Packer profits rally feds

Cattle Market & Farm Reports, Editorials
Jan 14, 2005
by WLJ
— Short supplies, weather tighten sellers’ grip.
For the first time in several months, beef packers last week showed positive profit margins and that resulted in them coming to the table and paying more for their immediate slaughter needs. While trade volumes were pretty light, fed cattle sellers were able to capitalize off of tight supplies and winter weather that was threatening several major feeding areas.
Last week’s trade happened at mostly $92-93 live in southern cattle feeding areas, primarily Kansas and Texas. Northern trade was at mostly $145 dressed, $90-91 live. Prices were $2-5 higher than the previous week. Packers started out the week bidding $85 or lower. By Wednesday, however, packers had jumped bids to at least $92, and the majority of trade happened that afternoon.
For the week, 40-45,000 head of cattle traded hands in each of the three major cattle feeding states. Most analysts called trade volume “moderate, at best,” and said recent slowdowns in production chains led to slower-than-normal trade activity. In addition, finishing weights of cattle are a little larger than the same time last year, with live weights being 20 lbs. heavier and average carcass weights being 12 lbs. larger.
Slaughter volume for the week ending Jan. 8 was 574,000 head, and most market onlookers said it is likely weekly processing volumes could be steady or below those levels the remainder of the month. However, while light slaughter volumes were considered bearish for packer demand on cattle, it did help boost wholesale beef prices last week, which allowed packers to report profits for the first time in over three months.
The Choice composite cutout last Thursday was at $155 per cwt, compared to $143 at the end of the previous week. The Select cutout was above $147, compared to being below $136 the previous Friday. Packer profits were called $10-12 per head at the close of business last Wednesday and were expected to be almost $20 per head by the end of the week. Last week’s boxed beef prices were being compared to previous week procurement prices of $88-90 live.
Boxed beef volumes last week were called “surprisingly strong,” with the first three days of the week all showing around 300 loads or more being moved between packers and retailers.
Severe winter weather hit Nebraska, Colorado and Kansas last week and that allowed cattle feeders to tighten up slaughter-ready supplies because of concerns that cattle were stressing or losing weight. Western Nebraska, eastern Colorado and western Kansas feedyards reported anywhere between 3-6 inches of snow last Tuesday and Wednesday with temperatures below freezing.
The panhandle of Texas was spared a lot of severe weather. Brent Snyder, analyst with the Texas Cattle Feeders Association (TCFA) said, however, feedlots in that area are still trying to recuperate cattle from winter weather that hit at the end of December.
“We’re in good shape weather wise. Right now, however, some cattle are still needing some feed after severe winter weather last month,” Snyder said. “Showlists are extremely tight right now, and that is showing itself in the market.”
Dillon Feuz, extension livestock economist with the University of Nebraska, told WLJ that the previous week’s cash trade volume—245,000 head—was better than projected and that it created enough clearance in showlist numbers that prospective sellers had few cattle to sell. In addition, he said packers were buying cattle on a very tight “hand-to-mouth” basis and that they needed cattle for immediate slaughter needs, perhaps even for last Friday.
“They only bought 105,000 head the week of Christmas, and that kept them in a very short supply situation, and forced them to buy more cattle last week and this week,” Feuz said.
Live cattle futures rallied through Wednesday, before starting to slide 50-60 cents last Thursday. Early week sentiments on the Chicago Mercantile Exchange (CME) trading floor were USDA would delay final implementation of its live cattle and beef import rules and that rallied the market some. February live cattle, in fact, got up to $92.75 last week, before showing just over $90 Thursday midday. April also got over the $90 mark, since it was the first listed contract following USDA’s expected import implementation date of March 7.
While feedlot demand was considered anemic for lighter, more immature calves, stocker demand was more than enough to rally the market $2-5 across the nation.
According to Feuz, winter moisture has been plentiful across most major stocker cattle areas and that has resulted in stocker operators trying to get their hands on cattle already for spring grazing.
“In this area (Sandhills of Nebraska) spring grazing could be the best in 4-5 years, and I’ve heard nothing but positives about grazing prospects across the country,” he said. “Looks like stocker operators are already buying those cattle and putting them on cheap feed the next few months, before turning them out on pasture in April.”
It was a busy first two weeks from a video auction standpoint, with the three biggest video auctions in the country all conducting beginning of the year sales. Superior Livestock Video, Western Video Market, Northern Plains Video Auction all reported very strong sales on lightweight calves and called trade activity very active.
There were several instances with 350-450 lb. calves getting back above the $140 level, with some 500-600 lb. calves seeing $125-130 again.
Land-based auction facilities reported similar scenarios, with larger-than-normal buyer attendance noted. Texas, Missouri and Nebraska auction managers reported buyer attendance last week that was 25-40 percent larger than the same time the previous few years.
“While weather was considered a deterrent for packers buying fed cattle, it was a windfall for cow/calf producers selling their calves,” said Feuz. “A lot of stocker operators can get these calves and put them in a facility where weather isn’t a big factor on their health or nutritional needs. Most drylots can provide a dry spot to lay, and in most cases, a good windbreak.”
Heavier, more placement ready cattle weren’t seeing the same price gains last week, however, they weren’t seeing any major price declines either. Most auction sources reported yearling cattle bringing mostly steady money, compared to the previous week.
Winter weather was keeping some northern Plains feedlot operators out of the market. Southern feedlots, however, weren’t seeing a lot of problems, except for some slightly muddy conditions due to light rain.
According to Snyder and Feuz, feedlots are still bringing in placements but aren’t doing so at any great increase in procurement prices. While fed prices were up last week, a $92-93 market still means cattle feeders are losing $35-55 a head, if not a little more on cattle that have been held back an extra two or three weeks.
The possibility that USDA would delay the reentry of Canadian feeder cattle beyond the original March 7 deadline was keeping the market mostly steady, according to Feuz.
The CME feeder index last Wednesday was at $104.65, almost even with the previous Wednesday. — WLJ