favored holiday.
While the weather has been causing problems to the cattle and beef world in the form of depressed demand and limiting feeder cattle auctions, some of the weather-caused difficulty comes with a silver lining. Though packers have been limiting production to help recoup margin losses—now estimated at $77 per head—the weather last week curtailed production even more. After the week started with estimates of 580,000 head, by the end of the week last week, the estimate had dropped to 560,000.
Limited production and weather-related gaining difficulties at feed yards is helping to “keep the market current,” to use a phrase favored by Gottschalk.
Live cattle futures continued their downward correction last week, with the February contract losing $2.27 to settle Thursday at $139.40, and the April contract lost $1.34 to settle at $139.08.
“Technically front month live cattle futures are looking vulnerable to some long liquidation with Feb. closing below $140 and April closing below $139,” noted Vetterkind on Wednesday. “I don’t know if we’re into a situation where funds are ready to puke yet, but given the near term outlook on boxed beef and cash cattle prices, which is lower, we could continue to see futures prices leak a little bit lower. Could be a situation where we see the market move lower through the month of February before we see another cash/futures rally during March.”
Harsh winter weather in much of the cattle-selling country hampered feeder auctions last week. Many sales saw their receipts halved or even quartered, with many sales simply reporting having shut down.
Few sale yards offered trends, though it seemed prices were down across the board on medium and large 1-class (#1) steers weighing between 700-800 lbs.
California: Feeder cattle were selling well in California where the ongoing and intensifying drought and high land values are forcing the hands of many. Beef steers weighing between 600-800 lbs. at the Escalon Livestock Market were bringing $135-150, while Holstein steers of the same weight range brought $95-110. At the Turlock Livestock Auction Yard, most of the feeder offering was under 600 lbs. Yearling #1 steers between 700-800 lbs. sold for $140-157.50. Comparable Holstein steers sold between $82- 112.
Colorado: At the La Junta Livestock Commission Company, the sales were hampered by inclement weather, so receipts were half of what they were the prior week, and a third of what they were the same time a year ago. The small volume made trends hard to tell, but trade was called moderate and slaughter cows were up $1-2. While most of the feeder offering was over 600 lbs., there were no #1, 7-weight steer sales quoted.
Iowa: The Hawkeye state also has some weather-related slowness in its sales, with the majority of its sales reporting less than half of the receipts cumulatively collected the prior week. Across the state, reports of sales for 7-weight, #1 steers had them solidly in the mid $170s with extremes for the class hit by light calves selling at $183.50, and $165.91 for fleshy yearlings. Specifically in the Feeder Cattle Auction in Russell, where 2,635 receipts were collected—more than the prior week, but less than the same sale week last year— peewee/light feeder steers were still rocketing upwards, selling at $10-15 higher, while steers over 500 lbs. were down $3-5. Heifers followed a similar price trend on the lightweights, but were up $2-4 for heifers over 450 lbs. Trade and demand was called good. The only #1 steers in the 700-pound range sold at either end of the $170s spectrum based on weight.
Kansas: At the Winter Livestock Feeder Cattle Auction in Dodge City the massive snowstorm reduced the sales to roughly an eighth of their usual volume at 559 receipts. Additionally, cattle at the sale barn were showing signs of cold stress from the 6-12 inches of snow and sub-zero temperatures. Given the greatly curtailed offering, no market trends were offered.
The two reports of 7-weight, #1 yearling steers selling had their prices at an average of $165.25 for 53 head weighing an average of 759 lbs. and 15 head averaging 707 lbs. selling for $173.
Nebraska: In Kearney’s Huss Platte Valley Auction, the cold and inhospitable weather halved the sales offering with only 2,300 estimated receipts collected compared to the prior week’s 4,500. No trends were offered on this 57 percent feeder offering. However, for those who showed up to the sale, demand was good. A collection of 221 head of average 725-pound #1 yearling steers sold at $173.05, while another group of 240 head of yearling steers averaging 772 lbs. sold for $168.80.
Oklahoma: At the OKC West Livestock Market in El Reno, sales were quartered by the winter storm in the area which hampered livestock movement and stressed man and beast with strong winds and chilling temperatures. Demand was called moderate to good for those who braved the weather, however the quality of stock available was called average at best. No trends given. There were no receipts for sales of #1, 7-weight steers, but a group of heavy 6-weight calves sold for $171.50 and a large collection of light 8-weight yearlings sold for $159.74. At the Oklahoma National Stockyards, receipts were slightly over a third of what they should have been. Feeders of all sorts were called steady on a light test. Prices on #1 steers in the 700-pound range were decidedly in the mid-$160s, with a small batch of 769-pound calves being the outliers selling at $160.
“March feeders are right into some trendline support at $167 and below that we have some spike lows at $166.50 and $166. I would think we can hold this layered support under the market here, but a close below $166 would start to look negative in my opinion,” said Vetterkind. — Kerry Halladay, WLJ Editor