Feds slump on futures turnaround

Cattle Market & Farm Reports, Editorials
May 2, 2005
by WLJ
— Questions arise on marketings data.
— Feeders, stockers still rallying.

After showing signs of getting ready to eclipse $95 live, $152 dressed early in the week, last week’s cash fed cattle market wound up with only moderate trade happening through Thursday at prices barely steady to $1 softer, compared to the previous week.
Approximately 50,000 head traded in Nebraska on Wednesday at mostly $149 dressed, $92.50, compared to mostly $149-150, $93 the previous week
In southern feeding areas, trade was nonexistent with packers still bidding only $90-91, compared to producers’ asking prices of at least $96. Analysts with the Texas Cattle Feeders Association said they thought that $94 would probably get cattle traded for the week.
Market analysts said last week’s cash market turnaround was indicative of how much influence the futures market has over the cash cattle market. After hitting a contract high of $94.05 on Monday, the April contract was back down to $92.45 at the close of business Wednesday. Thursday saw the April contract remain mostly steady with Wednesday’s settle price.
Sources at the Chicago Mercantile Exchange (CME) told WLJ last Thursday that the turnaround in the April contract was almost solely related to packers not increasing their bids to levels at least steady with the majority of the previous week’s trade. Those same sources said packers ignored USDA’s April 1 Cattle-on-Feed Report, and that there might be more captive supply cattle ready for immediate processing.
In addition, Andy Gottschalk, analyst with HedgersEdge.com, said he was very skeptical of how accurate USDA’s March marketings figure was, and there was probably more near-term slaughter-ready cattle available than the on-feed report indicated.
“There is absolutely no correlation between USDA’s (marketing) numbers and the actual slaughter volume for March,” Gottschalk said. “Slaughter data is an actual known head count, as where marketings are derived from a survey. Those surveys could be less than entirely accurate.”
Packer demand for live cattle might start to wane over the next week or two as slaughter volumes started to show a decline last week. Between last Monday and Thursday, 471,000 head of cattle were processed by packers, 5,000 head below the week prior and 36,000 fewer than the same week last year.
For the week ending April 23, 600,000 head of cattle were processed, 14,000 head more than the week previous. In addition, market analysts said that was about 25,000 head more than the minimum number of cattle needed to meet current beef demand.
Slaughter weights also continued to be much larger than a year ago, meaning fewer cattle are needed to produce a similar amount of product. For the week ending April 23, the average slaughter weight was 1,227 pounds, compared to 1,192 the same week last year. The average carcass weight was 748 pounds, compared to 726 in 2004.
Other indicators appeared to be positive for the cash market. However, the futures movement on Wednesday trumped those other factors.
Last week’s boxed beef market was very bullish, with both prices and volumes being called “very impressive” by market analysts. Through midday Thursday, Choice beef had gained $4.45 for the week, while Select had increased $4.56. Movement was called well above average with Monday being the only day during the first four days of last week where under 350 loads were moved.
Retailers were starting to purchase beef supplies for the projected demand increase normally associated with Mother’s Day, which is May 8 this year. Eastern retailers are also still banking on unseasonably large spring beef demand due to consumers being “cooped up” at home for a longer- and “stormier-than-normal” winter weather season.
Despite most cattle feeders being disappointed in last week’s fed market developments, most sellers were still reporting $35-60 per head profits. That helped strengthen feeder markets another $1-2 last week.
In addition, extremely wet weather permeated most central and northern cattle grazing regions and that spurred stocker operator interest in weaned calves, especially heifers. Seven-weight and lighter steers were up mostly $2-5 higher, compared to several weeks previous, while some $8-10 gains were reported on heifers.
The one area that is still being reported as dry and in need of some moisture is the Southwest. Several auction barn reports from Texas and Oklahoma reported stocker cattle being mostly steady to $2 higher. In addition, volumes of cattle offered in those areas are being called 15-20 percent larger than a year ago.
After starting out slightly stronger on Monday, last week’s nearby corn futures lost 10-12 cents over the next few days. May corn went below $2.04 Thursday. That news helped spur interest from cattle feeders in heavier calves, analysts said.
In addition, while there was uncertainty surrounding USDA’s March feedlot marketings number, there was more credence put in the drop-in feedlot placements over the same month.
“Placement figures for last month showed that feedlots may need to stock up on more cattle that will be ready for market come this fall, particularly starting in October,” said Reed Marquotte, M&Z Livestock Analytics.
The CME feeder cattle index, for 700- to 850-pound steers, was at $111.78 last Wednesday, up approximately $1 from the previous Wednesday. — WLJ

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