Tight supply sustains market

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
The currently tight fed cattle supply continued to be supportive of the market last week with feedlots holding out until late in the week to trade cattle. As of last Thursday, there was some mostly steady light trade reported in Texas and Kansas at $96 live basis and in the Corn Belt at $154 dressed. Volume, however, was reportedly light and no trend was readily apparent. Most market analysts, however, expected trade to remain steady with the prior week when cattle traded at $96 live in the south and northern Plains live sales traded at $95-96.50 with dressed sales at $155. In the western Corn Belt two weeks ago, live sales traded at $96-97 and dressed sales were in a narrow range at $155 to $156.

Jim Robb, director of the Livestock Marketing Information Center, said last week the seasonal top is in for the year, however, the tight supply of fed cattle means that feedlots are in the driver’s seat for the time-being.

“Packers, whose margins were being quickly eroded by a falling boxed beef market, are being forced into a situation where they are having to chase Choice product in order to meet increasing demand going into the summer grilling season,” Robb, said.
He also noted the seasonal drop in the Choice grading percentage has been sharper than expected this spring, falling nearly 3 percent last week to 50.46 percent of the slaughter mix. That has led to a widening of the Choice/Select spread which, last Thursday, was in excess of $13.

Robb said one of the key factors in the currently steady market in the face of falling boxed beef prices is a drop credit which is $2.25 higher than last year’s price of $7.74.
“The drop credit right now is significantly higher than last year and that’s really supporting the market,” Robb said. “Hide prices and other values are up over year ago levels, and that’s adding to packer margins.”

Last week, HedgersEdge.com estimated that packers are still in positive territory, earning $2.70 per head on harvested cattle. It is clear that the drop credit is a factor in keeping that margin in the black.

One factor weighing on the market is the currently high level of beef production. Slaughter for the week through last Thursday was estimated at 492,000 head, 3,000 fewer than the prior week’s total, however, that figure was well ahead of the same period in 2006 when total harvest was just 479,000 head. Carcass weights are even with last year and have not declined as significantly as expected, adding to the volume of beef being marketed. Adding to the amount of product available to wholesale and retail buyers is the continuation of heavier than normal cow slaughter.

“Both beef and dairy cow slaughter is still higher than normal,” said Robb. “I think that producers have been more aggressive in culling open cows this spring. After the winter, there are more cows coming up without calves and producers are looking around at pasture and forage conditions, remembering last year’s drought, and sending those open cows to town.”

The implications of heavy culling, combined with the high number of heifers on feed this year, are likely to have a far wider reaching impact than just the currently heavy cow slaughter, according to Robb.

“A lot of the feedlot operators I have talked with in the last several weeks all want to talk long-term. No one is interested in the short-term. There is a legitimate concern among cattle feeders that we haven’t stabilized the U.S. cow herd numbers,” he said. “There are not as many cows out there now as there were a year ago and there is no expansion underway. The 2007 calf crop is very likely to be smaller than the 2006 calf crop. If heifers are retained out of those numbers for expansion, the available feeder cattle supply becomes even tighter this year.”

Moisture and pasture condition, combined with the Corn Belt weather forecast, are now key factors in the direction cattle markets will take over the course of the summer. Corn planting is already behind schedule in many major corn producing states which could begin to impact the per bushel price. Meanwhile, good precipitation in most areas has led to good pasture conditions in cow/calf country which could offset some production costs and lead to another good year for cow/calf producers.

“It is important to watch the corn markets,” Robb said. “I think they definitely have the potential to whipsaw the feeder cattle market around a few more times this summer.”

Feeder cattle

The aforementioned spring storms have doused many western states with much needed moisture within the last few weeks. This, coupled with warmer temperatures, has raised the spirits of many owners of stocker operations, prompting them to once again pay higher prices for cattle ready to go to grass.

“We have got quite a bit of grass coming up here,” said Tom Gering of northeastern Colorado. “This last bit of moisture will really help if we can just get the temperatures to come up a little. It looks like conditions are favorable for us to have plenty of grass this summer. At least I’m hoping we will. I’m actually planning to turn out a bunch of fall calves soon.”

A crop, weather and pasture report from USDA says that states east of the continental divide should have above normal temperatures and near normal precipitation. To the west, it is expected that states will see above normal temperatures and precipitation.

Recent rain and snowfall has significantly improved soil and topsoil moisture conditions. The increased moisture and warm temperatures have significantly improved ranges and pastures when compared to one year ago. USDA reports that a few spring pastures have opened up and livestock are already being turned out for grazing.

On The Chicago Mercantile Exchange (CME) last Thursday, feeder cattle contracts traded in a narrowly mixed range. April was down 5 points, closing at $106.80. May closed up 17 points at $106.15 and August was down 2 at $110.97. September calves were up 10 points and October shed 42, closing at $110.65 and $109.90 respectively.

Despite mixed trade on CME, cash feeder cattle prices remain steady. Most of the demand is for thin, light weight cattle ready to go to grass. The new crop cattle, coming in with more flesh, are taking quite a significant hit in auction markets throughout the West.
“I just don’t want those heavier conditioned calves,” said Gering. “They don’t do as well when you turn them out on grass.”

In Famoso, CA, stocker cattle sold $3 higher and feeders were steady. Offerings were of high quality. There was a big demand for stocker cattle, mostly for out-of-state grass orders. Demand was especially high on green cattle weighing 450-690 lbs. There was also a big demand for feeders, especially for high quality, green types weighing 700-850 lbs. Stocker steers weighing between 425 and 500 lbs. sold for $133.50 while their female counterparts were worth $113. Feeder steers weighing 725-900 lbs. sold for $100 and females that averaged 775 lbs. called for $94.50.

To the north in Toppenish, WA, feeder cattle were $2 to $4 higher. Trade was active with good demand. Steers averaging 578 lbs. sold for $115. One set of steers that weighed only 10 pounds more, but were value added, sold for $118. One large group of heifers weighing 675 lbs. sold for $98.90. Another group of heifers weighing only 694 lbs., but were fleshy in their condition, only sold for $94.50.

To the east in Sioux Falls, SD, feeder steers and heifers sold steady to $1 lower with most of the decline on cattle over 900 lbs. Demand was moderate to good with numerous packages and small lots in moderate to fleshy conditions. One set of steers averaging 515 lbs. sold for $119.50 while another group of thin steers averaging 508 lbs. sold for $132. One set of heifers weighing 650 lbs. sold for $105 and those weighing 697 lbs. in fleshy condition were only worth $94.

In Fort Collins, CO, feeder steers were mostly steady to $1 lower. Feeder heifers were mostly steady to $2 lower, the full decline being on weights under 600 lbs. Demand was moderate to good with the best demand on larger strings of feeders weighing over 600 lbs. Five weight steers averaged $125.50 and seven and one-half weights sold for an average of $104.50. Females weighing between 500 and 520 lbs. sold for an average of $112.75 and the heavier females, weighing between 735 and 770 lbs., were worth $98.50.

In Bassett, NE, feeder steers and heifers trended steady to firm. Offerings consisted of average to good quality fall calves and yearlings. Demand was moderate to good from a shorter than usual list of buyers. Steers averaging 475 lbs. sold for $144.50. Thirty-seven head of fancy steers weighing 555 lbs. sold for $141.50. Heifers weighing 525 lbs. were worth $120.20 while the heavier females of replacement quality, weighing an average of 735 lbs., called for $106.50.

Another big run in Oklahoma City, OK, with over 10,600 offerings. Feeder steers and heifers were steady to $2 higher. There was a short run of stocker cattle which sold firm to $4 higher. Demand was good on all stocker and feeder cattle, moderate for new crop calves, many of which were carrying heavy flesh. Demand continues to run very good for short supply of 500 to 750 lb. cattle in thin condition. Four and one-half weight steers averaged $139.50. Heifers averaging 569 lbs. sold for an average of $113.48 and those in fleshy condition at a similar weight were only worth $108.

In Abilene, TX, feeder steers under 600 lbs. were $1 to $2 higher. Those weighing over 600 lbs. were steady to $2 lower. Feeder heifers under 600 lbs. were steady to $2 lower while females over 600 lbs. were steady to firm. Steers weighing between 400 and 500 lbs. sold for an average of $123.50 while heifers brought $116.50. Steers weighing between 700 and 800 pounds were worth $103.50 and their heifermates sold for $95.

In Joplin, MO, feeder steers and heifers remained steady. Demand and supply were moderate. Steers averaging 550 lbs. sold for an average of $117.62 and weaned, thin conditioned cattle at the same weight were worth $126. Heifers averaging 550 lbs. sold for an average of $110.50.