Fed trends uncertain

Cattle Market & Farm Reports, Editorials
May 16, 2005
by WLJ
— Boxed beef market cited.
— Thursday bids, asks $5-6 apart.

Packers and cattle sellers continued to stay $5-6 apart as WLJ went to press last Thursday. What made last week more interesting was the fact that nobody was sure where the market would end up at the end of the week. While some regional marketing sources said they thought steady money was in the cards for last week’s trade, other more national-based analysts were thinking $1 softer was more likely.
Some northern trade was reported late last Wednesday, early Thursday at $142-143 dressed, which was $1 softer than the majority of northern trade the previous week. In addition, that price was paid on only 20-25,000 head of cattle.
In southern markets packers were still bidding mostly $87 on Thursday, while producers were asking for at least $92, with most still wanting to get $93.
There were some diverging opinions about what last week’s very heavy boxed beef movement meant to the cash market. Between last Tuesday and Thursday almost 1,800 loads of boxed beef moved on the spot cash market, which was considered the largest three-day total in several years, analysts said.
On one hand, optimists said that packers had to be getting low on product and would need to get more active in the fed cattle market to meet increased production demands through the last half of May. However, more pessimistic analysts said that the heavy volume of boxed beef was the result of retailers holding out of the market the week prior and forcing packers to “fire sale” product because of overly large volumes starting to build.
“The decline in boxed beef prices the last week will make up for a large portion of the spike in movement,” said Jim Robb, chief analyst with the Livestock Marketing Information Center. “If we would have seen a spike in the boxed beef composite value on Thursday, I could see some optimism on the fed market. However, no spike probably means that there is still plenty of product in storage and little need for extra beef production.”
Choice boxed beef was at $155 per cwt last Thursday, compared to over $163.50 the previous week. Select was down to $139.25, compared to a high the previous week of $145.44.
Last week’s slaughter volume was fairly consistent with the two previous weeks’ output and analysts said that could mean a continued buildup in beef supplies, particularly with most beef being produced now for retail sale after the Memorial Day holiday.
“Most beef for Memorial Day has been booked,” said Reed Marquotte, M&Z Livestock Analytics. “There is some possibility that Choice steaks and other middle meats are demanded more, but booking other products for the holiday is probably done. Slaughter volumes right now are more than enough to meet current demand.”
Through last Thursday 477,000 head of cattle were processed, according to USDA, compared to 481,000 head for the same period in the previous week. For the week ending May 7, 656,000 head of cattle were processed, 50-60,000 head more than the number of animals required to meet current demand, according to Marquotte. Last week’s slaughter volume was expected to be well over 600,000, which is considered mostly “in sync” with current beef demand levels.
“I definitely see a buildup in beef until Memorial Day,” Marquotte said.
While live cattle futures were still mostly steady for the entire week, compared to two weeks ago, it didn’t result in any major cash trends.
May live cattle stayed between mostly $86-86.50 last week, still $5-6 below the previous week’s cash price. Most analysts said the normal seasonal basis, cash-futures, is $2-3.
Feeders rally
Feeder cattle markets were capitalizing on recent developments concerning Pacific Rim beef trade and the fact that cattle being offered were “greener” than the previous few weeks. In addition, overall volumes of calves and yearlings offered were called 75-80 percent of normal for this time of year.
Feedlots were seen paying mostly $1-2 more on all classes of replacement cattle.
Feeder cattle futures contracts helped lead to the upward trend in cash cattle prices, as the first few listed contracts all reached contract highs last Tuesday and Wednesday. May hit a contract high of $111.60 on Wednesday, while August got up to $111.50 the same day. The bullishness continued through most of the day Thursday with an extra dime being added to each contract’s high.
Last week’s positive developments in the beef trade dispute with Japan and continued word of active consumer purchases of U.S. beef in Taiwan were said to help spur the jump in feeder cattle prices. In addition, USDA and industry lobbyists said that the trade dispute with Korea could be resolved over the next couple of months, adding to overall beef demand this fall.
Most sources said it is possible that all three major Pacific Rim export markets could be receiving U.S. beef later this summer, possibly as soon as July. That means overall fall beef demand could be significantly larger than once expected and that more cattle will be needed to fulfill beef needs, particularly over the last quarter of the year.
In addition, USDA auction market reporters across the board were calling cattle conditions “moderate” to “very green,” compared to previous weeks’ reports of cattle being in “high moderate” to “fleshy” condition. Heavier conditioned feeder cattle normally means poorer feed efficiencies and average daily gains. In addition, those cattle usually wind up hitting the market with a poorer yield grade, which means they need to be bought a little cheaper than “green” cattle.
Cattle feeders were also justifying paying more for replacement cattle because of declining feed prices. Cash corn prices declined another five to seven cents last week, following a trend set by nearby corn futures contracts. As of last Thursday midday, May corn had dropped to $1.93 per bushel. Converted over, cash corn was hovering around $3.50 per cwt. Feedlots in close proximity to major corn producing and storage areas were reporting sub-$3.25 cash corn.
The CME feeder cattle index, for 700- to 850-pound steers, was at almost $112 per cwt last Wednesday, compared to $111.15 the previous Wednesday.
Calf prices ranged wildly last week, with auctions reporting trends anywhere from steady to $4 higher. The greatest gains last week were reported in Plains and northern tier states where stocker operators got into the market after a couple of weeks of field work occupying their time and dealing with muddy spring weather. Northern stocker interest has been helped by an unseasonable wet April and early May, which has resulted in the best pasture and range conditions since the late 1990s.
In several northern Plains auction markets there were reports last week of 600-700 pound steers bringing upward of $125 per cwt; 500 pounders bringing $135-plus; and 350-400 pound cattle brought as much as $150-160.
In the southern half of the country, auction reporters indicated that conditions are starting to dry out and stocker operator interest is waning as a result. In addition, an increase in feedlot demand for younger cattle has curtailed demand by backgrounders and calf graziers in those areas.
In general, auction market owners said that weather is turning warmer on a more consistent basis and that there are fewer concerns about calves coming into a feedlot situation and creating more expense and labor due to health issues.
The current corn market also was cited for allowing more interest in calves to be fed out as calf feds. — WLJ


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