Holiday beef outlook spurs fed rally
— Rally of $3-5 live, $5-7 dressed.
— Calves follow suit.
Cattle feeders were still reporting major losses on cattle being marketed last week, however, the extent of those losses narrowed significantly as live cattle brought $3-5 more than two weeks ago, and dressed cattle were $5-7 stronger. Most market sources cited a forecast for stronger beef demand leading up to Labor Day as the primary reason for the fed market turn around.
Trade was said to be mostly completed by the end of business Wednesday, as just over 216,000 head had traded. In Nebraska, feedlots sold 65,000 head of cattle for $81-82.50 live, $130 dressed. In Kansas and Texas, trade ranged between $82-82.50 on 29,000 and 40,000 head, respectively.
The most obvious bullish market indicator last week was the continuation of extremely large volumes of boxed beef being moved out of packers’ storage facilities. The first three days of last week all showed 400-plus loads being traded on the spot cash market. Last Wednesday marked the seventh straight business day that over 400 loads had been moved on that market. Between July 19 and Aug. 3 there was only one business day when fewer than 400 loads of boxed beef were moved on the spot cash market.
The Comprehensive Boxed Beef Report for the week ending July 29 said that 8,729 total loads of boxed beef were moved, including formula and forward contracted beef. Analysts said that was a record week for total beef movement.
A lot of that extra beef distribution was said to be the result of retailers picking up their beef featuring activity through the last few weeks of August to meet what is expected to be increased demand leading up to the Labor Day holiday weekend. In addition, grinding product was said to be in greater demand by processors that supply hamburgers and other ground beef products to the growing number of fairs, expos and other outdoor extravaganzas that pop up leading up to school resuming.
“Firesale” prices were also cited behind the jump in beef movement to retail and other outlets, sources said.
However, the recent jump in boxed beef movement did help spur a rally in boxed beef prices last week. As of midday Thursday, Choice boxed beef was at $129.40 per cwt and Select was bringing $122.09. The week-to-date gain for Choice was $4.68 and $4.22 for Select.
Despite the jump in both price and activity for boxed beef, packers were still reporting negative processing margins, and that was keeping fed cattle prices from gaining even more. As of last Thursday, the packer margin index was estimated at minus $25 per head.
Several market analysts said that last week’s market turnaround is probably a temporary “blip on the radar” and that the seasonal price low may still be around the corner.
“Cattle are still extremely abundant and are very heavy, particularly in the southern Plains,” said Jim Robb, chief analyst at the Livestock Market Information Center. “Beef demand hasn’t turned around that much—a lot of the movement has to do with retailers liking the price they are paying for product.”
On the weight side of things, Robb said the average live weight for southern Plains fed cattle was within four pounds of the record two weeks ago and eight pounds short of that record last week. For the week ending July 29, the average live fed cattle weight in Oklahoma/Texas panhandle was 1,248 pounds, 26 pounds heavier than the same week last year and 37 pounds heavier than the previous five-year average.
“That’s a lot of extra tonnage being put on the beef supply,” said Robb. “But packers must be getting some forward buys in place, and that is why they are paying more for that extra weight.”
Robb and several of his colleagues all said they wouldn’t be surprised if once the push for Labor Day product subsided, fed prices would fall back below $80, possibly getting down around $78.
“I don’t think we’ve hit the seasonal low quite yet,” Robb said. He was particularly concerned with the possibility that weekly cattle weights, and associated beef tonnage, would well eclipse record levels, particularly since that peak usually hits around mid-September, even into early October.
Slaughter volumes last week continue to run at levels that exceed current beef demand levels, which analysts said should result in softer prices once processing cattle for post-Labor Day beef demand starts up in late August. For the week ending July 30, 644,000 head of cattle ran through packing plants, approximately 20,000 head more than current beef demand dictates. Last week’s daily volumes averaged around 119,000 head, which means another week of 625,000 head or more is likely.
Prices and demand for feeder and stocker cattle trended up last week despite still significant per head losses on fed cattle and continued bearish crop reports from the Corn Belt. In most markets, an easing of temperatures and last week’s negative BSE test result were cited as primary reasons for both buyers and sellers to get back into the game. Those two items, along with an upward bump in futures prices and significant increases in movement and price on the retail side, seem to have helped prices across the board.
Throughout the southern tier states, prices were on the rise with a $2-5 bump noted in most markets. On the supply side, producers seem to be taking advantage of the firmer market and are unloading their calves fresh off the cows. A continued lack of moisture across the central U.S. was partially to blame for an increase in loud lots being offered which were being discounted by buyers, particularly in Oklahoma and Missouri. However, both supply and demand for backgrounded calves were described as steady to good in all markets across all weight classes with particular interest in lightweight calves.
Northern tier states are marketing very few calves. In spite of a price increase across the region last week, most markets were reporting light supply and not enough feeders for a market test. Regardless, most sales indicated at least a firm undertone. Buyer turnout and subsequent demand was described as good across the region.
Late last week, both temperatures and rain started falling across the central Plains and Inter-mountain West regions. While it was not enough in most places to ease dry conditions or help suffering crops, particularly corn, where crop ratings continue to slide, it may serve to improve prices at least slightly for the coming week. When combined with very high movements of boxed beef and a slight steadying of the fed cattle markets last week, these factors will serve to provide continued price support in the feeder cattle market.
A downward trend in corn prices was also noted last week, and that gave cattle feeders even more money to use towards purchasing replacement feedlot cattle, sources said.
The Chicago Mercantile Exchange feeder cattle index last Wednesday was at $108.95, compared to $108.54 the previous week. — WLJ
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