Fed cattle market backs away from $1
Cash fed cattle trade stalled out early last week as boxed beef cutout values and choppy trade stalled the market slightly ahead of the cattle on feed report due out on March 23. Both feeders and packers were holding firm on their positions last week, neither willing to give ground to move cattle.
As of press time last Thursday, asking prices were firm at $100-102 in the south and $162 plus in the north, while packers were holding steady with offers in the range of $94 in the south and $95-97 in the north on a live weight basis. Dressed offering prices in the north were in a range of $154-157, with some very light trade reported at $157, although it was not enough to call a trend for the week. Most analysts expected trade to come in a range of $1-2 lower than the prior week when live sales in the south Plains traded at $98 and dressed sales were at $154-158. In the northern Plains and western Cornbelt, live sales ranged from $97 to $100, dressed sales from $158-160.
Boxed beef prices were quickly working their way lower last week after posting two-year highs the previous week. As of Thursday, wholesale buyers were beginning to show some interest after Choice shed $2.36 and Select dropped $2.26 to trade at $160.06 and $149.15 respectively at mid-day. Buying was evident as the load count inched higher after a lull following the previous week’s high prices. By mid-day last Thursday, packers had managed to move 238 loads of cuts, trim and grind product.
Packers have continued to harvest good numbers of cattle in an effort to take advantage of positive margins. According to Glenn Grimes and Ron Plain, University of Missouri agricultural economists, calf slaughter under federal inspection has been up substantially since September of 2006. The first month that showed a larger calf slaughter than a year earlier was October, which was up 14.5 percent from 2005. November was up 19.3 percent, December was up 14.1 percent, January of 2007 was up 45.4 percent, and February through Feb. 24 was up 19.6 percent.
“This is another sign that producers are currently reducing the size of the cattle herd due to the short supply of forage, which is very expensive in some areas,” Grimes and Plain said.
The increase in domestic slaughter has caused a decreased need for cattle and beef imports from abroad. According to Grimes and Plain, beef imports in January 2007 were down 7.1 percent from 12 months earlier.
“All of our major suppliers of beef showed some reductions in their sales to the U.S.,” they said. “Feeder cattle imports from Mexico during January were down 63.5 percent from 12 months earlier and live cattle imports from Canada were up 17 percent from a year earlier. Total live cattle imports for January 2007 were down 25.2 percent from 2006.”
One additional cause for the higher slaughter is the decline in carcass weights and overall beef production from those slaughtered cattle, according to Grimes and Plain.
“Dressed carcass weights continue to run below a year earlier. For the week ending Feb. 24, steer carcass weights at 815 lbs. were 10 lbs. lighter than a year earlier. Heifer carcass weights under federal inspection were at 759 lbs., down 12 lbs. per head from 12 months earlier,” they said. “More stress than a year earlier from weather and high corn prices are the major reasons for the lighter weights. With the tighter supply of cattle coming out of feedlots in coming weeks, fed cattle prices are likely to continue strong.”
That expectation was also evident in the analyst estimates in advance of the USDA cattle on feed report. Estimate for the number of cattle on feed spanned a range of 5.6 percent to 2.1 percent below March 1, 2006, for an average expected decline of 3.7 percent. February placements were expected in a range of 4 percent below to 7.1 percent above 2006, for an expected average of 2.5 percent above 2006. The number of cattle marketed was placed in a range of 2 to 8 percent above 2006 for an average guess of 5.5 percent above February 2006.
The cattle on feed report and its expected positive news was eagerly anticipated on the Chicago Mercantile Exchange (CME) last Thursday. Traders pushed live cattle contract prices higher across the board with up-front April contracts realizing the largest gains of the day. April live cattle gained 67 points, closing at $98.40, while June rose 42 points to settle at $95.35. August was 22 points higher at $92.55 and October settled 25 points higher, closing at $96.37.
The day’s positive tone corrected some early week declines after cash trade faltered slightly the prior Friday. Many traders expected to see more $1 cash fed cattle trade, however, after topping $1, trade quickly backed off to end the week at mostly $97-98. However, that won't be the end of the good times for the cash fed cattle market. Last week, some market analysts said the fed cattle market hasn’t put in the spring highs and likely won’t until perhaps April or early May.
Spring is in the air and with the promise of fresh grass, the demand for stocker cattle has sharply increased. The good news is, so has the value of lighter weight cattle ready to go to grass. Cattle that can be classified as thin were the most in demand as cattle buyers are showing a very strong interest.
“These greener cattle are just going to bring more at the auction markets,” said Joe Bollers, an independent cattle buyer. “If we get some more moisture (in the northern states), it’s going to green up in a hurry. The grass will be a huge relief as hay prices are killing everybody.”
There are many factors working to the cow/calf producer's benefit right now. The warmer temperatures with the promise of grass is a significant driving factor but so is the fed cattle market. With the fed cattle market increasing to over $100 two weeks ago, cattle buyers were more comfortable with the increase in prices of feeder calves.
It doesn’t hurt that corn prices and corn futures have stayed relatively steady over the past few weeks. This is compared to the dramatic increase seen in corn prices the last several months. Regardless, the increase in the fed cattle futures market is giving feedlot owners the option to lock in a high price for fat cattle and, as such, they are more willing to risk paying more for feeder cattle.
In addition, the CME cash feeder cattle index, which closed at $103.92 on Wednesday two weeks ago, continued to show strength, closing at $104.71 last Thursday.
In Billings, MT, feeder steers and heifers weighing under 650 lbs. were $5 to $10 higher when compared to the previous week. Steers over 650 lbs. were $2 to $5 higher with too few heifers of the same weight to test. The demand in Billings was excellent for stocker cattle and good for feeder cattle. Five weight steers averaged $131 and their heifermates called for an average of $110.50. Fleshy steers weighing an average of 726 lbs. sold for $103 and heifers of a similar type and kind sold for $94.
La Junta, CO, had a fairly large run last week with almost 5,000 head trading hands. In comparison to the prior week, steers and heifers sold steady with the exception of calves weighing 400 to 500 lbs. which sold as much as $5 lower. Trade was active with good demand on all classes. Five weight steers ranged from $110 to $118 while heifers averaging 500 to 550 lbs. sold between $95 and $101. Heavier weighted cattle were up some as steers weighing an average of 623 lbs. called for an average of $99.81 and heifers averaging 631 lbs. sold for an average of $95.63.
To the south in Dalhart, TX, feeder steers and heifers weighing between 300 and 500 lbs. were steady to strong while those over 500 lbs. were $2 to $3 lower. Steers weighing between 500 and 600 lbs. sold between $115 and $125.75 but steers at the same weight, classified as thin, sold for an average of $127.50. Heifers of the same weight sold between $110 and $113.75.
Oklahoma City, OK, boasted another large run last week with over 9,000 head of feeder cattle, sharply higher compared to last year when only 3,800 were sold during the same week. Feeder steers were mostly steady when compared to the previous week except those weighing 800 to 825 lbs. Those steers sold $1 to $2 lower. Feeder heifers over 650 lbs. were $1 to $2 lower while stocker heifers under 650 lbs. sold steady. Stocker steers were $4 higher. Demand was called moderate to good for cattle headed to grass or graze out wheat. The feeder cattle were in medium to fleshy conditions, however, several consignments of thin fleshed stockers were actively supported by grazing buyers. One lot of thin steers averaging 541 lbs. sold for an average of $129.20. Steers that averaged 737 lbs. called for an average of $108. Heifers that averaged 532 lbs. were sold for an average of $122 while the heavier females at an average of 778 lbs. sold for $109.10.
Joplin, MO, also sold more feeder cattle than the same week in 2006. Steers and heifers under 600 lbs. sold $3 to $5 higher while those weighing over 600 lbs. were $1 to $3 lower when compared to the prior week. The supply was heavy and the demand was best for yearlings and calves suitable for grazing. Fleshy, new crop calves took the heaviest discounts. Five weight steers sold for an average of $124 while their heifermates called for $108. Heavier steers weighing in at 750 lbs. sold for an average of $107.25 and heifers of a similar weight sold for an average of $93.
To the west in Valentine, NE, steers weighing in over 650 lbs. sold for $2 to $3 higher. There were numerous lots of green, grass calves and replacement heifers with good demand and buyer competition. Steers weighing an average of 531 lbs. sold for an average of $133.44 and a fancy lot of steers at 606 lbs. called for $127. Heifers averaging 529 lbs. sold for $117 while fancy five-and-one-half weights called for $123. In Sioux Falls, SD, feeder steers sold mostly steady to $2 lower. Feeder heifers remained steady to $3 higher. The best demand was in the heifer class of females over 700 lbs. There were many offerings of replacement quality females. Spring fever was in the air with a lot of conversations regarding the need for moisture in western South Dakota. Six weight steers average $111 while heifermates called for an average of $107.75 Females of replacement quality at an average of 627 lbs. were purchased for $115.75.