Fed market very slow, steady

Cattle Market & Farm Reports, Editorials
Jan 10, 2005
by WLJ
— Packer losses, slow demand cited.
It was a tenuous week in the fed cattle markets last week. Trade volume was light and $88-88.50 live, $140 dressed was all that cattle feeders could muster despite a winter storm that passed through most of the nation’s cattle feeding region.
There were several elements at work last week—futures markets were softer with the Canadian trade news and announcements that most of the nation’s major packers were going to temporarily close some plants and reduce production shifts at others.
Tyson was going to suspend operations in Denison, IA; Norfolk and West Point, NE; and Boise ID, and discontinue the second shift at their Pasco, WA, plant. National Beef also announced some temporary production cuts due to “unfavorable” market conditions.
The last week of the year there were 538,000 head processed with no Saturday slaughter on Jan. 1. For the first week of the year, through Thursday, 449,000 head were processed, 34,000 head fewer than the same period a week earlier.
The most recent packer margin index showed packers losing almost $60 per head. Losses have been reported by packers going for nearly six months. The standard practice of reducing beef production to prop up the boxed beef market is in full swing, market analysts said.
Andy Gottschalk, HedgersEdge.com, said beef demand is being pressured because of less disposable income resulting from rising energy costs. The Atkins high-protein diet is also losing favor with consumers, according to Gottschalk, and competing meats are more aggressive in pursuing market share for those high-protein dieters.
“The beef industry doesn’t have sole ownership of the Atkins diet as it did several years ago,” he said.
In addition, Gottschalk said, “We have a serious demand problem at work, and the current dynamics will only compound the problem. With the packing industry announcing shutdowns, we are expecting weekly slaughter for the next several weeks to be only 570,000 head. The industry needs to slaughter 622,000 head to keep feedlots current based on current numbers of cattle on feed. They are expecting the fed cattle market to trade between $85-90 with storm market factors assumed for the next six weeks.”
Boxed beef sales volume was moderate last week and the Choice cutout was off several dollars from the previous week, to $139.55. In addition, there is only a $7 spread between Choice and Select, which is at $132.38. The only bright spot in the meat markets is the grinding markets, where ninety percent lean was trading at $144.71, down just slightly from a week earlier. The 50 percent trim market rallied to $72.90, up more than $20 from two weeks prior.
Mark Gustafson, spokesperson with Swift & Company, said it has been very difficult to get extra value in the end meats because of the export situation.
“We have been forced to put a lot of chucks and rounds, along with other items into the grinding bin when they would have a much higher value in the export markets,” he said. He added that in their Australian operations tongues are selling to Japan for over $5 a pound while U.S. operations can’t get $1 domestically.
Yearlings up,
calves sliding
Yearling and heavier-weight feeder calves gained a little bit of ground last week, as prices ranged from mostly steady to $1 higher than the last week of 2004. Cattle feeders were scrambling to find cattle that would be ready for market during the spring of 2005, auction barn managers said.
Supplies of cattle weighing 750 lbs. or more are very tight, and the fact that Canadian feeder cattle aren’t being allowed into the U.S. until March 7 is forcing cattle feeders to pay a little more for them.
The fact that winter weather rolled in last week didn’t deter feedlot interest in heavier placements, particularly with the severity of winter weather being much less severe than meteorologists’ projections. Texas panhandle sources reported an inch or less of rain falling, compared to forecasts of 4-6 inches of snow. In addition, western Kansas, eastern Colorado and western Nebraska received 4-6 inches of snow, compared to forecasts of one foot or more.
“They (feedlots) need the cattle right now, and heavier, more mature placements can handle what Mother Nature has doled out so far this year,” said Randy Kinnon, cattle broker with K&K Livestock, Garden City, KS. “Fed supplies could be very short the second quarter, and that means that cattle destined for market at that time could be a profit making venture.”
The nearby feeder cattle futures contract remained above $104 per cwt for most of the week, and that was said to be supporting cash feeder cattle prices a little bit. Market analysts said that futures above $103 will keep cash feeder cattle at steady to improving prices week-to-week.
In addition, Kinnon said that while corn futures were trending upward last week, cash corn could still be bought for well under $2 per bushel, or $3.60 per cwt.
“In two weeks it (corn) may be well over $2 a bushel, however, right now, there is still plenty of old crop in outside piles or plastic, and it is being fire-saled. I’ve seen it still at $1.75 or lower (per bushel) in many areas.” Kinnon said. “That is more impetus to take the chance on older placements.”
The CME feeder cattle index last Wednesday was at $104.86, about 25 cents higher than the same day the week previous.
Calf prices weren’t as lucky last week, as prices paid for them ranged anywhere between $2-6 softer, as extremely cold weather deterred much interest in lightweight feedlot or stocker placements.
Kinnon said several of his feedlot and stocker operator clients were adamant they didn’t want to deal with younger, immature calves because of the extra labor and expense it usually takes to keep them healthy during winter storms. He added stocker operators are no longer looking for late season grazing cattle, and cattle feeders were concerned corn prices would start to escalate through the rest of January and make feeding those cattle out a more expensive proposition.
“Light calves being placed right now would normally be ready (for market) during the summer, which is a usual lull period for fed cattle,” Kinnon said. “There is still a lot of uncertainty whether or not Japan and other export markets will be open to U.S. beef by then and the fact that Canadian cattle could be entering the country at that time, makes the possible summer fed cattle supply look overly large right now.”
Other cattle market analysts said the primary indicator leading to depressed cattle prices is more simple, and that economics is to blame. At $88 fed cattle are losing anywhere between $80-100 per head. Most sources said that breakevens are at a minimum of $95 right now, and that some cattle could be up around $97-98 because of being held due to severe winter weather. — WLJ
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