Cash feds rally back to $90

Cattle Market & Farm Reports, Editorials
Mar 7, 2005
by WLJ
— Futures gains cited.
— Calves, feeders steady to firmer.

A strong rally in live-cattle futures last Thursday prompted packers to come to the trading table with significantly more money than they used the previous week. That resulted in cash cattle trade being $4-5 stronger.
As of press time last Thursday, Kansas and Texas cattle feeders had sold 40-45,000 head each within a range of $90-91.50, with the majority bringing $90.50. Northern trade tallied 50-55,000 head at mostly $90 live, $142-144 dressed.
Early week packer bids were mostly $85 live, $140 dressed and prospective sellers were asking at least $90 live, $143 dressed. A fourth straight week of Friday trade was avoided, however, when April live cattle futures jumped $1.90 Thursday, closing at $88.70. June followed closely behind, closing at $84.35, up $1.42.
Market analysts said cash cattle prices historically hold a $1.50-2 premium to futures during this time of year and that once “the board” jumped higher cash cattle prices were destined to follow.
The jump in futures was attributed to packers having to find more domestic slaughter cattle in the coming weeks after a federal district judge granted a restraining order against USDA plans to reopen the border to U.S. live cattle on March 7.
Andy Gottschalk, analyst with HedgersEdge.com, told WLJ the futures jump was the result of most nearby contracts being oversold on thoughts that the border would be open to Canadian cattle and demand for U.S. feds would be depressed. However, with the injunction, Gottschalk, said packers had to readjust their thinking and work on buying from a smaller-than-expected pool of slaughter-ready animals.
Some additional market optimism resulted from projections that domestic beef demand would start to pick up over the next couple of weeks, with consumers from the eastern half of the country starting to get in the “grilling” mode. The last few months, demand in the eastern half of the country has been depressed due to extremely cold, windy and wet weather curbing much desire to visit restaurants or buy beef from retail shelves.
“Seasonally, one would expect improvement in beef demand, particularly as grilling starts up,” Gottschalk said. “However, we are already seeing boxed beef resistant at $142, and that doesn’t bode well right now.”
Gottschalk said he thought Choice boxed beef could have tested $144 per cwt last week, but that didn’t happen.
Choice boxed beef closed Thursday at $141.99, while Select was at $138.55. Recent boxed beef volume was called moderate with last Thursday’s load count of 565 being the only 500-plus load day since Feb. 21.
From a beef production standpoint, Gottschalk said the continuation of the ban against Canadian live cattle would result in about 400 million pounds fewer in total U.S. beef supplies for the year. Instead of 25.5 billion pounds in U.S. beef being produced, Gottschalk said his revised figure is for about 25.1 billion pounds in 2005.
“That’s about a $1.50-2 (per cwt) jump in live cattle price for the year,” he said.
Packers appeared hopeful that the normal spring upswing in beef demand was about to hit as they picked up their processing chain speeds last week. Through Thursday, 474,000 head of fed cattle ran through packing facilities, 23,000 more than the same period in the previous week.
Several sources thought a 600,000-head slaughter week was possible last week, compared to 576,000- and 574,000-head during the previous two weeks, respectively.
Slaughter cow and bull prices were also up last week, with most reports showing gains of $2-3 compared with the previous week.
Cutter cow and cow beef cutouts were all up last week, with the cutter cow index at $112.28 last Thursday, up $2.50. On the cow beef cutout, 90-percent lean was bringing $144.76, up $4 from the previous Thursday, and the 50s market was at $71.80, up almost $6.
Retail meat buyers indicated that they are banking on burger demand picking up over the next few weeks and that they are sending that message back down the production chain to their cow and lean beef suppliers. Denver- and Minneapolis-based meat buyers both said last week that they ordered 30 percent more grinding product for delivery for March 9 advertising features and that other retailers are giving similar orders throughout most of the country.
Calves,
yearlings
Futures and cash-feeder cattle prices started to show significant gains last Thursday following the announcement concerning Canadian live cattle reentry being further delayed.
The March futures contract gained $2.30, to close at $102.62 per cwt on Thursday. April closed at $101.50, up $2.27; and May was up $1.77, settling the day at $100.10.
Cash feeder cattle gains were also reported last Thursday. After getting close to the $100 per cwt mark earlier in the week, last Thursday’s CME feeder index was back up to $101.66, up 25 points from the previous day.
Market sources said that removing Canadian feeder cattle out of the mix in the short term helped domestic placement-ready cattle. The average weekly influx of Canadian feeder cattle entering the U.S. was expected to be 5-7,000, based on an informal WLJ survey of seven different analysts. However, with those cattle not coming in now, and supplies being very tight, analysts said a slight up-tick in feeder cattle could be expected.
Gottschalk, however, disagreed somewhat saying that the number of feeder cattle outside of feedlots right now is unseasonably large, and that 5-7,000 fewer feeder cattle in the mix (weekly) shouldn’t be that big of a deal.
Deferred feeder cattle futures contracts were said to be helped by last week’s USDA projection that almost 82 million acres of corn could be planted, with 76 million or more acres of that being for grain production. That acreage figure is 1.1 million acres more than last year, when a record 11.8 billion bushel harvest was reported.
Gottschalk added that significant gains in feeder cattle prices is probably unlikely until feeders start showing some significant profit margins.
“At $90 some feeders are still showing negative margins. There are a lot of break evens in the $92-94 range,” he said. Negative margins could range mostly between $25-50 per head.
Calf prices remained mostly stronger to $2 higher last week, as stocker operators continue to see not only good grazing conditions, but also from cheap supplemental feed, specifically corn and other feed grains.
Weather has also been conducive to bringing in cattle and getting them through a transition period without too many extra health problems arising, which means extra expenses are minimized.
Higher-quality heifers continued to bring a $4-7 premium compared to their poorer-quality counterparts, with a lot of that extra demand being because of prospects for continued herd expansion in the Southwest and Midwest, sources said. — WLJ
{rating_box}