Feds, feeders stagnant

Cattle Market & Farm Reports, Editorials
Jul 25, 2005
by WLJ

There wasn’t a lot to talk about in the fed cattle markets last week as early week trade was at $79 live, $125 dressed, with very light volumes reported. Many cattle feeders were waiting packers out. Producers’ offers were mostly $83, against packer offers of $77. Southern plains feeders were inactive.
The news about the Canadian border reopening was on everyone’s mind, particularly what impact it would have on the market. At this point, fed cattle are trading lower because of fundamental market conditions in the U.S., not because of pressure from Canadian cattle, analysts said.
Boxed beef ranged lower, with Choice at $128.97 last Thursday. Live cattle futures were slightly lower, at $78.13 on the August contract. And, there are still plenty of ready cattle in feedlots, with steer carcass weights being up another 8 pounds last week at 822 pounds. Beef demand has been called “tenuous at best,” even though many retailers have beef features running, which appears to be keeping slaughter volume strong.
Packers were reportedly losing $21 per head last week, but were still moving large numbers through slaughter plants. For the week ending July 16, 652,000 head were processed and slaughter was running 5,000 head more last week compared to the week prior. To date, there have been only a handful of cattle cross the border, and the Canadian cattle on feed report shows on-feed numbers to be around 800,000 head. Analysts said that figure is in line with slaughter capacity.
The U.S. July 1 Cattle-on-Feed Report, being released last Friday, was expected to show on-feed numbers 102 percent of a year ago, placements at 105.3 percent and marketings at 99.9 percent.
Most analysts referred to pre-BSE trade to establish benchmarks for their projections.
There are several items that will effect the flow of cattle from Canada, analysts said. There is plenty of feed throughout western Canada; Southern Alberta has had good moisture and good grass; slaughter capacity is larger, placing greater demand on their fed supplies; and the Canadian dollar is 20 percent stronger than a year ago and trucking is in limited supply.
Lethbridge auction operator Bob Balog said, “The only thing we have in over supply is slaughter cows and bulls. Fed cattle and feeder cattle are in pretty tight hands.”
He also said he sold some 770-pound steers in last Wednesday’s auction that brought $120 Canadian—with an 83-cent Canadian dollar, that converts to $100 per cwt U.S. The feeder markets appeared to have equalized and the difference is the cost of a truck ride. Balog also said they had a very active aggressive sale last week, and that buyers were there that haven’t been at a sale in eight months. He also said there are lots of feeder cattle already owned by American companies.
Mike Sands, market analyst at Informa Inc. (formally Sparks), said that it’s not the Canadian border weighing on the market at this point, but that the “dog days of summer” are here and the fundamentals are dragging on the market. He is especially concerned about beef demand. Sands expects to see 150,000 head of fed cattle come down from Canada weekly for the balance of the year. He said that is not an overwhelming number compared to past years.
Darrell Mark, extension economist at the University of Nebraska, said that history shows weekly feeder cattle imports hit a seasonal low during the summer months and increase into the fall and winter, peaking in February. The average August to December feeder cattle imports from 2000 to 2001 was about 100,000 head, or about 4,800 head per week. These numbers, however, are somewhat inflated by the unusually large feeder cattle imports in 2002, of 557,000 head. That year there was a severe drought in Canada.
Fed cattle imports are seasonally highest in the third and fourth quarters. The average August to December fed cattle imports is 340,000 head, or 16,000 head per week. The average 2002-2003 cattle imports from Canada accounted for about three percent of U.S. commercial cattle slaughter during those months. As a result, a negative price impact of roughly $3.50 may be expected based on a current $80 fed cattle market. But, it isn’t expected to happen because of a different set of market dynamics.
Mark said that feeder cattle prices are likely to fall more than fed cattle prices partially because of Canadian market conditions. However, further impending losses by cattle feeders and the prospects for higher corn prices will tend to reduce over all prices in the U.S. and Canada.
Feeder cattle sales last week were very light, with many producers holding calves back. Market weakness occurred mostly due to concern over the resumption of cross border trade with Canada and hot dry weather that was favoring buyers.
Northern tier auction reports indicated a slightly weaker market with moderate to good demand on very light supplies. Although few comparisons were available, auction yards across the northern states reported an undertone of steady to slightly lower prices for the few feeder calves that were marketed.
It appears that a sharp decline in per head profits for cattle feeders in the southern tier is weighing heavily on auction yards, with moderate demand and some significantly lower prices reported in key states. Notable declines were reported in Texas and Oklahoma where cattle slumped at least slightly across the board, with significant drops of up to $5 reported in the heavier weight classes. An exception to the trend occurred in Nebraska where buyers offered firm prices and strong interest for heavy nine-weight steers. Softer markets were reported in the remainder of the southern tier with most markets reporting at least moderate demand and light supply.
A number of producers have already marketed their fall calf crops via either video auction or direct sales to their advantage. Early last week, as Canadian cattle were primed to start rolling into northern states, buyers started to lose interest and direct prices being offered declined slightly while producers held firm. Overall volume for the week was half or less than year-ago numbers for most states.
As the week progressed, buyers developed a wait and see attitude while hoping the border picture would clear up some. A number of analysts believe that quantities of cattle crossing the border will remain low for at least a couple of months due to the rigorous requirements with which producers must comply prior to shipping Canadian cattle over the border.
As of press time last Thursday, only a handful of trucks had crossed over the border, creating only a psychological effect on the markets. In the few northern tier states where enough cattle were sold to make a comparison, the trend was reported steady to $2 lower, with demand moderate to good.
Feeder cattle futures contracts through last Thursday had regained about two-thirds of the losses reported the previous Friday, which was the day after the Ninth Circuit Court of Appeals had overturned the injunction banning live Canadian cattle from entering the U.S.
As of midday Thursday, August feeder cattle contracts were at $107.70 per cwt, while September was at $106.10, and October was at $104.65.
The CME feeder cattle index last week was hovering around the $112 per cwt mark, compared to $113 most of the previous week. — WLJ


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