Packer losses slow fed trade

Cattle Market & Farm Reports, Editorials
Jan 3, 2005
by WLJ
Fed beef trade was slow and cautious last week. Cattle feeders appeared to think they were in the driver’s seat and were wanting to make packers pay more for their slaughter needs than the week previous. However, as of Thursday at noon, packers were not coming to the table with more than $90 per cwt. In fact, most bids were $88-89 across the country.
For the week, as of press time Thursday, 10-12,000 head of cattle traded in northern feeding areas at mostly $139 dressed, while Texas sellers had moved only 2-3,000 head at $88 live.
Most trade during the week leading up to Christmas was at $90 live.
Packers were holding out until the last possible minute to purchase fed cattle for nearby slaughter needs, sources said. The primary reason for the stalemate was the fact that packer margins continued to be significantly negative.
Lance Zuhrmann, analyst and consultant with M&Z Livestock Analytics, said he was convinced that packers may stay out of the cash fed cattle market until after Jan. 1, particularly if margins didn’t improve immediately.
“They are out $50-60 per head right now, and at steady prices for both fed cattle coming in and boxed beef going out, the chances that profits will be seen anytime soon are slim and none,” he said. “The longer they can go without buying cattle and still selling boxed beef, the better things look for turning around their finances.”
Jason Kraft,, Fort Collins, CO, said that packers weren’t expected to process many cattle last Friday—it being New Year’s Eve—and that those cattle will be shifted over to meet processing needs during the first half of the first week of 2005.
David Talbot, cattle consultant with T&Z Ag Commodities, Wichita, KS, concurred with other sources, and said that below-normal kill days the previous three weeks have rebuilt packers’ captive supplies.
“It wouldn’t surprise me to see captive cattle supplies be 20-25 percent above normal for this time of year,” he said. “That means they need fewer cattle on the cash market, and will set out until either the price is right or they have reached the end of available supplies. It’s possible they (packers) could get into the market Monday (Jan. 3) and have them delivered to plants by Wednesday or Thursday. It’s not without precedent.”
Packers also appeared optimistic that a significant downturn in live cattle futures prices last Wednesday would turn the cash market in their favor. They were waiting for that to happen, as of Thursday midday.
Live cattle futures markets had a rough week with the announcement that the U.S. would start accepting live Canadian fed and feeder cattle in March 7. December and February live cattle contracts fell 192 points on news of the announcement, as did the other listed contracts. Most feeder cattle contracts were down nearly 300 points through the April contract.
Market analysts said there was no reason for December and February live cattle futures to plummet like they did. Most sources cited the lack of communication between USDA and futures traders for the decline in the two contracts closest in time.
“There had to be an omission of the effective date of implementation for the rule,” said Jim Robb, analyst with the Livestock Marketing Information Center, Lakewood, CO. “The earliest Canadian cattle are going to be allowed to cross the border is March 7, well after both December and February contracts expire.”
Other sources said the across-the-board futures declines were the result of the Canadian announcement last Wednesday that another cow may be infected with BSE.
Boxed beef markets were stronger than the week prior. However, volumes were much lower than two weeks ago. Over 2,100 loads of fabricated beef cuts traded on the cash market during the five days leading up to Christmas eve. Last week’s trade was a bit more tame as the Choice composite cutout was trading at mostly $141 per cwt and Select was at $135.09 on moderate volume.
Slaughter for the week was running mostly steady with a week earlier. Through Thursday 363,000 head had been processed, just 2,000 head behind the prior week. Cattle slaughter the week of Christmas totaled 497,000 head, 8.4 percent below a year ago. Beef production was down 7.3 percent year-to-date, which will be where the year will finish up, according to analysts’ projections.
Calves, yearling
trade stagnant
Overall demand for all classes of feeder and stocker cattle was called “extremely anemic” last week, resulting in prices between $2-5 below the week earlier. Additional price pressure is expected in the spring when Canadian feeder cattle are allowed entry into the U.S.
Most auction barns across the country didn’t hold sales, as they allowed employees and customers to enjoy the Christmas and New Year’s holiday season. Most feedlots were also said to be short staffed through the holiday, and that limited the amount of cattle, if any, allowed to enter their facilities.
Adding to the lackluster demand was that cattle feeders are still swimming in red ink. Most breakevens on fed cattle are between $94-96, $4-6 higher than the most recent cash market price. Stocker operators, according to Zuhrmann, are also being hurt by red ink, and that is keeping them out of the market right now.
“Many calf graziers and backgrounders bought lightweight calves at unheard of prices this summer and early fall,” he said. “The prices for heavier, more placement ready cattle have deteriorated to levels where these guys are starting to show negative margins.”
Zuhrmann indicated that several stocker operators are losing $4-7 per cwt, or $25-45 per head.
The CME feeder cattle index last Wednesday was $104.69, $1.50 below the previous Wednesday. — WLJ