Seasonal high seen due to Easter rally

Cattle Market & Farm Reports, Editorials
Mar 21, 2005
by WLJ
— Calves, yearlings strong on fed profits.
Fed cattle markets were quiet most of last week, feeders were looking to get $94-95 on the heels of a very active market a week earlier, which was the result of a combination of seasonal Easter demand and the Canadian border remaining closed. Packers were offering $88, and they weren’t getting much bought through Thursday.
Other than formula cattle, just a handful traded in the northern Plains at $149 dressed, $92 live, $1-2 lower than the prior week. Northern feeders were again early to trade while southern Plains feeders were comfortable with current inventory.
The April live cattle contract moved lower during the week. April hit a high two weeks ago of $91.45 on March 9 and then slipped to $88.47 last Thursday. Cash markets were starting to feel the pressure. Packers have been earning a little money since the boxed beef cutout moved higher based on a little pre Easter panic buying by retailers, the Choice cutout was $156.55 and Select was at $150.18.
The latest packer margin index shows packers earning $18 per head based on a average live cattle buy of $92.89 two weeks ago. The boxed beef market was expected to soften after the Easter holiday buy was complete. Boxed beef volume was much slower last week
Slaughter levels have remained fairly strong for current times. Processors moved just over 599,000 head through packing plants. Many packers were announcing cut backs just after the Montana federal judge decided to keep the border closed. Either holiday orders are very strong, the slowdown talk was just talk, or is coming this next week.
Cattle feeders were also seeing some positive margins as many breakevens on fed cattle are between $88-94. Analysts at think that the seasonal winter high may have been made two weeks ago at $94.
The lean beef market has been showing significant strength over the past few weeks. Ninety percent lean was trading at $156.23 last week and the 50 percent trim market was at 76.60. John Nalivka, analyst at Sterling Marketing, Vale, OR, said that food service was starting to feel the pinch on hamburger prices, “the ninety-nine cent hamburger may be a thing of the past,” he said.
Some West Coast markets were reporting slaughter cows in the 60-cent range reflecting seasonal trends. The cow beef cutout was $121.13 and the West Coast cow carcass price was up $5 from the prior week to $85-87.
Wayne Purcell, ag economist at Virgina Tech, said that the court ruling to block the opening of the Canadian border as scheduled on March 7 has injected huge uncertainly into the cattle markets. The April live cattle futures had been as low as $85.35 on March 2 and then surged after the court action to $92.25 on March 9.
“Current prices are well off those highs, and we have seen a similar pattern in the June futures. I do not think we are ready to hold a $90 market even with the border still closed and in spite of the limited trade we saw last week,” Purcell said.
“There continues to be talk of lagging demand in the institutional market even though the demand index for the fresh beef market shows a modest increase in the forth quarter compared to the forth quarter of 2003. Boxed beef values for the Choice beef are back above $155 and that will leave the packers some room to pay batter prices for cattle. It is a nervous and uncertain market, and I would react by being a seller on rallies to the recent highs.”
He also suggested producers take profits on long hedges on March feeder cattle around the $106.40 high, seen back on March 9.
“If you had moved out and placed long hedges in the summer in the August contract, look at taking profits on those positions around its March 9 high of $106. I do not see a reason across the next several weeks for these contracts to trade up and hold a new contract high,” Purcell said.
Calves and yearlings were both stronger nationwide last week with the continued ban on Canadian feeder cattle and good spring grazing prospects both helping demand for all classes of cattle.
Calves were bringing $2-4 more last week, while heavier, more feedlot-ready cattle were bringing $3-5 more than the previous week.
Analysts said that many cattle feeders started reporting some profits two weeks ago when fed cattle started bringing $93-95 and that trend was expected to continue. Several analysts said cattle feeding profits ranged between $30-50 per head.
Jim Robb, chief analyst with the Livestock Marketing Information Center (LMIC) said, the psychology of the industry is bullish all around right now, and that includes the feeder market,” “Plus, there are fewer cattle than normal for this time of year, and this is usually a short supply season anyway.”
In addition, feedlots in northern states were reportedly looking for replacements and were waiting for March 7, which is when Canadian feeder cattle were expected to be allowed back into the country. When U.S. District Court Judge Richard Cebull, Billings, MT, granted a temporary injunction against that, cattle feeders were forced to look at getting back into the domestic feeder cattle market, sources said.
Feeder cattle prices were also helped by better quality cattle coming off of southern wheat pasture, particularly Oklahoma and Texas.
According to Bob Miles, USDA auction market reporter from Oklahoma, feedlots like cattle coming off of wheat pasture because they are a little bigger framed than cattle coming right off of cows, and they can pack on the weight at a more rapid pace without as long of a transition phase.
“We have been seeing a lot of wheat cattle since Feb. 21, and that shows with the increase in price being paid for yearling cattle,” Miles said. “This will probably last another week and then the wheat cattle market will subside until the last half of April.”
Producers who graze-out their wheat normally do so until the end of April or beginning of May.
“Right now, cattle are being pulled off of wheat because, if they wait any later, any chance of harvesting the crop for grain is jeopardized,” said Miles.
The first three days of the week saw feeder cattle futures rally significantly before sliding backward Thursday. For the week, however, the first few listed contracts were still all up $2-3 compared to the end of the previous week.
The CME feeder cattle index last Wednesday was at $106.10, compared to $103.16 the same day the week prior.
On the calf side, backgrounders and stocker operators are both fighting for available supplies, which are very tight right now. Backgrounders still have the availability of less expensive corn to feed calves in an effort to get them ready for a feedlot scenario, while stocker operators can feed cheaper corn until spring grazing actually kicks up, over the next month or so.
Commodity analysts said the cash price for feed corn last week was running between $3.60-4 per cwt prior to delivery.
Forecasts for spring grazing are abnormally bullish across most of the country, with the primary exceptions being in the Northwest and the eastern part of the northern and central Plains.
Calf prices were also helped by the profits being reaped by stocker operators and backgrounders. An informal survey of nine market analysts and extension economists indicated that those two sectors were showing anywhere between a $50-90 per head profit on cattle bought this past fall and sold during the first half of March. — WLJ