Feds off $2-4, but profits still noted

Cattle Market & Farm Reports, Editorials
May 9, 2005
by WLJ
A struggling futures market and projections for less-than-stellar post Mother’s Day beef demand left cattle feeders settling for cash cattle prices $2-4 softer than the previous week. However, even with that decline, most cattle were bringing a $50-or-more profit to producers.
Trade was mostly complete in the northern tier states last Wednesday afternoon, with cattle being moved for $144-146 dressed, mostly $91 live.
Southern producers were still waiting for packers to come to the table with at least $92 per cwt. Packer bids finally got back up to $90 mid-morning Thursday, but trade was still nonexistent in Kansas and Texas.
Trade the previous week was at mostly $93-94 live, $149-150 dressed.
June took over as the “current” live cattle futures contract and that created some bearishness in the cash market since that contract stayed right around $85 last week; the cash premium using the previous week’s average price was almost $9. Market analysts said that was way too large of a spread for the season, and that narrowing of that spread was expected and it happened in the form of the cash market losing value.
According to Jim Robb, chief analyst with the Livestock Marketing Information Center, beef demand for the week to ten days following Mother’s Day is expected to be lackluster and that was pressuring live cattle prices. He did say, however, that another upward spike in the cash market is possible but it won’t be until the next to last week of the month.
“Memorial Day is usually a good beef demand holiday, and I expect a solid spike in cash cattle in reaction to filling up supply voids left by beef demand for that holiday,” Robb said. “However, until that product starts to move the last half of the month, cattle slaughter could be slowed down and that means fewer live cattle are needed by packers.”
Robb was uncertain as to how high fed cattle prices would go leading into Memorial Day but said that the mid-$90s was a possibility.
Southern cattle feeders were holding out a little longer last week given that packers were reporting $30-plus per head profits, and that slaughter volumes had picked up during the first half of the week.
Through Thursday, packers had processed 485,000 head of cattle last week, about 15,000 head more than the previous week, but 20,000 head fewer than the same week last year. Analysts’ projections were that 600,000 head, or more, would be processed for all of last week.
Additionally, analysts said that weekly slaughter volumes had surpassed weekly beef demand each of the four weeks in April, and that the amount of product in cold storage was adequate enough to get packers through the two weeks following Mother’s Day. Most sources said that 580-590,000 head of cattle would meet weekly beef demand. For the week ending April 29, 620,000 head of cattle were processed, with another 601,000 processed the previous week. For the month of April, average weekly slaughter volumes were 598,000 head.
Robb said that Taiwan reopening its border to some U.S. beef would help increase total beef demand. However, he was also cautious about that help being significant due to bone-in product still being disallowed in that country. According to U.S. Meat Export Federation statistics, 35-40 percent of pre-BSE exports to Taiwan were bone-in short ribs, which means 7-8,000 metric tons of the total 20,000 metric tons shipped to Taiwan in 2003 was boneless short ribs.
The boxed beef market started out stronger last week, but by Thursday was starting to weaken some. Choice hit a high last week of $163.89, before getting back down to $162.15 on Thursday. Select was at $144.74 Thursday, after rallying up to $147.59 during the previous week.
The Choice/Select spread widened beyond $18 last Wednesday, giving some indication that higher quality Choice beef was in greater demand for the Mother’s Day holiday. Volumes of beef moved on the cash market was moderate last week, but only about 80 percent of the previous week’s volume.
tailing off
Auction barn reports from across the country indicated that cattle feeders weren’t willing to pay much more than steady money for cattle ready to go on full feed. In fact, a large portion of cattle feeders were buying cattle at prices $1-2 below the previous week.
The two-week downtrend in fed cattle prices and projections for lackluster beef demand throughout most of the remainder of the spring had order buyers cautious about buying cattle at even steady money. In addition, northern and central Plains cattle were coming off pasture in fatter-than-normal condition and that hurt their value.
Cattle that are in heavier condition when they enter a feedlot usually have decreased feed efficiencies and average daily gains, compared to “green” cattle that have a little more frame on them.
Volumes of fed cattle offered in the southwest were called abnormally large for the first week of April due to wheat graze-out cattle having to be removed earlier than normal.
“More wheat cattle were on the move this week as graze out wheat has matured early due to dry conditions,” said Robert Miles, USDA auction market reporter, Oklahoma City, OK.
Feeder cattle offered for sale in Texas and Oklahoma were 125 percent of normal for the first half of the first week of April, and that softened the prices also.
Last Wednesday’s Chicago Mercantile Exchange (CME) feeder cattle index was just over $111, down almost $1 from mid-week the previous week.
Weaned calves were bringing mostly steady money. However, there were reports that cattle 500 pounds or lighter were bringing $1-3 more than the previous week, particularly heifers.
Lighter calves will be ready for market around the time fed prices are expected to strengthen this fall and winter and won’t be subjected to the normal summer lull in the fed market. In addition, it is likely that Korea, Japan or both will be reopened to U.S. beef by the time those cattle are ready for market, and some cattle feeders are buying them with that in mind.
In addition, cash corn slid a little bit more in price last week, going back below the $2 per bushel mark, which is $3.50-3.60 per cwt prior to delivery.
Analysts also said that the fact that most fed cattle are still making at least $50 per head has helped producers justify paying a little bit more for cattle that will hit the fed market after the summer lull. Most breakevens on northern cattle were called $83-85 per cwt, while southern cattle were probably breaking even at $84-87.
Stocker demand was definitely softening in the Southwest as weather has turned dry and is starting to result in a slowdown in grass and forage production in that region. However, stocker demand in the upper two-thirds and western third of the country was starting to pick up as March and April moisture has resulted in better-than-normal pasture and rangeland conditions and production forecasts.
Midwest demand for stocker cattle was somewhat depressed as a lot of producers have grain operations and were out in the fields doing their needed spring work. — WLJ

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