Packer profits keep feds steady

Cattle Market & Farm Reports, Editorials
Aug 22, 2005
by WLJ

— Dressed prices fall $2-3.
— Seasonal low still possible.

Despite packers reporting double-digit profits most of last week, cattle sellers weren’t able to reap much of the benefits. Cattle market analysts said that if it wasn’t for packer profits last week, the fed market would have seen across-the-board declines.
The spot cash fed cattle market traded at mostly steady with the prior week on a live basis, and $2-3 softer in the dressed market.
Trade in northern feeding areas started Wednesday afternoon and Thursday morning at mostly $79 live, $125 dressed. The percentage of cattle that traded on a live basis last week in Nebraska was 10-15 percent larger than normal, market analysts said. Through Thursday noon, a total of 65-70,000 head were sold by Nebraska feeders.
Southern Plains trade was slower to develop. Through noon Thursday, Kansas feeders had sold 45-50,000 head at mostly $79-79.50. Texas trade was still trying to get started, with only 10,000 head trading at mostly $79. There were also a few pens of cattle in Oklahoma that moved at $80. Most Texas feedlots were holding out for at least $80, and some analysts said trade might happen at that level on Friday.
The packer margin index ranged mostly between a positive $13-16 per head last week, and most sources said they would keep slaughter volumes at a moderate pace in order to maintain positive margins.
The boxed beef market was starting to soften up after an 11-day rally. As of noon last Thursday, Choice boxed beef was at $134.39, while Select was at $126.49. Boxed beef sales volumes last week were considered moderate. Packer inventories were tighter, compared to previous weeks, in an effort to maintain higher boxed beef prices.
Slaughter volumes last week were up slightly from the previous week, and a little larger than current beef demand levels. Through Thursday, last week slaughter volume was 493,000 head, 8,000 larger than the week prior. For the week ending Aug. 13, 629,000 head of cattle were processed.
Analysts said that a slaughter level of only 615-620,000 head was required to meet weekly beef demand. There has been only one week since the Fourth of July, that cattle slaughter was under 625,000 head. That was the week ending Aug. 6, when 616,000 head were processed.
Market analysts were eagerly anticipating USDA’s Aug. 1 Cattle-on-Feed Report to see whether cattle feeders had been aggressive in their marketing efforts throughout July. Pre-report estimates for July marketings ranged between 99-102 percent of last year.
Most market analysts said that even a 102 percent marketing figure wouldn’t be good, because that happened with one extra marketing day, compared to last year. Most sources said that one marketing day accounts for 4.5-5.5 percent monthly slaughter. Comparing the same number of marketing days in July this year with last year, marketings were only 95-96 percent, sources said.
Andy Gottschalk, analyst with HedgersEdge.com, told WLJ that last week’s steady market was solely the result of packers being in the black, financially.
“Contrary to popular belief, when packers make a profit they spend it on fed cattle,” he said. “They weren’t willing to pay more for cattle, but they sure bought more cattle at the same money compared to the previous week.”
Over the next few weeks, analysts aren’t very optimistic on the fed cattle market, unless packers are able to move product at a higher level.
“Cattle weights are still abnormally heavy for this time of year, and still have yet to hit the normal peak in finishing weights,” said Gottschalk. “We also have yet to pull any cattle forward to get out of the front-end supply situation that is building up.”
Reed Marquotte, analyst with M&Z Livestock Analytics, said the drop in dressed beef prices indicated the continued trend of heavier-than-normal cattle.
“Steer carcass weights are averaging around 850 pounds, 20-30 pounds heavier than normal for this time of year. A lot of that extra weight is from cattle in southern feeding states, where near-record hot temperatures should have curtailed (weight) gains,” said Marquotte. “The only logical conclusion is that cattle are being held back a few weeks more than normal, which is certainly pressuring total cattle supplies.”
Feeder markets
Action in the feeder market last week depended mostly on the location of the market. Prices in most markets were somewhat mixed, but mostly trended higher on better quality with demand called steady to good.
Across the northern tier, feeder calf marketings are starting to pick up as the number of loads increased enough for a market test in some states. Montana markets reported the first large volumes of the season which was met with good demand. In the Dakotas, auction yards noted good attendance. Prices in South Dakota were steady to $2 higher for most offerings. As receipts continue to increase, buyer attendance should go up, leading the way for buyer competition and hopefully, higher prices.
In the southern tier, prices varied greatly between states. Reports of increased moisture and greener pastures have brightened the outlook considerably. Buyers in the southern tier were primarily interested in yearlings able to finish before the end of the year. Optimism is based on projected improvements in the late fourth quarter fed market and the prospect for feedlots to move back into the black at the end of the year.
Prices for steers over 800 pounds were $2-3 higher in most markets, while lighter classes of steers and heifers were divided between steady to $2 lower for 700-800 pound steers and $2-5 lower for 450-700 pound offerings.
The outlook for the feeder market seems to have improved considerably in the past two weeks. Increased moisture conditions along with below normal temperatures have served to brighten moods which some believe has been pushing prices higher.
Supplies of yearling feeder cattle continue to be tight in most markets as heifers are retained for replacements.
Friday’s cattle on feed report will provide some direction for the feeder market in coming weeks. The report is expected to show placements into feedlots at 2% more than a year ago. Analysts guesses ranged between 98% to 104% of a year ago August. If the heavy placements are larger than a year ago, it could put pressure on the fed market, but light cattle should maintain some strength. — WLJ


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