Prices closer to summer low
An active fed cattle trade developed in the northern region at midweek with prices trending $2-$3 lower for live cattle and $4 lower dressed. Nebraska feedlots sold 45,000 head at $86-$87 live and $1.37-$1.38 dressed. Colorado sold fed cattle at $86.50 live and $1.37 dressed, and Iowa feedlots sold 6,000 head at $1.36-$1.38 dressed. Trade in the southern Plains was still at a standstill with feedlots rejecting bids of $87 at midday last Thursday. Analysts were expecting trade in the $89 range when it finally occurred.
The rapid decline has some market analysts scratching their heads at the fall.
“The recent fed cattle price drop from the mid $90s to the low $90s occurred sooner than expected and raises questions about whether markets are merely weakening seasonally or as a result of something more fundamental,” said Oklahoma State University Agricultural Economist Derrell Peel. “Feeder cattle markets remain generally strong and, while no clear threats can be identified at this time, there is a lengthy list of factors that could inject volatility into cattle markets in the coming weeks and months.”
Peel said some of the weakness is tied to the slumping boxed beef market.
“The recent weakness in fed cattle prices is tied to a corresponding slump in boxed beef prices, the latest in a series of roller coaster of increases and decreases in wholesale beef prices this year. The current drop in boxed beef price raises questions about beef demand going into the summer. Memorial Day holiday beef sales appear to have been rather lackluster,” Peel said. “Sluggish macroeconomic indicators, high gas prices, and weaker pork exports are likely contributing to beef demand pressure. Anticipated increases in broiler production in the second half of the year will add additional pressure to meat supplies.”
The Choice cutout dropped to $141.63 last Thursday. Select fell nearly a dollar to $136.01 in Thursday trade last week. However, volume remained lackluster and clearance levels indicate that the cutout will need to slide farther to increase sales and promote contracting. One bright spot for the beef trade is the continued strength in the boneless 50 and 90 percent trim as producers fill demand for grind product in advance of the Fourth of July holiday.
With packer margins in the red, and heavy harvest volumes, the summer low might not be too far off. Retail demand should pick up going into July and wholesale buyers are likely to find value in the upper $130 range. Likewise, the fed cattle market has already slid the typical 14 percent from the winter/spring high of $100 to near the $86 mark, meaning fed cattle trends could reverse quickly, particularly as supplies tighten.
According to University of Missouri Economists Glenn Grimes and Ron Plain, total cow slaughter for the year through the week ending May 26 was up 15.2 percent.
“Daily cow slaughter was up 14.2 percent for the period, and beef-cow slaughter was up 16 percent. For the four-week period ending May 26, total cow slaughter was up 15.1 percent, dairy- cow slaughter was up 7.1 percent, and beef-cow slaughter was up 21.1 percent. The large beef- cow slaughter is probably due to the drought in the southeastern U.S. Calf slaughter through April for the year is up 25 percent from 2006,” Plain said. “This larger calf-slaughter and large cow- slaughter suggests the cattle herd is probably shrinking at a slow rate.”
Adding to what could be a very tight supply of feeder cattle this fall, imports of feeder cattle have been running behind year-ago levels.
“Feeder cattle imports from Mexico for January-April were down 21.4 percent. However, April feeder cattle imports from Mexico were up 3.8 percent from last year. Live-cattle imports from Canada in April were up 11.3 percent and total cattle imports for April were up 7.3 percent from 2006. However, total live-cattle imports were still down 7.1 percent for January-April compared to a year earlier,” Grimes and Plain said.
The tight supply of cattle in the U.S. comes at a time when imports of beef coming from Australia, New Zealand, Canada and Uruguay are declining.
“Overall shipments from these four countries, which account for 95 percent of fresh/frozen beef imports to the U.S., are down 5 percent through the middle of June,” according to Steve Meyer and Len Steiner, Chicago Mercantile Exchange (CME) analysts. The declining value of the U.S. dollar on the world market is reducing the profitability of bringing beef into the U.S. for sale.
“Assuming everything else remains the same as in the latest USDA supply and use table, if beef imports are flat, it would remove about five points from per capita consumption, to about 64.8 lbs., and 1.4 percent lower than a year ago,” they said. The current USDA estimate places per capita consumption 0.6 percent below last year.
Feeder cattle prices remained strong last week in much of the country as feedlots jump into the process of contracting calves for the fall and winter months. Tight supplies of feeder cattle are expected to be supportive and herd expansion will add further upward price pressure. Peel said the cyclically low inventories, which were forced lower again last year by drought, are expected to begin building again in the second half of the year.
“The question of the extent to which herd expansion resumes this year will have implications beyond this year but also immediately as renewed heifer retention will further limit feeder cattle supplies in 2007,” he said. “Forage conditions are significantly improved in the southern and northern Plains this year but the drought has emerged as a major factor in the Southeast. While cow herd expansion has clearly resumed in the center part of the country, offsetting liquidation in the Southeast may temper herd expansion once again.”
Prices paid for feeder cattle in cash markets, which were mostly reporting light runs, closely mirrored contract trade on the CME. The CME cash index last Thursday stood at $107.39, while August contracts settled last Thursday at $108.10. September traded 7 points lower during the day, ending at $108.32, October feeders dropped 10 points, closing at $108.40, and November slid 50 points, ending the day at $108.20.
Meanwhile, in auction market trade, feeder cattle receipts remain seasonally low. In Amarillo, TX, steers weren’t present in enough quantity to determine a market trend, however, feeder heifers under 600 lbs. were called steady on a limited test, while those over 600 lbs. were called steady to $2 higher.
At Oklahoma City, OK, where producers continue to experience good precipitation, feeder steers and steer calves sold firm to $2 higher last week, with the exception of a few six weight steer calves which were $2 lower. Feeder heifer and heifer calves sold steady with the prior week, with moderate to good demand on all classes with the heaviest action of steers over 800 lbs.
In Springfield, MO, last week, sliding fed cattle prices and high corn took their toll with steer calves moving $3-6 lower. Yearling steers were called steady to $3 lower and heifers were steady to $3 lower, with only the front end kind trading at steady money on moderate to light demand and moderate to heavy supply, including a number of program cattle included in the offering.
To the west in Hub City, SD, last week, feeder steers and heifers sold $2-3 lower on several long strings of steers and heifers and farther south in La Junta, CO, steer and heifer calves were reportedly selling for mostly steady money.