Fed cattle trade expected to rise sharply higher, boxed beef prices jump $14

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
Cattle markets found their feet last week and prices started moving higher, strengthened by a $14 rise in the Choice boxed beef cutout in seven days. Although trade was limited in the fed cattle market last week, there was some light trade last Thursday in Nebraska at $147 dressed. Bids in other major feeding areas were still well apart. However, most expected a trading range of $92-$93 live basis and $148-$149 dressed.

The last fully established fed cattle trade came late in the day on Feb. 2 at $91 in the southern Plains. In Nebraska, live sales were at $90 and dressed cattle sold for $145. In Colorado, live sales were at $89.50 and dressed sales at $142.50-143 and in the western Corn Belt, live cattle traded at $90 and dressed sales were in a range of $143-145.

The jump in the boxed beef market allowed packers to put some black ink on their bottom line last week. HedgersEdge.com calculated packers were earning $51.70 per head harvested last Thursday and the cutout value was still moving higher. That positive news means that cattle feeders would likely be in a good position to push cash prices toward the high end of their asking prices. A substantial drop in fed cattle weights and a lack of available Choice grading cattle will continue to be bullish for the markets for the weeks and months ahead. According to USDA, finished cattle weights have declined 15 lbs. on average and Choice and Prime grading cattle percentages have slipped since early January. Weather stress is taking its toll on feedlot cattle, however, lighter weights will cut back production and increase kill levels as packers work to meet demand for high-end product. All of which should help boost prices in the first and early second quarters this year.

Some of that was readily apparent last week by looking at the boxed beef prices and movement. Choice boxed beef last Thursday was trading 21 cents higher than the previous day at $155.68 and Select was up 58 cents at $147.11 on light to moderate demand and light offerings. However, packers were increasing harvest levels to take advantage of the price spike. Thursday’s slaughter was estimated at 123, 000 head, which was up from 118,000 the prior week and 113,000 during the same day in 2006. For the week, through Thursday, packers had harvested a total of 484,000 head, just 1,000 fewer than the prior week’s total, but still well above the same period last year when 437,000 were slaughtered.

The cow beef market was steady last Thursday at $115.42, well above last year’s price of $108.55. The 90 percent lean market was also higher than a year earlier at $144.12 versus $138.73. Prices for 50 percent lean product, however, were nearly $14 lower than a year earlier at $53.85.

James Mintert, agricultural economist at Kansas State University, said that the effect of this winter is likely to stick with the market for much of the first half of the year, lending further support to the market.

“So, is the effect of this year’s winter weather all behind us? I don’t think so. Based on past experience, the effect of winter weather on cattle performance, marketing rates, and weights is likely to linger through the rest of the winter and probably much of the spring quarter,” Mintert said. “Dressed steer weights have fallen 12 pounds since the first of the year vs. a five-year average decline of just 5 lbs. and were fractionally below a year ago in late January. Weights are expected to continue to fall more sharply than normal as poor feeding conditions are more widely reflected in market ready cattle. And fed cattle slaughter volume is likely to tighten as winter turns to spring. This combination should lead to reduced boxed beef production which will be supportive of fed cattle prices in late winter and spring.”

It was clear that fed cattle traders had similar expectations last week. On the Chicago Mercantile Exchange (CME), live cattle futures were well above week earlier numbers. The February contract was slightly lower during the session last Thursday, however, it closed at $94.12, a premium to the cash market and nearly $1 higher than the prior week. April live cattle contracts were higher at the end of the session last Thursday, closing up 12 points at $96.40, nearly $2 higher than a week earlier. June live issues were down 22 points, closing at $93 and August lost 10 points to close the day at $90.15.

Feeder cattle

The jump in the fed cattle markets offered a boost to feeder cattle prices last week in most areas. The CME feeder cattle index was at $98.40, nearly $2 above week earlier levels. The feeder cattle market was supported by rising feeder contract prices and a steady corn market, at least for the March contract, which last Thursday was trading at $4.07 per bushel on the Chicago Board of Trade.

However, feeder cattle prices are still below year ago levels, according to Mintert.
“Despite last week’s price increase, heavy weight feeder steers are still priced about 10 to 13 percent below a year ago in Kansas and Nebraska, respectively. High corn prices have had an even bigger impact on light weight steer prices as prices for 500-600 lb. steers in Kansas were down 19 percent and Nebraska prices for the same weight steers were down 17 percent, compared to a year ago,” he said.

Corn crops from South America are nearing harvest, which has kept a lid on the grain trade in recent days. However, any apparent shortage in foreign crops, which could trigger additional U.S. export or a March plantings report which shows the potential for a short U.S. crop, could mean all bets are off. A short U.S. corn crop could spell disaster for feeder cattle prices, so market analysts are cautioning producers to keep an eye on the grain markets. Already, weather problems are preventing corn growers from completing necessary field work. Substantial delays could cut into yields later in the year, a problem the beef business would prefer to avoid.

For now, however, cattle buyers are taking advantage of the sideways corn trade to bid up prices on feeder cattle. For example, in Three Rivers, TX, last Wednesday, feeder steers traded $5 higher, while feeder heifers traded in a range of $2-4 higher than the prior week with some instances of as much as $10 higher on the better kinds. Trade and demand was called good with a good test in all classes.

In Belen, NM, last week, feeder steers and heifers under 600 lbs. traded hands for prices as much as $5-7 higher than the previous week. Those cattle over 600 lbs. were called steady. Good buyer participation was noted since much of the snow in that area had melted.

In Oklahoma City, OK, there was a big jump in the number of cattle consigned, with many of the offered lots coming off of wheat grass. Feeder steers were called steady to firm at the sale, while feeder heifers were steady to $1 lower, with most of the decline on those cattle weighing more than 750 lbs. Steer and heifer calves were mostly steady to $2 higher on moderate to good demand although buyers were reportedly more selective for kind and condition last week as a result of more winter weather in the forecast.

In West Plains, MO, steers under 700 lbs. and heifers in all classes sold steady to $2 higher last week with a few stocker steer calves under 350 lbs. as much as $3-5 higher. Heavier weight steers were lightly tested, although the few sales in that class were called steady to weak. Supply at the sale was reportedly very light with good demand.

In Loup City, NE, last week, feeder steers and heifers trended fully $4-6 higher. Overall cattle quality was good, with the bulk of the offering over 700 lbs. Demand was called very good from a broad buyer base.

Runs of feeder cattle in the northern states remain seasonally light and trends are difficult to spot. However, in most areas, prices were trending higher last week. In Mitchell, SD, last week, feeder steers and heifers sold steady to $2 higher, with the increase mainly on the lighter weight cattle. There were reportedly many load lots in the offering and buyer demand was called good.

On the West Coast, pasture conditions remain relatively dry and prices remain depressed slightly as a result in those areas. For example, in Madera, CA, the stocker and feeder cattle on offer were mostly steady with the prior week’s sale despite a light test of the market. Steers in the 500 lb. class sold in a wide range of $92-107.50, while heifers in the same weight class brought $80-93.50. Steers in the 600 lb. class sold between $83 and $92.75, while heifers in the class brought $77-89.75. Seven-weight steers sold in a range of $80-91 and 700-799 lb. heifers sold from $76 to $84.