Boxed beef slide nears bottom

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
February 5, 2007

Trading was slow last Thursday in Nebraska and Iowa with light demand from packing companies. Trading was inactive in the remainder of cattle feeding country last week although analysts were calling for a good chance at steady to slightly higher money when trade developed. The last established market prices for fed cattle were mostly $87 live basis in the south and in the north, live sales traded at $85.50-86 and dressed sales at $137 to $138 the week prior.

Some of the optimism last week was the result of boxed beef prices finally reaching what was widely believed to be the bottom of a multi-week $12 slide. Prices last Thursday on the Choice product were in the area of $142, which is the level of long-term resistance that traders believed would put an end to the slump. Additionally, we are near the point where boxed beef prices turn seasonally higher until May. In Thursday trade, boxed beef was down $1.06, to $142.56. The Select cutout traded 2 cents lower to $134.72.

For the week, slaughter numbers were relatively consistent for this time of year. Last Thursday, packers harvested an estimated 120,000 head, 5,000 fewer than a week ago and 1,000 more than the same date last year. For the week-to-date tally, there were 494,000 head slaughtered compared with 485,000 the previous week and the same number for the week in 2006. The industry was anticipating a total week harvest of 634,000 head, including last Saturday’s work.

The cattle on feed numbers released on Jan. 26 did little to move the market despite their neutral to negative tone. Placements were slightly higher than anticipated, according to Utah State University Agricultural Economist Dillon Feuz.

“There were 11,974,000 head of cattle on feed on January 1. That is the largest January 1 inventory since this data series has been kept and was 1 percent higher than 2006. Steer calves on feed were unchanged from a year ago, while heifer calves were up 4 percent and cows and bulls were up 11 percent,” Feuz said. “Those are not the numbers one would expect when the nation’s cow herd is expanding, so I suspect that the drought has derailed many expansion plans.”

The next USDA report with a market impact is the January 1 cattle inventory report due out February 2. When those numbers are released, it will provide a better picture as to how the past year’s drought, high corn and hay prices, and the winter have influenced herd building decisions.

The pre-report estimates for the semiannual cattle inventory report the number of “All Cattle & Calves” at 100.3 percent of the prior year and the 2006 calf crop was estimated at 100.4 percent of year ago numbers, meaning little, if any, herd growth is expected.
On the Chicago Mercantile Exchange (CME) last week, live cattle issues drifted mostly sideways on light volume and an absence of cash feedlot trade. In Thursday’s session, live cattle contracts were lower across the board, with the exception of the back end contracts of April and June 2008, which were both just five points higher at the close of the session. Nearby February 2007 closed 40 points lower at $89.82 and April dropped 27 points, ending at $92.90. Meanwhile, June issues were lower by 20 points and August contracts fell 10 points, closing the day at $87.90.

Feeder cattle

Despite early week rallies in the CME feeder cattle market, they were unable to continue gains despite weakness in the corn market last Thursday. The first three days of the week saw gains in feeders fueled by lower corn futures and reports of buying interest in big feedlots, according to Virginia Tech Commodities Marketing Agent Mike Roberts.

“New fund buying was triggered on the rally in feeders amid other technical support signs. Also, changes in the way that the feeder cattle index is now calculated include higher priced calves lifting the index,” he said. By last Wednesday, the CME cash feeder cattle index stood at $94.10, a decline of 69 cents from the previous Wednesday.

On the CME, feeder cattle contracts last Thursday were mostly lower. March issues were down 107 points to $94.77, while April fell 100 points to $96.95. September was down just 10 points to $99.30 and October was unchanged at $99.70.

Roberts advised those holding calves to keep them around for awhile longer.
“Cash sellers are still encouraged to put a few more pounds on those feeder calves in order to take advantage of these prices. Hedgers may be wise to consider protecting a portion of first quarter ’07 and second quarter ’07 marketings. Corn users should look for more pricing opportunities in near-term corn inputs now,” he said.

The weather is still playing a role in most of the Plains states, particularly the central and southern areas. Feedlots are still caked with mud and ice, as are cattle, which is increasing stress and lowering efficiency. Under those conditions, the renewed interest in filling empty pen space was a little unusual, particularly in the midst of predictions of colder temperatures in the days ahead. Perhaps the falling corn prices, allowing purchases below $4 a bushel on Thursday, was enough to spur some buying interest last week.

Meanwhile, in cash auction market trade, cattle in Abilene, TX, were sharply higher last week. Feeder steers and heifers were called $2-4 higher and available yearlings were $2-5 higher on moderate trade and good demand. Many other Texas markets are still seeing light receipts as a result of poor travel conditions and many markets did not report trends because of two straight weeks of sale cancellations.

In Roswell, NM, compared to two weeks prior, feeder steers under 600 lbs. were $4-6 higher, while those over 600 lbs. were reportedly $1-2 higher. Heifers under 600 lbs. sold steady to $1 higher. No comparison was available for heifers over 600 lbs.

A much improved run of cattle in Oklahoma City, OK, last week brought prices which were $3-6 lower than the last full market test on Jan. 10, but compared to the prior week’s lightly tested market, feeder cattle were steady to $1 higher at midsession, but closed the day steady to $1 lower. Demand was called moderate to good for all classes through mid-afternoon, but declined to moderate, at best, later as orders were filled. Market reports said quality ran the full range from plain to attractive. Early in the day's sale, many thin and gaunt calves and light yearlings showed the effects of winter stress, however, later offerings included many heaver offerings which looked grain fed. This extra flesh and weight wasn’t discounted very much as the high cost of gain encouraged feedlots to buy these kinds. It was reported that many of the day’s receipts were yearling cattle coming off wheat.

Farther to the north in the high Plains region, there are reports of abnormally dry conditions which could create problems for producers if conditions continue. Much of this winter’s precipitation has remained to the south and northern tier states are reporting a lack of snow cover, which could damage wheat crops and lead to some sales of cattle. The U.S. Drought Monitor shows dry conditions across Wyoming and into Montana and the Dakotas where producers dealt with dry conditions for much of last year.

In Bassett, NE, last week, compared to the prior week, feeder steers and heifers trended steady to $2 higher. Cattle quality was called good, with most consignments in buyer friendly condition. Demand was called moderate to good. Farther north, in Aberdeen, SD, feeder steers and heifers sold steady to $1 higher, with some instances of as much as $2 higher.

On the West Coast, dry conditions are also impacting producers. Spring grass has yet to develop in many areas and cattle producers could start to feel the pinch at local auction markets if rain doesn’t develop soon to improve grazing conditions. In Madera, CA, last week, stocker and feeder cattle sold steady with the previous week. Steers in the 500 lb. class sold in a range of $92-100 and six-weights sold for prices from $86 to $94.50. Sales of five-weight heifers were in the range of $85 to $94, and six-weights brought $83-91.