Packers’ supplies stall fed trade

Cattle Market & Farm Reports, Editorials
Jan 24, 2005
by WLJ
— Feeders gain on spring prospects, corn decline.
— Calves stronger on grazing outlook.

Optimism that last week’s fed cattle prices would be stronger than the previous week’s level of $92-93 live, $145 dressed still hadn’t come to fruition as of Thursday. Fed trade was almost nonexistent last week with packer bids and cattle feeders asking prices being spread up to $6 apart. Analysts said they were expecting fairly active Friday afternoon trade, and that it would probably be at mostly steady money, if not a little softer than two weeks ago. Through mid-afternoon Thursday, only light trade had been reported in Nebraska at mostly $89-89.50 live, $144-145 dressed. Southern markets were inactive.
Packers were not very active in the market last week despite seeing profits going over $22 per head. Analysts said packers purchased more than enough cattle during the first two full weeks of January to meet depressed slaughter chain speeds for a majority of the month.
Between last Monday and Thursday packers had slaughtered 457,000 head of cattle, 7,000 fewer than the previous week, and a daily average of just over 114,000 head. Under normal circumstances, daily slaughter usually ranges between 125-130,000 head. For the week ending Jan. 15, 587,000 head of cattle were processed, a weekday daily average of 117,500 head.
Several analysts were skeptical whether last week’s final slaughter figure would hit 575,000 head, compared to a “normal” weekly kill volume of 650-675,000 head. Year-to-date slaughter, through Jan. 15, totaled 1.161 million head, 137,000 head below a year ago.
“Packers just don’t need many cattle for nearby production runs,” said Reed Zuhrmann, M&Z Livestock Analytics. “For the year packers have processed more than one day’s worth of cattle less than last year. It shows in their lackluster demand for cattle and their desire to still be bidding under $90 live, $145 dressed.”
In addition, finishing weights of cattle are 20 pounds heavier than they were a year ago at this time and average carcass weights are 17 pounds heavier. “Fewer cattle are needed to produce even a similar amount of beef, compared to last year, and right now we are at least 10 percent off of total ‘normal’ demand, including pre-BSE export demand levels,” Zuhrmann said.
Boxed beef markets were starting to soften last week, after a significant spike in both Choice and Select beef prices the week prior. At the close of business last Thursday, Choice beef was at $154.20, compared to $157.32 on Tuesday. Select dropped about $2 from Tuesday’s close, getting down to $149.84 at the end of business Thursday.
If boxed beef prices dropped much further, packers would be close to going back to reporting red ink, and that was also influencing their decision to wait on buying fed cattle, analysts said.
Live cattle futures were less than supporting to the cash market, particularly on Wednesday when losses ranged between $1.25-2 on most contracts, including February, which dropped $1.77 Wednesday, to $89.35.
spike $2
While cattle feeders were looking at yet another week of negative margins—mostly $40-60 per head—they were more than inclined to get into the heavy feeder market last week and buy them at stronger prices than the week prior. In most cases, 750-pound or heavier steers were bringing mostly $2 more than the week ending Jan. 16.
There is still some optimism that the spring and early summer fed markets could be stronger, and that bullishness got even stronger after USDA indicated that beef trade with Japan could restart as soon as June.
In addition, corn prices cheapened further early in the week and several sources said that it could be forward contracted at prices well below $3.50 per cwt. The March corn futures contract fell below $1.95 last week.
The CME feeder steer index last Wednesday was at $106.36, compared to $104.61 the previous Wednesday.
Stocker operator demand for calves and lighter stocker cattle was called astronomical by several auction barn operators last week, and that resulted in prices for calves ranging anywhere between $2-7 higher than two weeks ago.
Grazing prospects across most major cattle producing areas are still being called excellent, and several auction barn sources said most stocker operators are buying calves now and not waiting to the last minute when prices could be even higher.
The second week of January saw Southwest grazing areas get another 2-4 inches of measurable moisture, while more northern areas of the southern and central Plains and the Midwest got another 1-3 inches. Northwest markets were also strong as winter weather was hitting a lot of that region as well.
According to Zuhrmann, cheap corn has helped stocker operators, particularly in the central Plains and Midwest, get into the market earlier than normal because feeding them corn and stalks the next two months would be cheaper than paying another $8-10 more for grazing cattle come late March, early April.
“This (price) run isn’t done,” he said. “I can sure envision $1.50 five-weights in some areas of the country. Canada’s influence on the calf market won’t happen until the fall.”
Chad Kimball, an independent order buyer from Altus, OK, told WLJ that he and several colleagues have had as many requests for heifer calves and steer calves, and that they are being told to buy them at a discount to steers of under $5.
“Stocker operators are not only bullish about the feeder steer market come this spring, but they are also confident that a lot more heifers will be demanded as cheaper alternatives to feeding out steers and there is also that residual replacement female market that some of them could be sold to,” Kimball said. — WLJ