Trade awaits cattle on feed report

Cattle Market & Farm Reports, Editorials
Jan 29, 2007
by WLJ
Despite increasing harvest levels in packing plants, the standoff between packers and cattle feeders continued into late last week. Meanwhile, feeders struggled with rising costs of gain and packers awaited the cattle on feed report due out last Friday. Ask and offer prices last Thursday remained several dollars apart, with feedlots looking for $89-90 live and $138-$142 dressed for their cattle.


Most analysts expected trade to develop at levels steady to $1 lower than the previous week’s trade of $87 in the south and dressed sales in Kansas at $138-139. In the north Plains, live sales traded $86-86.50 and dressed sales traded at $139-140. In the western Corn Belt, live sales traded at $87-87.50 and dressed sales at $140.


Packers were taking advantage of the downward fed cattle price movement to slaughter larger numbers of cattle and capitalize on positive margins for the week. HedgersEdge.com estimated packers were earning $16.05 per head last Thursday. Despite the week-over-week increase in harvest, slaughter through the week remained below normal. Last Thursday’s harvest was estimated at 125,000 head, 10,000 more than the prior Thursday and 1,000 fewer than the same day in 2006. For the week-to-date kill through Thursday, packers had slaughtered 485,000 head, 17,000 more than the prior week and 4,000 fewer than the same period last year.


However, despite the lower than year-ago kill levels, the boxed beef market continued its multi-week decline for much of last week due to weak movement at the retail and wholesale levels. Middle meats were under pressure for most of last week and only a few of the end meats, such as the chuck complex, were propping up prices to prevent an even lower downward trend. In Thursday trade, Choice boxed beef cutout values were trending 75 cents lower to trade at $148.82. Select dropped 11 cents, trading at $137.66. Both Choice and Select values were well below the prior week when Choice boxed beef traded at $153.54 and Select at $141.22.


Mike Roberts, commodity marketing agent at Virginia Tech, said last week beef demand for the past few months hasn’t been particularly good, which is adding some uncertainty to the beef market.


“Pork and poultry seem to be competing for consumer red-meat dollars for beef at the retail level. Overall demand for beef is not seen as particularly strong over the past few months. Packers are expected to keep slaughter rates down while bidding cash cattle lower hoping to keep margins in the black,” Roberts said.


He encouraged cash cattle sellers to push marketings if feedlots are able to get them “out of the pens at the right weights. It is still wise to consider protecting a portion of third quarter 2007 marketings at this time. Corn users should hold off pricing more near-term corn inputs now. Corn users may want to protect against rising prices over the next few weeks,” Roberts said.


On the international trade front, according to USDA’s Foreign Agricultural Service (FAS) published U.S. red meat trade data for November 2006, the latest numbers available, U.S. exports of beef and veal cuts and beef variety meats during November totaled 58,644 metric tons, nearly unchanged from the previous month but 11.2 percent higher than November 2005. Exports of fresh, chilled product rose 4.2 percent over the previous month to 25,655 metric tons. Mexico remains the largest beef trading partner, accounting for beef exports totaling 339,039 metric tons, 32 percent greater than a year ago. Overall, total year-to-date U.S. beef and veal exports equaled 597,985 metric tons, 39.6 percent higher than the corresponding period a year ago.


U.S. beef and veal imports during November equaled 77,886 metric tons, up 1.5 percent over October, but down 1.6 percent from November 2005. Overall U.S. beef and veal imports from were 14 percent less than the same period a year ago, amounting to 923,092 metric tons. Australia was the largest supplier, shipping 271,122 metric tons to the U.S., down 1.5 percent from 2005. The U.S. also imported 23,053 metric tons of beef from Canada, down 10.6 percent from the previous month. Year-to-date beef imports from Canada were 21.7 percent less than last year, totaling 267,100 metric tons.


On the Chicago Mercantile Exchange (CME) last week, the trend was mostly higher as a result of large fund traders moving money out of the up-front February contract. Firms were moving money to deferred months, accounting for much of the very light volume in the live cattle issues. The movement helped prices slightly and live cattle contracts ended the day higher across the board as the market awaits news of cash trade and the pending USDA cattle on feed report. February issues were up 27 cents, closing the day at $90.12. April gained a nickel to finish at $92.97 and June contracts gained 32 cents during the session to end at $89.42.


Feeder cattle


The upward movement in the live cattle pit was a benefit to feeder cattle contracts on CME. Combined with some weakness in the grain market, it was enough to allow contract gains across the board in last Thursday’s trade. Nearby January gained two points to close at $94.72, while March and April both added 60 points, closing at $94.30 and $95.95 respectively.


However, despite higher contract trade, prices in the country were not nearly as optimistic. The CME cash feeder cattle index on Jan. 23 was $94.79, nearly $2 lower than the prior week. Rising cost of gains, along with the currently spotty conditions in feedlots throughout the central U.S., is keeping a lid on feeder cattle prices.


Utah State University Agricultural Economist Dillion Feuz said last week that the current price situation is likely to persist and create problems for cow/calf producers in the year ahead. “Between the rising corn market and this winter’s weather, cattle producers in Kansas and Nebraska, as well as other areas of the Midwest, have been hit with a big double negative as far as net returns are concerned,” said Feuz. “Feedlot cost of gains are likely over $75/cwt. for most pens of cattle now. For those cattle that were purchased with an expectation of a cost of gain around $60/cwt., feedlots are likely looking at a sizeable loss when they market those cattle.”


Those losses are likely to be passed along to cow/calf producers who have held on to calves from the 2006 crop and will also carry over to impact the 2007 calf crop as well, he said.


“Cow/calf producers are seeing the price for calves dropping with each new surge in the corn market. For those producers who held their calves until after the first of year, they probably are looking at losses on that decision,” Feuz said. “Likewise, cow feeding costs will be higher this winter as more supplemental feed is being purchased, at a relatively high cost, to supplement winter grazing. Cow/calf producers may see their costs increase by $50 per head and their revenues decrease by $50 per head relative to 2006. That is a large swing and may alter the expansion plans that some producers may have had in place prior to the new corn market and this winter's storms.”


Last week’s feeder cattle trade in the southern Plains was very lightly tested as a result of the poor weather conditions for the prior two weeks. Runs of cattle in large markets were just a fraction of their year ago numbers. In Oklahoma City, OK, fewer than a thousand head were sold, just 10 percent of year ago numbers. However, market reports indicated that the undertone was lower than the sale two weeks earlier. In West Plains, MO, compared to the previous week, steers under 650 lbs. were $3-5 higher, those over 650 lbs. were weak to mostly $2 lower. Heifers under 500 lbs. sold $2-4 higher, and those from 500-600 lbs. were, at best, steady. Heifers over 600 lbs. were called steady to $2 lower. The day’s supply was called light, with a high percentage of weaned calves on the market, especially those heavier calves weighing 600-750 lbs. Demand was called uneven, with moderate to good demand on steers under 600 lbs. and heifers under 500 lbs. and light to moderate on heavier weights. Strongest demand continues for higher quality, lighter weight weaned calves in a “quick start” start condition, with all their shots.


Farther north, in areas which have been spared the winter storms which ravaged the central and southern Plains, prices were no better last week. In Sioux Falls, SD, last week, feeder steers sold mostly $2-4 lower. Feeder heifers sold mostly $4-6 lower despite good buyer demand for lots on offer.


In Mandan, ND, a run of more than 3,600 head of feeder steers and heifers sold steady to $1 lower then the previous week. Buyer demand was called good for all classes of offered cattle. To the west in Billings, MT, feeder steers under 500 lbs. were called steady to $2 lower, while those over 600 lbs. were $5 lower in a light test. Feeder heifers sold steady to $3 higher. Buyer demand was called moderate to good for cattle under 600 lbs. and light for cattle over 600 lbs.


On the West Coast in Famoso, CA, higher corn prices and lack of rain lowered calf prices $3-5 and feeders $2 last Monday. Demand for stockers was called good on the quality greener kinds as a result of stocker operations being forced to stockpile calves in grow lots on higher priced feed compared to grass. Demand for feeder cattle was called excellent, especially for the 650-725 lb. quality steers and heifers.

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