Fed cattle sharply higher

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
February 12, 2007

Light fed cattle trade developed at mid-week last week with many areas seeing better money for cattle. Trade last Wednesday came in Nebraska and the western Corn Belt at $90 live and $145 dressed basis. In Iowa and Minnesota, a few early live sales traded $3-4 higher at $90 and a few dressed sales traded $6 higher at $144. Trading was inactive Wednesday on a very light demand in the southern Plains and Colorado. In the south, feedlots were asking $92 for cattle versus packer bids of mostly $87 at press time last Thursday. The last established market in the south was the previous Friday $89 live basis.
Choice boxed beef cutout values found their seasonal low in the range of $142 two weeks ago and have been trading higher since that time. The result has been an improvement in cash trade the past two weeks. Although it will be a slow push toward the late spring/summer high, it has improved the cash market. Another factor driving boxed prices higher has been the weather-affected grading percentage. The number of cattle grading Prime and Choice has slipped below year ago levels as a result of the stress of cold temperatures and precipitation in cattle feeding areas the previous two months. With winter far from over in those regions, it is likely packers will have to continue to compete for Choice-grading cattle to meet order requirements. According to USDA data for the week of Jan. 19, the latest data available, cattle grading Choice slipped more than a half percentage point from the prior week. Select grading cattle were also down nearly a half percentage point and they are nearly 2 percent below year ago numbers. If additional significant winter weather hits the Plains this year, high-grading cattle could become scarce during the first quarter, driving premiums higher for those feedlots that can produce them for packer buyers.

An added benefit for packing plants is the drop value, which is adding profit to packers’ bottom lines. Current drop value, which has benefitted greatly from improved access to export markets, has climbed well above year ago levels. Last week’s drop value was $9.64, well above the year ago value of $8.15. The benefit to packer margins is evident. According to HedgersEdge.com, packer margins were only slightly negative last Thursday at minus $2.80 per head. With drop credit and cutout values on the rise, packers ought to be moving into positive territory in rapid fashion as we move toward the summer highs.

Current kill levels are also helping to boost margins. For the week to date through last Thursday, packers had harvested only 485,000 head, down 9,000 from the prior week, but up from 468,000 during the same week in 2006. Thursday’s slaughter was only 118,000 head, down from 120,000 the prior Thursday and 122,000 head on the same day in 2006.
It appears that an increasing number of the cattle being processed in U.S. plants are originating from feedlots north of the border. According to the latest USDA data, imports of slaughter cattle from Canada are averaging almost 20,000 head more than a year ago, which is a 29 percent increase in volume and well above the 2000-2002 average. USDA data also shows a significant increase in the number of Canadian feeder cattle being shipped south. Should USDA import regulations be relaxed to allow cattle imports from animals born after March 1, 1999, the agency estimates it will result in an addition 610,000 head being imported annually. However, at current import levels, that number could be a significant underestimate. Ironically, the Canadian Food Inspection Agency announced its confirmation of the country’s 10th case of bovine spongiform encephalopathy, discovered in a “mature” bull in Alberta. However, at present, it doesn’t look like this latest discovery will have an impact on the flow of cattle from Canada or USDA's plans to increase the number of cattle eligible for shipment to the U.S.

All the talk of upward movement in the cattle markets last week, and the possibility of snow and ice in the Plains over the weekend ahead, drove cattle futures on the Chicago Mercantile Exchange (CME) despite across the board losses last Thursday, adding to the already weak basis levels and causing concern that some delivery notices might be posted. However, as of last Thursday, no certificates of intention to deliver cattle were submitted. However, with spot month February live cattle trading at a $3-plus premium to cash and hitting a new contract high during the session last Thursday, it remained a possibility. At the end of the session, February was down 30 points at $93.35. March feeders ended down 47 points at $98.87. April live cattle futures led the way lower, shedding 85 points to close at $94.87. June fed cattle were down 57 points, closing at $91.75.

Feeder cattle

The grain markets continue to dictate the action of the feeder cattle markets. A decline in corn prices, both at elevators and in contract trade, generated four consecutive days of increase in feeder cattle prices both cash and contract. Thursday’s Omaha, NE, cash corn price was $3.80 per bushel, down 5 cents from the previous week. On the Chicago Board of Trade, corn prices closed higher across the board. March contract corn prices were up 7 cents to trade at $3.99 per bushel and December finished 5.5 cents higher at $3.96 per bushel. The CME feeder cattle index gained more than $2 and summer CME feeder cattle contracts rose above $1 last week.

Jim Robb, director of the Livestock Marketing Information Center, said last week that the current corn market run up would continue to have a profound effect on feeder cattle prices. However, he said the Jan. 1 cattle inventory report shows that herd expansion is stalled and as a result, the larger supply of feeder cattle many were expecting to enter the market over the next few years won’t materialize. The result will benefit cow/calf producers and help support feeder cattle prices despite higher corn prices.

“Cattle producers, particularly in the cow/calf sector, will need to understand the corn market and keep their pencils sharp,” Robb said. He said how and when cattlemen sell their calves will be of greater importance than ever before in the years ahead.

After being affected by serious winter weather, southern tier markets bounced back nicely last week with increased receipts in most markets and sharply higher prices paid for cattle on offer.

In Amarillo, TX, trade was $2-8 higher for both steers and heifers last week, with the most interest on those cattle weighing less than 600 lbs. In El Reno, OK, feeder cattle prices were sharply higher, with feeder steers steady to $3 higher. Heavy weight cattle in the 900 lb. range were reportedly steady. Feeder heifers were $3-5 higher. Steer and heifer calves sold for prices $5-10 higher than the prior week. Demand was called extremely good for all classes and much improved when compared to the past few weeks.

Farther north in Joplin, MO, compared to the previous sale, demand was called very good in all classes. Steers sold $2-4 higher with some 600 lb. cattle as much as $5-6 higher. Heifers sold $1-3 higher. Quality of yearlings was reportedly very good with several load lots selling. However, the supply of steers under 600 lbs. and heifers under 500 lbs. was light.

In the northern tier, feeder cattle runs remain seasonally light, however, prices rose higher last week for those cattle on offer. In Loup City, SD, compared to the prior week, feeder steers and heifers trended fully $4-6 higher. Market reports indicated that the quality of cattle being sold was good, with the bulk of the offering weighing more than 700 lbs. Demand was also reportedly very good from a broad buyer base.

On the West Coast, conditions remain very dry. However, markets on the coast are seeing prices rise, in some cases, sharply. Any precipitation in the region will benefit range conditions and add to the already positive market movement.

Madras, OR, last week was one of the bright spots on the coast, with prices moving sharply higher than the previous week. Steers and heifers in the 400-600 lb. range were $10-20 higher than the prior week. Six-weight steers showed similar gains, rising $14-16, and steers in the 800-900 lb. class were $5 higher.

In Madera, CA, stockers and feeders were mostly steady in a light market test with steers in the 500 lb. class selling in a range of $92-100, while heifers in the same weight class sold $10-12 back. Six-weight steers sold in a range of $83-92.75, while heifers brought $77-89.75 at the same sale.