Export demand supports market
The early fed cattle trade last week occurred at prices which analysts expected to be the seasonal low. Nebraska feedlots reported selling 10,000 head of fed cattle last Wednesday at $83.25-$84 live and $133 dressed. Colorado feedlots reported selling 1,000 head of fed cattle at $84 live and Iowa feedlots reported selling 200 head of fed cattle at $135 dressed. There was very little live trade in the southern Plains as of last Thursday, however, analysts were calling for live trade in the $85 to $86 range as a result of packers being short bought the previous week.
Packers, for their part, were expected to begin slowing chain speeds from the prior week’s levels in an effort to stay out of the market as long as possible as well as providing some support for the beef cutout values which, last Thursday, were also nearing the expected seasonal bottom. However, the slowdown had yet to begin by midweek. Week to date harvest through last Thursday was 507,000 head, up 2,000 from the prior week and 3,000 head more than the same week in 2006.
The Choice cutout last Thursday was hovering at $139.40, up 11 cents from the prior day. Select cuts gained 37 cents to trade at $132.24. Movement at the wholesale level was still relatively slow however, and it appeared that additional discounting could be in the works before buyers jumped back into the market to contract their product now that most have fulfilled their July 4th holiday needs. Export buying remains one of the bright spots in the beef market right now and is helping to support prices in the face of lackluster domestic demand. Some of that evidence was visible in the sagging middle meat prices, which packers were discounting last week in an effort to keep product moving out of cold storage. Chuck and shoulder cuts, in the meantime, were strong as buyers in Asia continued to demand more beef from the U.S. The lifting of the export ban which Korea had placed on six U.S. plants should add support to the beef complex.
Another high note for the market is continued strength in the ground beef and boneless beef segments which are seeing strong demand for product ahead of the holiday.
Shipments of trim and grind were strong throughout the week and the 90 percent lean was still going strong at $137.43, compared to $130.28 last year, while the 50 percent trim traded at $55.71 compared to $38.47 on the same day in 2006. Cow carcass cutout values were trading at $111.83, which was down from early June, but still more than $6 above year ago levels.
On the Chicago Mercantile Exchange (CME) last Thursday, contract prices moved higher across the board, rebounding from an early week sell-off following USDA’s cattle on feed report. The bearish report weighed heavily on deferred contracts after placements were reported higher than industry expectations, at 13.5 percent above May 2006.
The spot month contract gained 162 points during the session to close at $86.92, while August rose 90 points, ending at $90.15 and October added 132 points to close the day at $94.45.
While there are tight supplies of fed cattle ahead in the short-term, fall and winter fed cattle contracts lost ground early last week as a result of in increase in the number of cattle moving into feedlots earlier than expected from herds in the southern states. That, in turn, could impact prices paid this fall for feeder calves which have been very strong despite $4 corn prices, particularly when compared to steer prices the last time corn prices spiked. In 1997, 650 lb. steer prices dipped below $60. Thus far, early contract prices for feeder cattle have been reportedly good and video sales are also proving to be strong in advance of some of the season’s largest sales coming in July.
University of Iowa Agricultural Economist Shane Ellis said he expects prices for fall calves to be lower than 2006 levels, however, he said prices will remain well above the 10-year trend line.
“Third quarter prices are expected to be 5-10 percent lower than a year ago, Fourth quarter feeder cattle prices, on the other hand, will be similar to those of last year after harvest corn prices dramatically increased,” Ellis said. “Finally, beef feeder cattle supplies may be slightly lower this year, with fewer beef cows calving than a year ago. This may also help offset some of the weaker feeder cattle demand created by higher feed costs. In conclusion, cow/calf producers should see yet another profitable year. However, it may be advisable to use some form of marketing strategy that will mitigate the risk of increased corn prices.”
Futures contract prices indicate that prices will remain strong into the fall marketing season and moved higher, following live cattle contracts in last Thursday’s session. August feeders jumped 120 points, closing the session at $109.77, while September gained 132 points, ending at $110.42, and October rose 130 points to finish at $110.40. The sharpest rise of the day came on the November contract which ended the day at $110.70, 147 points higher than a day earlier.
Meanwhile, cash auction market prices last week rebounded slightly in many areas. The CME index showed feeder cattle prices averaging $108.40 last Thursday.
In El Reno, OK, last week, feeder steers and heifers sold for steady money on good demand after a bounce in the futures market. Steer and heifer calves sold $2-4 higher than prior week’s light test, with several reputation brand calves included in the day’s supply. Continued rainy weather has prolonged the grass season and created very good demand for stocker cattle.
Meanwhile, at the market in Oklahoma City, OK, feeder steers and heifers were called steady to $2 lower, while steer and heifer calves sold steady. According to market reports, the bulk of feeder receipts at OKC continue to be number one and two crossbred cattle coming from out of state. Demand was called moderate, at best, for feeders and good for calves despite the absence of some northern buyers last week.
Farther north, in West Plains, MO, last Tuesday, steers and heifers were unevenly steady, selling from $2 lower to $2 higher throughout the day, with a full advance noted on better quality calves when the market reached its full potential after a slow start. Yearling demand remained good most of the day with several load-lots being absorbed rather handily in spite of the week’s sharply lower fed cattle trade and continued pressure on the cattle board and stronger grain futures.
In Loup City, NE, market reports indicated moderate demand for a very short list of yearlings and fall calves, as well as several load lots of Holstein steers. Cattle quality and condition were reportedly average, with fairly good buyer turnout. In addition to the regular list of feeder buyers, there were several people looking to fill out pastures with grass cattle. While in Hub City, NE, compared to the previous week, feeder steers and heifers sold $2-3 higher on offerings consisting of mostly load lots of high quality feeders from reputation consigners.
In the western states, prices were also mostly steady to higher last week. In Prescott, AZ, steer and heifer calves and yearlings were reportedly selling for steady money. While prices in Madras, OR, moved lower in a light test of the market. Prices for 500-600 lb. steers were in a range of $104-111, while those in the 600-700 lb. class were mostly $99-105, down $7-8 from the previous week.