Feeder cattle contract prices set new highs

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
The fed cattle market last week was slow to start with many analysts calling for a trend steady to perhaps slightly lower than the prior week’s trade of $90 live basis in the southern Plains and $88-89 live and $140 dressed in the north. There was some light dressed trade last Thursday in Nebraska at $138, but not enough to call a trend and most feedlots were holding firm at $140, while bids in the south were in the $87-88 range.

The recently released USDA cattle on feed report provided ample support last week for the marketing of fed cattle at higher prices in the near future. The report shows there continues to be a shortage of cattle which will be ready for marketing in the fourth quarter of 2007. Jim Robb, director of the Livestock Marketing Information Center, pointed out last week that the industry is on track for a new record high annual average fed cattle prices this year, which is a big positive for the industry in light of the surge in corn and calf prices over the past year-and-a-half. With a short calf crop this year and low inventory numbers, it will be important for the industry to maintain those kinds of prices.

Last week, news that Swift and Company would be adding another shift at its beef plants and increasing kill levels significantly, perhaps as much as 2,000 head a week, indicated that packers might face increased competition for slaughter-ready cattle in the year ahead as new owners JBS S.A. begin to map out their operations’ plan for the company. The increase in chain speed at Swift will prove to be a boon to feedlots if it comes to fruition. The increase in packer competition for supplies of cattle will certainly provide a boost. What that increase in slaughter will do for boxed beef cutout values will be another matter entirely. Unless JBS can find an export market for the additional beef, it could serve to drive domestic prices lower as it floods onto an already soft U.S. market.

The boxed beef values continued to slip lower last week as a result of lackluster beef trade at the wholesale level. Competing proteins at lower prices and a lack of consumer buying interest is pressuring the cutout lower. The end meats, such as the chuck, are moving well into the export markets and providing some support. A weak U.S. dollar is adding encouragement, but the middle meat trade has been soft for several months as consumers opt for less expensive product at the retail level. Analysts now are hopeful that end of summer buying, for school lunch programs and Labor Day grilling, will pick up soon to boost the Choice values which, last Thursday, were trading at $140.32. Select boxed beef was down slightly during the day at $134.53. Cattle slaughter for the week through last Thursday was at 498,000 head, 6,000 fewer than the prior week and 3,000 more than the same period in 2006.

Cow beef on the other hand remains the bright spot in the beef trade, with the cutout remaining strong at $114.74 with good movement last week. The 90 percent lean was trading at $141.11 and 50 percent trim at $49.07. Those prices come in the face of heavy beef and dairy cow slaughter this year.

The futures markets last week confirmed the strength in fed cattle markets out through the fourth quarter and into next year, illustrating the hedging opportunities available. Live cattle contracts ended the day last Thursday in mixed territory. The spot month August contract closed five points lower at $92.02, while October gained 35 points, closing at $97.20. December was also five points lower, ending the session at $99.02, while February gained 22 points and April added seven points, closing at $99.42 and $99.35 respectively.

Feeder cattle

Feeder cattle contracts on the Chicago Mercantile Exchange last Thursday were also mostly higher with only the March ’08 contract losing ground. August feeders added 50 points during the session to close at $116.35, while September calves were up 20 points, closing at $117.05. October contracts were 25 points higher, while November added 30 points, closing at $117.27 and $116.80 respectively. Feeder cattle contracts last week set new highs across the board following the release of USDA’s cattle on feed report, July 20. The apparent dip in the number of beef cattle in the U.S., along with a very small 2007 calf crop, added support for the upward movement in contract trade.

On a cautionary note, Robb noted that dry conditions which have been resulting in a dip in pasture ratings across the central and northern Plains could send heavy calves and long yearlings to market sooner than normal unless there is an increase in monsoon flow across the area in the next few weeks.

“Pastures in western Nebraska and the Dakotas are going to start drying out really fast, and that may force out the cattle that would traditionally come to market in late August and September,” he said.

As cattle producers gear up for another round of big video sales this week in Winnemucca, NV, at Superior’s Video Royal XV sale, prices look to be good for cattle on offer. Last week’s cash trade was mostly higher in auction market trade. In Oklahoma City, OK, last week, feeder steers and heifers sold steady to $3 higher. Steer and heifer calves were lightly tested and steady on demand that was called good for all classes. Quality was reported to by typical for a summer sale with several Brahma crosses and light muscled cattle included in the mix.

In West Plains, MO, compared to the previous week, steers and heifers sold fully steady, with some instances of $1-2 higher on moderate supply and good demand with most buyers bidding fairly aggressively.

At Bassett, NE, last week’s special barbeque sale brought prices which were called fully steady with the previous special sale two weeks earlier. Both yearlings and weaned, fall calves were included in the run and quality and demand were both reportedly good. Meanwhile, In Hub City, SD, compared to the previous week, feeder steers and heifers sold $2-4 higher, with good demand in all classes. According to market reports, offerings were made up mostly of load lots of feeders in larger consignments.

Farther north and west, feeder cattle runs continue to be seasonally light, however, in California, good numbers continue to come to market with prices remaining strong for offered lots. In Galt, CA, feeder steers and heifers in all classes trended steady during last week’s sale. At Famoso, CA, stockers and feeders were $2-3 higher last week. Demand for stocker cattle was good for quality greener kinds. There was also lots of demand for quality feeder cattle on offer.