Fed cattle prices rise slightly after early trade

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ

After some early week reductions in the number of fed cattle being harvested, the beef cutout value regained traction last week and rose more than $5 in a period of three days. Early in the week, Tyson Foods Inc. confirmed it had closed two plants and reduced the number of hours being worked at others due to packing house loses caused by poor movement of beef at the wholesale and retail levels.

The industry’s average margin last Monday was estimated at a negative $18.65 per head, compared with a negative $18.70 on Friday and a negative $7.05 a week ago, according to HedgersEdge.com. The cut backs in harvest to just 106,000 head last Monday were short lived as the cutout rebounded from nearly two weeks of lower trade. However, by midweek, packers were hard at work slaughtering cattle after margins moved back into positive territory. By last Thursday, packers were averaging $18.05 per head and they harvested an estimated 125,000 head, despite continued difficulty moving beef loads out of cold storage warehouses. That compares with 123,000 head for the previous Thursday and 125,000 a year earlier.

As mentioned, the beef cutout values rose sharply last week as a result of those slaughter cuts and last Thursday, Choice values again moved higher to $161.32, gaining 46 cents in morning trade. Select prices rose $1.45, to $148.40, although volume for much of the week was light to moderate.

The difficulty in the packing sector was not carrying over to other segments of the industry. Early trade in the Corn Belt, Nebraska and Colorado on Wednesday last week, at prices steady with the previous week, fueled speculation that when trade finally broke loose, it would be at better prices.

Early prices were 50 cents higher, from $96-97, with dressed sales unevenly steady from $153-155. Feedlots in Iowa and Minnesota sold a few cattle on a live basis at prices steady with the prior week at $96-97. Dressed sales in the region were called $1-2 higher, from $155-156. Trading in the southern Plains last Thursday was reportedly light to moderate at $97- 97.50, which was 50 cents to $1 higher than the prior week when live sales developed in a range of $95.50-96.50. What a difference a year makes—during the same week last year, fed cattle prices averaged $78.37 live and $124.14 dressed.

Cow slaughter rates have started to drop off slightly from the higher than normal number seen over the past several months. Last week, that drop added additional support to the surging cow carcass cutout values. Last Thursday, the cutout added $1.24, to trade during the day at $118.57. The 90 percent lean was also higher, trading at $149.24, and the 50 percent at $79.59. Those prices compare with a cow beef cutout at $107.43 with the 50 percent at $49.27 and the 90 percent at $132.22.

The volatility in the fed cattle markets is expected to continue through the summer. Weather and beef demand are going to be key considerations going forward. USDA reported last week that 53 percent of the corn crop had been planted. However, rainfall totals in the Midwest, which exceeded seven inches in some places, mean that the crop is going to be replanted due to erosion and seed rot. These setbacks and delays are likely to work against the end of the year yields once they are tallied. Corn prices last week were moving higher and many traders were reportedly waiting on the first 2007/2008 supply and demand report due out last Friday. Analysts expected the planting number to remain steady with the planting intentions report at 12.7 million acres, although many now believe that number is higher than what will actually make it in the ground this year as a result of weather issues. December new crop corn futures last Thursday on the Chicago Board of Trade were trading slightly lower for the day at $3.61. Meanwhile, cattle futures last Thursday were doing better. After downward movement early in the day as a result of funds rolling out of the June contract, prices moved higher to end the day in positive territory. The higher cash trade and the upward trend in boxed beef were the major market factors during the session. June live cattle issues ended the session up 30 points, closing at $92.70. August gained 40 points and October closed up 65 points, ending at $92.40 and $96.40 respectively.

Feeder cattle

Now that most producers have secured the cattle needed to graze summer pastures and the spring runs in most areas have ended, feeder cattle prices have stagnated slightly. Although the trend remains higher in some areas and the Chicago Mercantile Exchange Feeder Cattle index remains above last year at $106.99, compared to $99.40, numbers of cattle moving through auction markets have slowed and trends have become more difficult to calculate.

According to Darrell Mark, agricultural economist at University of Nebraska-Lincoln, the improvement in pasture conditions over last year has helped sustain the market in recent weeks with more strong demand for lightweight cattle for grazing ahead.

“Across the U.S., pasture and range conditions were slightly better than last year at this time,” Mark said. “Recent rains and good growing conditions in drought-stricken areas have resulted in some of the best grazing conditions in years in some localized areas. This should lend support to the feeder cattle market over the next few weeks as demand for lightweight calves for grass improves.”

He noted that the good demand and strong prices are despite a 20-cent rally in the corn market from a sell-off two weeks earlier.

“Last week, however, feeder cattle prices in Kansas were $1.50-2 lower, but Nebraska prices were stronger, with steer calf prices steady and yearling steer prices advancing more than $4,” he said. “Interestingly, the price of dry distillers grain (DDG) in Iowa averaged $2.50/ton lower last week even as corn increased. Expressed as a percentage of corn price on a dry matter basis, this is the cheapest DDG price relative to corn so far in 2007.”

In California, conditions remain much drier than normal and wild fires have been plaguing the southern portion of the state this spring. According to Jake Parnell, manager of Cattlemen’s Livestock Market (CLM) in Galt, CA, grazing conditions in the central valley have deteriorated to the point that producers are shipping butcher cows and pairs to the market earlier than normal.

“Out in the west part of the valley, it's been very dry and the grass is pretty much done. To the east, they got a little rain last week and their grazing conditions are a little better,” he said. “The runs have been pretty good, with most of the cattle heading out of state to places in the central U.S.”

Parnell said prices at CLM have been good for much of the spring and continue to average relatively high.

“Prices paid for heavy cattle have been very good; light cattle prices this week were steady,” he said.

Farther to the north in Vale, OR, prices paid for grass calves and yearling cattle were also reported to be fair and steady. Cattle in the 500-600 lb. range sold between $109 and $121. Those in the 600 to 700 lb. class were $105-115 and seven to eight weight yearlings brought $93-100.

In Billings, MT, last week, feeder cattle were too lightly tested to offer any price comparisons. However, demand was reportedly good for stockers and feeders of all weights. There was also moderate to good demand for cow/calf pairs. Many of the young pairs were in thin to very thin flesh condition, however.

In Aberdeen, SD, a good run of more than 2,500 head of feeder steers and heifers brought prices steady to $1 higher than the previous week with good demand across all classes of cattle.

Feeder cattle prices in La Junta, CO, were called steady with the prior week. Yearling feeder steers and heifers were also steady to $1 lower. To the east in Dodge City, KS, there were not enough steers or heifers of any weight class for an accurate market test. However, in a very limited test, steers in a range of 750-900 lbs. were called firm to $2 higher; heifers 700-800 lbs. were reported to be firm to $1 higher.

Despite heavy rain and widespread flooding in Missouri, prices for cattle on offer last week remained strong. In Joplin, MO, compared to the previous week, steers under 650 lbs. were steady to $2 lower, those over 650 lbs. sold steady. Hheifers under 600 lbs. were also steady, while those over 600 lbs. were $2-3 higher. Demand was called moderate to good for weaned, vaccinated calves and yearlings, moderate to light for new crop calves on moderate supply.

In Oklahoma and other portions of the southern Plains, continued heavy rainfall last week added to the already good pasture conditions and supported the prices being paid for feeder cattle. In Oklahoma City, OK, feeder steers and heifers sold mostly steady last week. Stocker cattle and calves were steady to as much as $4 lower, with a full decline on six weights. Weigh ups average to gaunt early in the day and mostly average later, contributing to the price swings. The day's supply included a larger percentage of number two muscled cattle compared to recent weeks. Demand good for feeder cattle and light weaned calves, moderate for others.

The weather picture was similar farther down in Texas, where severe weather dropped several inches of rain last week. In Abilene, feeder steers under 600 lbs. were $1-2 higher; those over 600 lbs. sold $1-3 higher. Feeder heifers under 600 lbs. were steady, while those over 600 lbs. brought prices called $1-3 higher.