Feedlots push fed prices higher

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
Cattle feeders last week gained the upper hand in cash trade and were working to move the market higher despite more slippage in the boxed beef market. Last Thursday, although no trade had occurred by mid-day, packers were beginning to increase bids to levels closer to asking prices. In Nebraska, mid-day trade developed last Thursday at $92 live and $145 dressed basis last Thursday, $3 mostly $3 higher than the prior week. However, many feedlot managers were betting they could go higher, and were sticking firm to asking prices of $93-94 live and $146- 147. In the south, asking prices were in the $93-94 range. Full trade was expected to develop at $91-92 live and $144-145 dressed.

Despite trading lower early in the week, live cattle contracts on the Chicago Mercantile Exchange, followed the cash market higher last Thursday with the spot month contract leading the way. August contracts rose $1.15 at mid-day to reach $93.45. October contracts gained $1.05 to trade at $96.52, while December live cattle gained 72 points and February tacked on 52 points, trading at $99.32 and $99.65 respectively.

Cutout prices last week rose after some good, early week beef clearance at the wholesale level. Last Tuesday packers managed to move about 400 loads of Choice and Select product out the door, although it took a 50 cent drop in the cutout to get it done. Demand remains high for beef at the consumer level although, price is a significant factor in the ability to get it sold despite the looming Labor Day holiday. Many grocers have been featuring beef alternatives in advance of the holiday including seafood, pork and poultry as a result of low margins in beef at prices consumers find attractive. Last week’s early fire sale could help add to the amount of beef features for the upcoming holiday. By last Thursday, the Choice boxed beef cutout stood at $143.65, while Select gained slightly to reach $139.99 at mid-day.

Packers, who had been cutting back harvest levels in previous weeks increased chain speeds again last week despite per-head losses estimated at $11.15 by HedgersEdge.com last Thursday. Slaughter volume for the week through last Thursday was estimated at 500,000 head, above the 491,000 head slaughtered the prior week, but below the 510,000 head harvested during the same period a year earlier. Total beef production remained slightly behind the previous week however, compared to last year, beef production was nearly 18 million pounds less than the total for the same period. That is a direct result of the lighter average carcass weights this year. Although average weight, estimated at 1,275 lbs. live and 784 lbs. dressed, both remain below last year, which during the same week was 1,277 live and 785 dressed. Analysts note that each additional pound added to the weekly average is the equivalent of 1,000 head of cattle.

Currently the additional production adds drag to the beef cutout, however, if the export picture improves, as many market analysts believe it soon will, that extra production could be quickly absorbed.

Last week, it was expected that the South Korean Agriculture Ministry would make an announcement regarding the lifting of the country’s de facto ban on beef imports from the U.S. Likewise, the push for Japan to increase the age limit for imported beef to 30 months could also bear fruit soon. Those two important markets for U.S. beef could easily add several dollars to the beef cutout in short order. Since exports to Mexico have started declining this year, additional market access will become critical to packers and feeders alike who are looking at rising input prices this fall and winter.

Cattle feeders, in particular those who haven’t or can’t lock in corn prices for the winter could see their main feed source fluctuate wildly in price as harvest approaches. Recent corn field surveys have shown wildly variable yields across the country. Growers in the eastern portions of the Corn Belt have been hurt by dry conditions this year and recent rains in much of the Midwest have also taken a toll on the crop. It will be increasingly important for cattle feeders to keep an eye on the corn market as harvest approaches.

Feeder cattle

Northern Livestock Video Auction (NLVA) kicked off last week with a 35,226 head sale, where very good demand was seen, with prices higher than the previous month’s sale on almost all classes of cattle. Steers in the 600 lb. range sold for $118-$125, mostly for Oct.-Nov. deliveries. Eight-and nine-weight yearling steers went for $105-115 on good demand.

NLVA manager Ty Thompson said he was pleased with the sale’s offerings and buyer reception.

“There were a lot of good quality cattle that went through, and prices were good all the way around. Mid-to-lightweight steers were $3-4 higher than last month’s sale, and the heavier yearling steers were usually $2 higher compared to last month. The only thing that was steady were the heifer calves, but they weren’t down. We also sold about 2,000 bred cattle, and had some of those heifers going for as high as $1,450, with the younger cows bringing $1,200,” Thompson said.

Thompson said that drought didn’t have too much of an adverse effect on the demand, but that flooding did.

“A lot of these cattle were going to the Oklahoma area, maybe Kansas or Texas. Good moisture in those places was creating good demand for some of the lighter weight animals, with guys planning on taking delivery closer to November when they’d have good wheat to put these calves out on,” he said. “The flooding in a few places in those states kept buyers from that area from wanting to take anything on near or immediate delivery,” explained Thompson.

The NLVA sale also saw sellers getting good prices for their cows, but Thompson cautioned that it’s a little early to judge the bred cattle market just yet.

“With corn prices going down and cattle prices still good, people still seem more likely to take the heifers for feeding purposes rather than replacements. We’ll probably see more bred cattle go through the sale in another month and be able to get a good feel for the cow market then. It should be strong though, especially in the northern areas. There’s way more hay and standing grass than last year, and I think people are a lot more optimistic about wintering cattle in the north this time around,” said Thompson.

Bret Crotts, marketing manager for Schwieterman, Inc., said that even with drought in some places of the western U.S, and flooding in some of the plains states, he expects feeder cattle to remain strong and sees nothing on the horizon to indicate otherwise.

“Feeder cattle are very firm—there’s just no other way to put it,” joked Crotts. “We have seen some resistance in the $120 range, and I think we’ll continue to trade just below that level, but even some of the upturns we’ve seen in corn haven’t broken the [feeder] market. There’s an insatiable demand for feeder cattle right now, because there’s a high demand for beef. This last live cattle summer has been more or less the best ever. We’ve been trading near $1 and have stayed there consistently,” Crotts said.

Crotts did have some concerns about the market, however, and said that even with prices as good as they have been, many people are still feeling a pinch.

“The market is great, and that’s true—but break-even on these cattle is over a dollar in a lot of cases. The margins just aren’t there. There are definitely some packer-owned cattle or some value-added cattle out there, and in those cases the higher input costs don’t matter as much. From the standpoint of a cow/calf producer, things are great. People who run stocker operations or expose themselves to the futures market are the ones that should be taking a look at doing some things differently,” Crotts explained.

The near-term outlook on feeders looks good, according to Crotts, and he said that prices are likely to stay high as long as input costs remain elevated.

“We’re starting to see corn trading above the 50-day moving average, which I think is an indication of people realizing how much the USDA may have over-shot their August corn estimates. It’s quite likely we’ll see below a 13 billion bushel estimate for September. Overall, corn is probably going to trend up, and feeders are likely to follow,” said Crotts.

In Oklahoma City last week, feeder steers and heifers were steady to $1 higher, with lighter weight steer and heifer calves mostly $1-3 lower. Demand was good for heavier feeder cattle and moderate for calves. Heavy rain across much of the central and eastern parts of Oklahoma caused some flooding in low-lying areas, restricting livestock movement at the sale. Due to the flooding, receipts last week stood at 5,717, compared to 7,845 the week prior.

Last week in Hub City, SD, demand was good at the Wednesday sale. Compared to the week prior, feeder steers and heifers sold mostly steady to $2 lower, with good attendance and many consignments offered in load lots. Large #1 steers were at $117-123.50 for 700-800 pounders, and $110.25-121.50 for heavier eight-and nine-weight steers.

South and east in Vienna, MO, last week’s sale saw a different offering compared to previous weeks, with a high percentage of weaned and vaccinated cattle, and also large numbers of reputation cattle offering proven genetics. Seven-eight weight number 1 feeder steers and heifers were steady to $5 higher, at $111.75-$120.25 and $107-110.75, respectively. Supply was heavy, but only 42 percent of feeders were over 600 lbs.

In Torrington, WY, last week, demand was good for the 1,775 head total run, with most weighing over 600 lbs. The 600-700 lb. feeder steers and heifers were selling for $115.75- 118.75, and large #1 steers in the 800-900 lb. range sold for $106-110.

There was a good run of 1920 head in Cottonwood, CA, last week, and prices stayed strong on 600-700 lb. steers, which were selling at $100-110.50, with heifers following at $98-105. Heavier feeders were $2-3 lower in the steers and heifers, with 800-plus lb. steers going for $98- 106.50.

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