Fed cattle trade expected to be steady

Cattle Market & Farm Reports, Editorials
Jul 31, 2006
by WLJ
The news of Japan didn’t move the market last week and as of Thursday afternoon, trade was still at a halt, despite rumors of packers being short for the week in the north. Previous week trade occurred in the south Plains at $79-79.50. Live sales in the northern Plains traded at $80- 80.50 live basis with dressed sales at $126-127, mostly $126.

Brent Snyder, market analyst for Texas Cattle Feeders Association, said the market this week was difficult to call.

“I thought the Japan news might help open up trade a little, but it hasn’t,” Snyder said. “Right now, asking prices are in a range of $82-83 and I think by the time trade starts, it will occur in the $80-81 range.”

Boxed beef cutout values and packer margins appeared to be the biggest factors in last week’s market. The seasonal consumer demand for middle meats slumped and end cuts were largely responsible for what movement and support was available in the market.

Last Thursday, Choice boxed beef values declined sharply for the second consecutive day and Choice cuts fell $1.34 to $139.68. Select cutout values fell 40 cents to $123.08. Cattle-Fax analyst, Troy Applehans, said he expected cutout values to continue lower for the next two to three weeks before finding the bottom.

“Keep in mind though that the Choice/Select spread at $16.60 is still at historical high levels for this time of year,” Applehans said. “I expect to see the cutout values reach their seasonal bottom some-time in the next two or three weeks.”

According to HedgersEdge.com, the eroding cutout values have taken a toll on packer margins. Last Thursday, packers were estimated to be losing $5.40 per head. Despite being in negative territory, harvest rates remained in line with prior weeks, which analysts have continuously cited as important to maintaining current price levels. For the week, packers had harvested an estimated 499,000 head, 7,000 head more than the prior week and 20,000 more than the same week a year ago.

On the Chicago Mercantile Exchange (CME), early week trading was hit hard by an unexpectedly bearish cattle on feed report issued by USDA on July 21. The repercussions of the report rippled through both fed and feeder cattle markets and on Monday, contracts in both trading pits sold off sharply. Mid-week trading, however, saw significant recovery.
“The board supported the fed cattle prices this week much as it has for most of the year,” Applehans said. Although in Thursday’s session, the news from Japan did little to move the market and contracts traded mostly lower in the absence of any cash trade. August contracts traded 80 points lower, closing at $83.47. October was off 22 points, closing at $87.64 and December was down 12 points to $88.27. The June 2007 contract was the single exception to the downward trend last Thursday. It closed unchanged with the previous day at $84.10 on light volume.

Beef production impacting market
Production of Choice beef continues to slide, which, when combined with the demand for Choice middle meats, has supported the market. According to USDA figures, during the same week last year, 55.56 percent of steer and heifer slaughter graded Choice. Last week, only 52.33 percent of steer and heifer slaughter graded Choice. Production of Prime grading beef has also slipped by two-tenths of a percent since last year. According to analysts, the decline in high quality production is largely responsible for the current boxed beef spread.

On the opposite end of the spectrum, cow slaughter continues to run above last year’s level as a result of the drought. The July 1, cattle inventory report showed the number of beef cows in the U.S. up a modest 1.1 percent. That number was lower than expected and shows the current herd expansion rate has slowed. Applehans said most of the slow was a result of the drought and he expected it to continue.

“If you look at current cow slaughter rates, they’re above last year, but about even with historical levels. That said, I think there are still a lot more cows out there that are going to be heading to town before too long,” he said. “But regardless, it has impacted the price of the cow carcass market and on the 50 and 90 percent lean price.”

In fact last week, the 90 percent lean market was more than $15 below last year’s levels at $122.60. Cow carcass cutout values were also well below last year as a result of the slaughter discrepancy. Cow carcass value last Thursday was $100.92. During the same week in 2005, the carcass value was $111.29.

“Keep in mind though, that last year, cow harvest was very low. This year’s harvest rate is much higher as a result of the drought. This year is much closer to historical norms,” Applehans said.

Feeder cattle

Auction markets across the country are suffering a downward swing. Although total cash receipts were lower at most markets, prices still fell. For example, Joplin Regional Stockyards, Inc. saw feeder prices drop as much as $6 for yearlings. More specifically, steers exceeding 500 pounds and heifers under 450 dropped $2-4. Those weighing between 500 and 800 lbs. sold steady, while over 800 took a $2 cut for the most part. Despite the lower trend, demand and supply was described as moderate with active buyer participation. Market officials said once buyers filled their load, prices quickly moved downward. The market sold 3,650 head compared to the week prior’s 4,000.

An array of reasons are responsible for the lower prices. According to Mark Harmon, marketing director for Joplin Regional Stockyards, Inc., the most likely causes are drought conditions, depressing cattle on feed report, activity overseas and other uncertainties. In short, he said it’s all just a guess because “here lately, nothing is typical.”

“It’s really hard to tell what causes the market to suffer a bit. There’s a lot going on, it could be all sorts of things,” said Harmon. “For example, the cattle on feed report didn’t look too friendly this go round. It’s real hot in our part of the country and no rain really to speak of. That certainly has something to do with it. I’d say, though, that the report probably had the most impact.”

Harmon said having a Monday sale as Joplin does, and the cattle on feed report being released on Fridays, can often times have a “hard reaction” on their market. He also said the overseas activity and the uncertainty that goes along with it has some buyers leery as well.

“Overseas effects a lot of this. It’s all a chain reaction,” said Harmon, who was in Oklahoma City at the Oklahoma Cattlemen’s Association’s 54th annual convention. “It’s bone dry here, too, (Oklahoma) and other uncertainties may have affected their market. For example, guys here are skeptical what their corn is going to bring and won’t know until they harvest up north. My guess would be that it’s not going to be very good.”

In Oklahoma City last week, the market followed the cycle downward. Steers and heifers stayed steady to $1 lower. The quality last week, however, was reported as much better compared to prior weeks. The demand wasn’t stellar, but stayed moderate for the most part. Oklahoma City’s receipts this week, much like Joplin, also fell, but even more so than the Missouri market. Cash receipts last week summed 9,878 compared to 14,817 the week before.

At the Winter Livestock Feeder Cattle Auction in Dodge City, KS, prices also suffered, reportedly as much as $5 lower for feeder steers and heifers weighing 300 to 600 lbs. and didn’t vary to far from that figure, being called weak. The market was described to have limited supply as well as dwindling demand. Slaughter cows dropped $2. However, some feeders weighing 600 to 950 lbs. climbed $2 and stayed mostly firm.
In the Western region, prices didn’t follow the sluggish trend quite so closely. More specifically, most markets saw steady prices to even a dollar or two higher. In Wyoming at the Riverton Livestock Auction, consisting mostly of slaughter cows and bulls, things looked positive. Slaughter cows were up mostly $1, with some instances of $3. Bulls also up a dollar with rare instances of $5.

In La Junta, CO, at Winter Livestock, steers and heifers under 700 lbs. sold $1-2 higher. Yearling steers jumped mostly $2 and heifers stayed steady. The market sold 1,040 head last week compared to 1,804 the week before, following the overall trend of lessening supplies.

As no surprise to most market officials and livestock economists, feeder trade on CME was lower throughout all last week. Few disagree that the bullish cattle on feed report is to blame. Hesitant traders backed away from trade last week. August contracts started weak mid-day Thursday and decided to stay that way, closing 33 points lower to settle at $114.20. September dropped 28 points from Wednesday’s $114.40 to close at $114.13. October joined in at 43 points lower to close at $113.93. November, too, closed lower Thursday, settling at $112.60.

Auction markets and future contracts agreed on a lower trend, but Harmon said it’s just a “temporary thing” and said this happens often, calling it a mere reaction to the drought conditions and the cattle on feed report.

“I expect prices to stay lower for two more weeks,” he said. “That’s only a guess, though. That, and 25 cents, will get you a cup of coffee.”

Harmon said although prices may be a little lower, consumer demand is still good and that’s what really matters and what will keep the beef market alive.

“More people are staying close to home this summer than they usually do,” he said. “They are barbecuing, eating ribeyes, and we love them all for it.” —