Pre-holiday product value push unlikely
Hope in a May-time beef price push is starting to fail. The long-awaited expectation that product values will rally ahead of Memorial Day is still being awaited.
“The window is quickly closing for a final push for Memorial Day product pricing,” said Andrew Gottschalk of Hedgers Edge early last week. He predicted that if it hadn’t happened by last Saturday, it likely wouldn’t happen at all.
“The latter situation will lead to a market, which should have short lived rallies as the trend into the summer is down. The most likely timing of a summer low is the late July/early August period. We would expect a minimum type price break of 8-10 percent from the winter/spring high to the summer/fall low. This would establish a cash target price basis west Kansas at $136-139. The question surrounding the beef market concerns consumer demand. Will consumers support the higher retail beef prices necessary to support today’s cash cattle prices?” Concerns over this question have seen most markets in the beef and cattle world down. Wary retail beef procurers are not buying up beef, which leaves stores remaining in packer freezers, which lowers the cutout and shakes the cash fed markets. Sales trickled in last week at steady to lower money compared to the prior week’s prices of $146 live in the Southern Plains and $148-$150 live or $236- 238 dressed in the Corn Belt, but all at volumes too low to definitively set a trend. Gottschalk opined major packers would hold dressed prices to $234-236 by the end of the week’s trade.
Over the course of last week, the Choice cutout value dropped $2.73 to close Thursday at $225.65. Select also declined with a close of $212.51.
“The summer target price is $210 for the Choice cutout,” said Gottschalk, speaking of the “dog-days of summer” lows in cutout values. “A worst-case scenario would have a target price of $198-$202.”
Slaughter rates also are slipping, or at least compared to expectations.
Compared to the prior week’s production rate of 608,000 head, last week opened with predictions of a 610,000 production week. As time wore on, however, that changed to a “challenged to exceed 605,000” prediction by week’s end.
Most of this is hinging on the aforementioned expected demand that, so far, has not yet developed.
“Beef is moving through retail but just not at the fevered pace as packers would like to see. As a result, end meats and trim supplies are said to be building in coolers, which led to some of the discounting yesterday. We still haven’t seen the strong spring buying of beef that has been expected to develop,” reported Troy Vetterkind of Vetterkind Cattle Brokerage.
He pointed out just about every portion of the carcass, save the middle meats selectively collected by retailers ahead of Memorial Day grilling, was down and seeing discounting.
One area of beef world has seen strong prices however: cull cows.
“Cull cow prices in the U.S. have been at record high levels throughout 2014,” said Tim Petry, Livestock Economist for the North Dakota State University Extension Service.
“Declining beef cow slaughter is the result of better moisture conditions east of the Mississippi River and in some areas of the Northern Plains. Record high calf prices are also stimulating interest in retaining beef cows where moisture conditions allow it. Lower dairy cow slaughter is due both to higher milk prices and declining feed costs, which has improved profitability in the dairy sector.”
He also opined that cull cow prices are likely to remain at record high levels, but still see seasonal weakness in the late summer.
“Risk to cow prices would come from an expanding drought and forced liquidation in beef cow country.
Both the Southern Plains and Southwest are very dry now.”
Live cattle futures were mixed but generally sideways last week. From the prior Friday to last Thursday’s close, the June contract lost 12 cents to settle at $137.93 while the August contract gained 25 cents to settle at $137.60.
For the most part, cash feeder prices were still high as a kite on helium. There seems to be no stopping the increases in what is paid for medium and large 1-class (#1) steers, as prices seen last week were more familiar with the $190 and $200 areas.
Iowa: At the Denison Feeder Cattle Auction, only about half the number of receipts were collected last week as compared to the prior sale so no trend was given. That said, there was very good demand and #1, 7-weight steers sold between $190-206.50
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City saw feeder steers sell up $4-7, with steers over 900 lbs. selling up $2-3. Heifers of comparable weights were up $5-6 with heavier heifers up just $1-2. Steer calves were poorly tested but heifer calves were up $5-6 on a limited test. Benchmark yearling steers sold between $181.75-186.
Nebraska: The Huss Platte Valley Auction collected 2,073 receipts as last week’s sale with steers selling $7-15 higher and heifers up $6-13. People really wanted feeders so the auction was fast-paced and demand was strong. Seven-weight, #1 steers sold between $188.50-206.
New Mexico: At the Clovis Livestock Auction, 1,351 receipts showed that people in the Southwest really want feeders too. Instances of $5 higher on 5-weight steers were seen, though the rest were steady. Holstein steers, however, were a hot commodity, selling up $10-15 more than the last comparable sale. The several dozen head of 703-pound yearling steers that sold went for $184.
Oklahoma: The OKC West-El Reno Livestock Market sold an overwhelming number of cattle last week. Feeder steers were up $1-3 with the exception of heavyweights ( 950 lbs.). Calves were lightly tested but said to have a strong undertone. Yearling #1, 7-weight steers ranged from $177-197, with averages falling in the low $180s and low $190s. Price ranges were lower at the Union Livestock Market, between $176-189, with averages in the low- to mid-$180s.
Texas: In Amarillo, good volumes of receipts were collected compared to the prior comparable sale. Volumes of feeders, however, were not sufficient for a trend, though a higher undertone was noted. Trade activity and demand were moderate to good. What few benchmark steers were sold ranged between $183.50-191.
Washington: The Stockland Livestock Auction of Davenport collected 865 receipts with feeder cattle going for steady to up $5 higher. Activity was slow, though demand was called good. The roughly three dozen head of 7-weight, #1 steers sold between $166-180.
Wyoming: The Torrington Livestock Commission Co. saw the highest average on benchmark steers seen in surveyed cattle auctions last week. Selling $4-6 higher, with instances of $8-10 higher for steers over 700 lbs., prices were really hot. Almost 100 head sold between $207.50-210, with the average being $209.81. There was no mention of anything special about that batch.
While cash feeder prices might still know no ceiling, feeder futures may have stalled out. Over the course of last week, near-term contracts were a weak steady, getting weaker the farther down the board they got. The May contract was a wash from the prior Friday to last Thursday, staying at $183.50. August lost 5 cents with a Thursday close of $190.28, and September lost 45 cents with $190.65.
“The feeder cattle trend remains positive with a key level of support at $189.40,” said Gottschalk. “A close below that level could signal a short-term trend reversal.”
“Someone is making a strong statement in the feeder cattle futures and trying to keep them above $190 basis the August contract,” opined Vetterkind, who noted they had been weak the prior Friday, then roared back on Monday.
“The recent volatility in the feeders at these price levels is leading me to believe we could be getting close to a near-term top in the futures but until we convincingly close August back below $190 they still have open price counts and the ability to run to $198. That said, I would still be buying puts under the market on this rally. I still feel we are going to see further weakness in the cash fed cattle market going into the summer and believe the feeders are going to have a tough time maintaining these price levels when that happens.” — Kerry Halladay, WLJ Editor