Bullish fed market outlook turns sour

Cattle Market & Farm Reports, Editorials
Feb 14, 2005
by WLJ
— Limited trade $1-2 softer.
— Packers slow down further.

Optimism for a $2-3 stronger fed cattle market early last week hadn’t come to fruition through mid-afternoon Thursday. In fact, the limited cash trade that had happened as of press time Thursday was mostly $1-2 lower than the week prior.
After gaining more than $1.50 Monday through Wednesday, the first few listed live cattle futures contracts slid more than $1.50 Thursday, and that put the brakes on any significant desire from packers to come to the table with anything more than $90 per cwt live, $144 dressed. However, most cattle feeders weren’t ready to “cave in” either, and were still asking mostly $94-95 live, $145-147 dressed.
As of close of business Thursday, less than 10,000 head of cattle traded in both Nebraska and Kansas at $143 dressed, $89 live, respectively. Market analysts expected trade to happen Friday, but most didn’t feel comfortable forecasting what prices would be paid.
Packers appeared to slow their chain speeds down even further last week, and by last Thursday several sources said that slaughter-ready supplies were in place through the week ending Feb. 18.
Between Monday and Thursday processors had slaughtered 459,000 head, 8,000 below the same period the previous week and 23,000 below a year ago. Total slaughter for the week was expected to be 580-585,000, still 15-20,000 more than is needed to meet current beef demand, according to market onlookers.
“They may need a few cattle to fill some holes, but as slow as they are working packers can probably carry over at least one day’s worth of production week-to-week, if not a second day,” a Midwest market analyst told WLJ, on the condition of anonymity. “Looking at the narrowing Choice/Select boxed beef spread, I would guess that most packers are dipping into their own cattle supplies right now, particularly lighter-than-normal animals, and bypassing the cash market. That would make some sense particularly since processing margins are negative $40-plus per head. Independent cattle feeders usually aren’t as ready to ship cattle at a lighter weight, even though they may still grade (Choice). The less weight there is the less money that comes their way.”
While both Choice and Select beef prices had gained $5-6 during the first half of the week, the Choice/Select spread narrowed to just over $3.03, the lowest, according to analysts, in almost a year. Choice had gotten up to $147.39 on Thursday, while Select was at $144.37.
In addition, packers had paid mostly $91-91.50 on cattle that were processed last week, and most analysts said $152-plus Choice and $147-plus Select was needed for profits to be reported. Unlike two weeks ago that saw a couple of consecutive 500-plus-load days, cash boxed beef movement was very anemic last week, with the largest day being Wednesday at 413 loads.
February live cattle futures got up just over $92 last Tuesday and Wednesday, however, as of close of business Thursday the contract had dropped to $89.75, and that took any gains in cash fed cattle out of the mix through the rest of day. April lost $1.40 on Thursday, closing at $86.72.
Floor traders with the Chicago Mercantile Exchange (CME) said that Ag Secretary Mike Johanns announcement concerning Canadian live cattle trade wasn’t construed as positive news.
“Instead, it kept intact the March 7 date for Canadian feeder and fed cattle, which means some cattle from north of the border will be added to the total cattle supply and packers won’t have to pay as much for what they need,” one floor trader said. “We’ve heard the reports from several trade teams that have traveled into Canada that no wall of cattle is there, however, even a few cattle right now will hurt prices.”
Despite fed cattle prices struggling last week, stocker and feeder cattle prices gained on very good demand.
Prices on younger, lighter calves gained $2-3 last week and continue to be helped by the prospects for unusually good spring grazing seasons in not only normal hot beds of stocker grazing, but also in some areas that were hit by drought the past few years. Stocker operators from parts of Colorado, Nebraska, Wyoming, the West Coast and Northwest are adding competition to stockers from Missouri, Oklahoma, Texas, Kansas, and the Midwest.
In addition, some higher quality heifers were bringing $3-5 more due to prospects for additional herd rebuilding in areas hit by drought the previous four or more years, auction managers said.
Heavier feedlot-ready cattle were steady to mostly $1 higher as several feedlot managers reported slight profits on cattle that were marketed the week of Jan. 31-Feb. 5. In addition, news that even more corn was available nationwide helped spur another 5-10 cent downtrend in cash corn prices last week.
According to USDA, beginning of year corn carryover totaled 2.01 billion bushels, 50 million bushels larger than the government’s previous estimate. Several reports had cash corn bringing $1.60-$1.75 per bushel FOB, $2.85-3.15 per cwt.
In addition, weather has become very mild and mostly dry across major cattle feeding areas, and that has spurred some interest from cattle feeders because they think they can get cattle through the transition phase before inclement weather rears its ugly head again.
The CME feeder steer index was at $104.31 last Wednesday, compared to $103.18 the previous Wednesday.