Feeders hold out for fed rally

Cattle Market & Farm Reports, Editorials
Jul 11, 2005
by WLJ

Reports of very good Fourth of July beef demand and some early week strength in both the futures and boxed beef markets gave fed cattle producers some optimism for a stronger market last week. However, as of Thursday, market activity was still almost nonexistent as packers were waiting for asking prices to get in line with the previous week’s market.
The only trade reported as of press time was 5-8,000 head in Nebraska at $130 dressed, which was $1-2 stronger than two weeks ago. Thursday morning packer bids were down to $128-129 in northern feeding states.
In the southern Plains, cattle feeders were asking mostly $84-85, but, packers were still bidding mostly $80.
“We’re looking at a Friday trade, maybe even a Friday afternoon market,” said one Denver-based market analyst.
Packers were reluctant to get into the market even at steady money, compared to the previous week, because they are seeing negative margins, again. Most analysts said that packer breakevens were between $81.50-82, and that steady to stronger prices could move them to the minus side of the ledger.
Retail beef movement over the three-day Fourth of July weekend was called very good by several retail and market sources, which produced some strength in the boxed beef market last Tuesday and Wednesday. Almost 400 loads were sold Tuesday, while a 500-plus load day happened Wednesday, which was a $1 jump in Choice beef and a 40-cent gain in Select, compared to the previous Friday.
However, Thursday saw the boxed beef cutout fall $1.50 on Choice and $1.10 on Select. Analysts said that heavier-than-expected slaughter volumes during the previous few weeks were starting to weigh on packer storage and that beef needed to be “firesaled.” It looked like Thursday was going to be another 500-plus load day for boxed beef movement.
While the Fourth of July weekend was considered the best three-day period for beef demand in almost a year, it was on middle meats and other items associated with grilling. Chucks and rounds weren’t in big demand and the supply was building. A lot of the inventory reduction was on those primal cuts, sources said.
One central Plains retail buyer told WLJ, “Even with the new ‘steak’ cuts that are coming out of the chucks and rounds, there is just not enough demand in the summer to swallow up that part of the beef supply. We are also talking about fed cattle that are 20-30 pounds heavier, compared to previous years, meaning there’s another 13-18 more pounds of beef produced, and at least 50 percent of that is additional chuck and round.”
For the week ending July 2, USDA reported that the fed steer average live weight was 1,286 pounds, compared to 1,257 the same week a year ago. That figure was also five pounds heavier than the previous week.
Analysts also said that recent slaughter volumes continue to eclipse current beef demand levels. For the week ending July 2, USDA reported 652,000 head of cattle processed, compared to 643,00 head the week prior and 646,000 for the same week a year ago. Most analysts concurred that 620-625,000 head of cattle was more than enough to supply current beef demand levels, both domestic and export.
Northern feeders,
stockers stronger
The national calf and feeder cattle market was several dollars stronger last week, however, most of that was due to the extreme rally seen in markets in the central and northern Plains and Intermountain West regions. Reports that drought is on the verge of ending or already ended in most western states has strengthened demand for cattle to put on pasture, specifically heifers, sources said. With more heifers going to cow/calf producers, there are more steers available but fewer overall cattle for feedlots, which means there is more demand for a dwindling supply of feeder cattle.
Southern auction barns reported very limited offerings and even weaker demand. Most of the weakness was contributed to the extremely hot weather and the holiday “hangover.”
“Typically, feeder cattle this time of year hits a peak in the northern areas of the country, and with weather conditions helping out pasture, and hay production, there is even greater demand for grass cattle.” said Derrell Peel, extension livestock economist at Oklahoma State University. “We are dry here, but that’s a normal trend down here.”
While the Fourth of July kept a lot of auction barns closed for the first half of last week, Superior Livestock Auction had a very large video auction that was broadcast from Steamboat Springs, CO, last Tuesday through Saturday, and prices were considerably higher.
Attendees at that sale reported heavy seven and eight weight cattle bringing well over $115 per cwt, and 650- to 700-pound cattle back up over the $130 range.
Peel and several colleagues still said the fed cattle prospects for the rest of the year don’t appear to justify the current prices being paid for fed cattle. Most analysts indicated, however, that feedlot operators still contend they are better off feeding cattle even if they lose money, rather than have empty pen space.
“I can see (cattle feeding) losses the rest of the year, but it is still more beneficial for them to feed them rather than have no cattle at all,” Peel said.
The CME feeder cattle index last Wednesday got over $116 per cwt, almost $4 higher than the previous Wednesday. — WLJ

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