Stay moves feds higher

Cattle Market & Farm Reports, Editorials
Mar 14, 2005
by WLJ
The Canadian border situation played a role in advancing cattle trade last week, with both fed and feeder cattle markets turning sharply higher last week. Fed cattle moved up $3-4 live, to $94, and dressed cattle were $6-8 higher, hitting $150 in the Northern Plains.
Nebraska feeders moved 64,000 head on Wednesday.
Southern Plains feeders were slower to trade and started trading Thursday afternoon at $92-93.50 and moved 90,000 head. Feeders were pricing cattle at $94-95.
There was a great deal of anticipation that the Canadian border would be open to cattle trade on March 7, packers were clearly waiting for a fresh supply of fed cattle and meat traders were also expecting to see some better buys on boxed beef.
Canadian feeders were starting to get over their initial market impact, fed cattle were trading at $92 Canadian two weeks ago. Just after the injunction was announced fed markets quickly moved down to $80. Feeder cattle took a similar hit and the heavier the cattle the bigger the hit. There was speculation that this injunction may take as long as nine months to get the legal process started.
The boxed beef markets turned stronger as Choice product advanced to $153.06 at the close of business Wednesday, and Select was trading at $147.58 on good volume. Meat buyers looking to fill Easter holiday beef specials were expecting the market to move lower but were caught on the wrong side of the market and had to pay more for boxed beef, which advanced several dollars last week.
Higher boxed beef values gave packers the opportunity to enjoy a few days of positive margins with their average breakeven at $91 against an average buy for Wednesday’s slaughter at $89.49; they were earning $18.55 per head, however, that was expected to be short-lived.
Estimated slaughter for the week ending March 4 was 598,000 head, up 24,000 head from the prior week. This was also reflecting a seasonal increase in beef demand. Slaughter through Thursday of last week was running 4,000 head larger than the week earlier, which should push weekly slaughter over 600,000 head for the first time in several weeks.
As a result of the border remaining closed, several packers have announced slaughter reductions. Excel announced slaughter reductions in seven of its slaughter plants. Swift also indicated some reduced slaughter levels.
Andy Gottschalk at Hedgersedge said that he “ fully expects other packers to reduce their weekly slaughter levels. The demand base for March is estimated to be 548,000 head a week”
Gottschalk also said the judge’s ruling disallowing the resumption of Canadian live cattle imports served as catalyst to the higher fed cattle prices achieved last week.
He said the net of this action will be to reduce annual domestic beef production approximately 400 million pounds. The reduction in annual domestic beef production resulting from the judge’s ruling will add approximately $2 to the average annual fed cattle prices. It is now likely that fed cattle prices should not trade under $87 through mid-May.
Wayne Purcell, ag economist at Virginia Tech, said, “The courts are in charge in the cattle markets right now, and it is hard to offer advice in this type of environment. I have been bullish on cattle, live cattle and feeder cattle futures, and perhaps we can just look to what has happened and stay off short hedges on the live cattle contracts starting with June and beyond and stay on long hedges in the feeder cattle, both the March and the August.”
With the federal court action blocking the scheduled opening of the Canadian border on March 7, it may be months before the border issue is resolved, Purcell added. “If by that time we have seen beef shipments to Japan starting again, we could see fed cattle prices in the summer months near $100 again, perhaps even higher. But if the Canadian border is opened and there is a reserve of cattle ready to come into the U. S., then we could see prices pushed down again. It is a difficult time to be trying to read these cattle markets.”
USDA lowered its beef production forecast partially because of the court injunction keeping the border closed. USDA is expecting beef production to move down to 25.69 billion pounds. Also weather related feedlot performance has reduced slaughter levels and carcass weights.
Jim Robb, chief economist at the Livestock Marketing Information Center (LMIC), said he anticipates beef imports to increase to four billion pounds this year, roughly a 20 percent increase.
Robb said that he expects markets to be volatile for the next several months.
Ron Plain, economist from the University of Missouri, said BSE continues to dominate beef trade. Plain said, “The U.S. exported $3.9 billion of beef and beef variety meats in 2003 but only $808 million worth in 2004. In 2003, 9.6 percent of U.S. beef production was exported, but only 1.9 percent of 2004 production. U.S. beef imports increased from the equivalent of 11.6 percent of 2003 beef production to 15 percent of last year's production.”
Calves, yearlings
rally $2-5
Feeder and stocker steer and heifer prices trended anywhere between $2-5 stronger last week, as demand was called very good for moderate to light offerings of calves and yearlings nationwide.
On the calf side, Southern auction barn managers indicated that weather in the Southwest and southern portions of the Far West continue to be abnormally wet and spurring thoughts of extended spring grazing of calves and yearlings. Similar grazing prospects are being touted in the eastern half of the central Plains in the Midwest, with several auction barn reports from those states reporting not nearly enough cattle to meet demand.
Texas and Oklahoma auction barns said that supplies were short last week due to wet weather making it difficult for producers to get into their cattle, load them and ship them to town.
Northern Plains and Intermountain West auction facilities are reporting “very few” calves and stocker cattle being offered for sale, and those that are being sold are moving to buyers in the Southwest or Missouri and further east.
Heavier, more feedlot-ready prospects, were also seen bringing stronger money last week as cattle feeders are starting to need more U.S. cattle to make up for what they were anticipating buying from Canada. Auction managers and sale reports from Colorado, Nebraska, the Dakotas and Montana especially indicated that cattle feeders in those areas were starting to feel short of cattle for spring entry into feedlots.
Market analysts credited the delay in Canadian feeder cattle entering the U.S. for 50-60 percent of last week’s price rally on yearlings and other placement-ready cattle. Stocker cattle prices weren’t affected by that ruling, according to analysts, because USDA had not planned on allowing feeder calves to go anywhere but feedlots.
Feeder cattle futures rallied last week, and that also helped cash prices for heavier yearlings and calves. The March and April contracts both got back over the $106 per cwt mark last week, while May found itself eclipsing $105. Thursday’s market was a little softer. However, analysts said that was the result of southern state fed cattle trade being slow to get started.
In addition, cattle feeders in more northern areas of the country were starting to report $25-50 per head profits, which helped them justify spending a little more on feeder cattle. Southern cattle feeders were still struggling to meet breakevens, market analysts said, and that was slowing demand on heavier, more-placement ready cattle.
The CME feeder cattle index, for 700-850 pound steers, was at $103.16 last Tuesday, compared to $101.60 the previous Wednesday.
Slaughter cows & bulls
The prices paid for slaughter cows and bulls last week followed a similar trend as most auction barns across the country reported $2-4 gains on all classes of slaughter cows and bulls.
The cow beef cutout was stronger at $111.41 up $6 from the prior week and the 90 percent lean was $152.09.
Retailers are expecting demand to pick up on ground beef products, particularly with the “grilling season” starting over the next couple weeks. There is also expected to be a seasonal increase in fast food demand, especially for burgers, as colleges and universities start to send students off for spring break and a larger number of families plan vacations over the next few weeks. — WLJ