Poor demand stalls fed cattle

Cattle Market & Farm Reports, Editorials
Feb 21, 2005
by WLJ
— Cow market remains strong.
— Calves stronger on weather, feeders struggling.

Fed cattle markets were slow to develop last week as little trade was reported through Thursday. A small number of cattle traded between $87-88 live, $138-140 dressed. A pick up in trade was expected Friday. Early trade was $2-4 softer than the majority of market activity the previous week.
Slaughter volumes continue to be a problem with just 573,00 head passing through packing plants two weeks ago, 10,000 head lower than the prior week. Packers processed 471,000 head through Thursday of last week, which was the first week that weekly slaughter exceeded weekly volume from a year ago.
Feeders are also looking at Presidents Day taking a day out of their normal weekly slaughter this week. So, they won’t need as many cattle. The latest packer margin index shows packers losing around $44 per head.
Boxed beef markets were slightly softer with the Choice cutout falling $2-3 to $142.70; Select was down to $139.98, making the Choice/Select spread just $2.72. Trade volume was moderate. Beef production year to date is 4.2 percent below a year ago.
The Feb. 1 Cattle on Feed Report due out last Friday was expected to show strong placements into U.S. feedlots. The average analyst’s guess was 110.5 percent of a year ago, out of a range of 100-118 percent compared to last year. The number of cattle on feed is expected to be up 2.5 percent, and marketings down two percent from a year ago.
The probability of a smaller marketing total made analysts more nervous than the potentially-large increase in placements. Some of the marketing decline, versus last year, can be explained as one less business day, however, the January total is set to be the smallest early year out movement since USDA started keeping on-feed data. Anyone looking at current carcass weights and impressive country leverage in the fed market would certainly not conclude that a marketing backup problem exists, however, the longer term balance sheet clearly points to potential price danger somewhere down the road.
Andy Gottschalk, HedgersEdge.com, pointed out that the number of cattle that have been on feed more than 120 days will be up seven percent over last year and up 11 percent over the five-year average. His group expects to see the market retest a $93 fed market, on a storm related situation. But, he also expects to see growing inventory start to conflict with demand. He said the industry will have a summer demand base that will support a weekly slaughter of 605,000 head and that available slaughter supplies will be much larger than that.
Slaughter cow markets have been seasonally stronger with top quality cows in the mid-$50s. The 90 percent lean markets are also stronger, suggesting there could be more room for slaughter cows. Ninety-percent lean was trading at $154 mid week, and the 50 percent trim market was at $54. The cow beef cutout was $115.87 last Thursday, was down $2.25 from the day before. West Coast cow beef was trading between $89-91.
Calves stronger,
feeders softer
Last week’s calf market was called $1-3 stronger across the country as spring grazing gets closer and moisture continues to inundate most major spring grazing regions of the country. Feeder cattle prices weren’t as fortunate as a continued lack of fed cattle profits and muddy pen conditions force prices down mostly $1.
Stocker operators and even some backgrounding operations were heavily demanding lighter-weight calves last week, according to auction barn managers across the country. Stocker operators, particularly in the western half of the U.S. are very bullish when it comes to spring grazing prospects. In most major spring grazing areas, moisture is 15-30 percent ahead of the previous five-year averages, and that is spurring on thoughts that stocking rates could be 10-15 percent higher than the past few years. In addition, the longevity of the grazing season could be extended by as much as a month to six weeks longer than normal, particularly in the southern Plains and Southwest, rangeland specialists indicated.
Backgrounder demand was said to be spurred by the continuation of cheap corn prices along with hay prices that are $10-15 per ton cheaper than the past couple of years. On the corn side, March futures were still below $2, with several instances of $1.95 cited last week. According to commodity market analysts, old corn crop is still behind the near-term futures contract 20-25 cents, meaning that some producers can purchase cash corn between $1.65-1.70 per bushel, or $2.90-3.05 per cwt.
Not only is hay cheaper across the board, but the quality of hay needed to feed backgrounded cattle doesn’t have to be very good, especially if corn or another feed grain is being fed alongside. In some instances, poor quality, stemmy hay is selling for $25-35, according to USDA hay reporters from Midwest and Plains states.
Heavier weaned calves and yearlings were struggling to bring steady money last week, as most cattle feeders continue to show $25-40 losses on finished fed cattle. In some instances, calf feds have a breakeven around $90. Analysts said, however, the percentage of calf feds in the slaughter mix right now is barely in double digits.
Also, demand from feedlots was deteriorating due to muddy conditions and extremely cold temperatures resurfacing in a majority of the major cattle feeding areas. Wet pen conditions and severe cold can lead to extra health problems and a slow down in getting cattle transitioned to full feedlot rations.
Futures also were struggling last week, and that trickled down to the cash market. As of the close of business last Thursday, the March contract was at $100.62 per cwt, after getting up past $102 earlier in the week. Other Thursday closes showed April at $99.95, and May at $98.85.
The CME cash feeder cattle index, for 700-850 pound steers was $103.89 last Wednesday, compared to $104.31 the previous Thursday. — WLJ