Cull cow feeding presents opportunity

Cattle Market & Farm Reports, Editorials
Sep 3, 2007
by WLJ

—Fed cattle prices rise ahead of holiday.

Cash fed cattle trade last week was slow to start, with feedlots and packers working hard to outlast one another before coming to the table. As of last Thursday, analysts were still expecting trade at prices $1 higher than the prior week at $93-94 live and $146-148 dressed. However, as of mid-day last Thursday, feedlots were still passing on packer bids and were as much as $2-3 apart. A rising cutout and the expectation that next week’s holiday-shortened schedule ahead would add more strength to the boxed beef market was adding to feeder’s optimism late last week. Slaughter volume through last Thursday was estimated at 508,000 head, up 8,000 from the same period a week earlier, but below the 514,000 head tally for the same period a year earlier.

Despite strong prices projected through the fourth quarter, there are a number of questions surrounding how packers are going to be able to continue to pay higher money for fed cattle without being able to boost the Choice cutout, which has spent most of the summer in the low $140s.

“We are still facing a somewhat tight supply of fed cattle through the rest of this year, but packer margins are pretty narrow right now,” said Livestock Marketing Information Center Analyst Erica Rosa. “Our projections show fed prices for the fourth quarter in the mid- to high-$90s, but that’s strictly a result of the supply side. The demand side is pretty uncertain right now. With the uncertainty in the U.S. economy and lower priced competing proteins, you have to wonder whether beef prices are getting to the point where we are priced out of the market.”

There is a tight supply of fed cattle right now, although some analysts have started to speculate that the supply is not as tight as previously thought. With weights beginning to increase seasonally and a futures premium for October fed cattle, feedlots may be slowing marketings, easing the supply pinch somewhat to the packer’s advantage.

Rosa said there are a lot of unknowns in the market right now given the continued good grazing conditions in much of the country, increased heifer retention going forward this year, corn prices, the macroeconomic situation in the U.S., and international trade.

“We have been receiving reports of producers holding heifers back in the southern Plains,” she said, adding that heifer retention this year is expected to be strong in many states where grazing conditions remain quite good as a result of late season precipitation.

In terms of international trade, Canadian packers, which have been struggling since the border reopened allowing shipments of live cattle to the U.S., continue to close their doors. That has led to an increase in the number of cattle being shipped to the U.S. for slaughter and an increase in the amount of beef being exported to Canada, Rosa pointed out. Exports to Mexico and other countries are also on the rise, which is adding some support to cutout values. “But if you look at the middle meats, they aren’t able to sustain the cutout,” she said. Middle meats, which are typically consumed domestically, are a key to boosting cutout values higher, however, U.S. consumers are passing them up in favor of lower priced cuts, ground product and competing proteins.

“If you look at the restaurant trade, you’ll see an increase in the use of some value cuts like the Flat Iron, mock tenders, skirt steak and flank steak. Restaurants are responding to consumers who are facing an uncertain U.S. economic picture,” Rosa said. “If you look at retail features, you’ll see it there too. I recently saw an ad featuring bratwurst, sausage and ground beef. There were no middle meats on the front page at all.”

That lack of demand from the retail and consumer levels translates to a cutout which, last week, was trading higher at $147.01 on the Choice product and $140.49 on Select cuts, above year-ago levels of $145.28 on the Choice and $135.39 on the Select. However, last Thursday’s movement was light to moderate with only 130 loads of fabricated product and 54 loads of trim and grind selling ahead of one of the biggest grilling holidays of the year. Most retailers had already secured their meat needs for the weekend, however, it appeared that none were willing to bet on the need for quick fill-in following the holiday.
The cow beef market continues to be the big winner in the cattle markets as a result of consumer preference for lower priced cuts of beef and a drop in cow slaughter compared to 2006 levels. Cow beef cutout values last week were $13 higher than year-ago prices at $118.75, while the 50 percent lean traded at $48.44, $7 higher than the same day in 2006 and the 90 percent lean moved higher to $147.94, compared to $130.56 last year.

The opening of the Canadian border to animals born after March 1, 1999, could certainly impact that market if, and when, USDA makes that move. Some speculate it could come as early as October, however, most believe November or December are more likely.

 According to Chicago Mercantile Exchange Analysts Len Steiner and Steve Meyer, there are perhaps as many as 600,000 head of cull cows in Canada that would meet the age criteria, although it is unlikely that all of them have the proper documentation required for export to the U.S. They also noted that it was unlikely that there would be a huge pulse of cattle immediately after the border opened, although they did note that possibility exists. In comments last week, the two analysts pointed out that many of these cows are now bred and will likely be retained in their Canadian herds until after calving. Although there could be an initial pulse of cull cows coming in from Canada, the market should remain strong well into the first quarter of next year as U.S. herd building gets underway and cow slaughter drops. That scenario could make feeding culls this winter an attractive opportunity for some producers.

Feeder cattle

Feeder cattle remained firm again this week, with most regions of the country having adequate moisture. Richard Stober of Superior Livestock Auction talked about their video auction of Aug. 21-24.

“For these calves and yearlings, it seems like the market gets better just about every time we have a sale,” he explained. “Most areas are getting adequate moisture, but there are definitely some dry pockets scattered about the west and the Plains,” said Stober.
Earlier in the summer, a number of cattle were being sold quickly in large, drought-stricken areas of the Deep South, but Stober said that isn’t the case any longer.

“There aren’t really any more fire-sale cattle coming from that area. The south, for the most part, is still pretty dry, but in places like Florida, they’ve been getting enough moisture to go ahead and carry some of these calves out to their normal delivery dates,” Stober said.

Stober said demand was very good, with a large number of buyers looking for yearlings.
“There were definitely a lot of yearlings selling quite well on good demand and most of them were going to get delivered in the end of September to first part of October. The lighter calves, in most cases, were going to be delivered later in October and November, as there were a fair number of buyers looking for calves to put out on wheat,” Stober explained.

The Superior auction had a total offering of 161,000 head, 42 percent of which were feeders over 600 lbs., and 64 percent of the feeder supply being steers. Compared to the last sale, feeder steers and heifers were firm to $3 higher, with calves in some places being $4 higher. Moisture in the southern Plains continued to spur demand for lightweight calves for winter grazing. Areas further west traded as much as $6 higher on most classes of cattle, but the sale’s exception was for lightweight calves in the northern areas, where most calves sold $3 lower.

Feeders in the north-central region sold at $123.37 on a 628 lb. average, compared to $119.63 on a 621 lb. average in the western regions. Some heavier 700-800 lb. steers sold for an average of $111.14 in the far western region where prices remain good, but buyers are cautious of drought conditions in the Pacific states.

Derrell Peel, Extension Livestock Marketing Specialist for Oklahoma State University, says there is still good reason for prices to remain steady to higher for most feeder cattle.
“The economics from a stocker perspective still look pretty attractive,” says Peel. “There has been tons of moisture in Oklahoma and parts of Texas recently, and especially in Oklahoma, there look to be some good opportunities for wheat pasture this fall, especially compared to last year,” Peel explains.

“There are a lot of guys with plenty of grass, so that should keep demand for winter grazing cattle strong no matter what, because even though prospects look good, production issues could keep operators waiting until later to decide what to do with their wheat,” says Peel.

Peel explained that a horrible wheat crop last year in many winter-grazing areas of Oklahoma and parts of Texas will keep farmers leery of putting too much on their plates this fall.

“The main reason stocking could be conservative in this area is because producers will be more concerned with getting a good wheat crop in than they will be about putting calves out to graze,” explained Peel. “I think most guys will still graze if they are able to get the wheat planted in time, but they may reduce stocking rates, or take heavier cattle and put them out later. Most people will just wait a little longer to make sure they’ve got good wheat before they throw a bunch of calves out there,” Peel said.

In the cash markets, there was a total run of 4,020 head last week in El Reno, OK, where feeder steers and heifers were mostly steady to firm except for heifers over 700 lbs. Feeders in some instances were $2 higher, and 600-750 lb. thin, grazing-type steers were weak compared to the previous sale’s extremely high market. Steer and heifer calves sold steady on a light test. A large portion of the yearling offering was in thin condition due to extremely wet pastures, which are slowly drying out after significant rains in eastern Oklahoma.

Further north at the Bassett, NE, sale, 2,070 head were sold last week and prices were fully steady on all classes of feeder cattle. A few short strings of fall calves were mixed in with the yearlings, which dominated the offerings. Nearly all cattle were over 600 lbs., and 52 percent of the feeders offered were steers. Eight weight feeders sold for averages between $117.58 and $119.84, with average prices for 900 lb. yearlings falling in at $115.50.

Last Monday at the Stockland Livestock Auction, in Davenport, WA, 1,543 head sold, but not enough feeder cattle for accurate trend comparisons. Feeder cattle trade was moderate to active and demand was moderate. Feeders made up 63 percent of the run, and the supply included a 50/50 steer/heifer split. Nearly 52 percent of the run weighed over 600 lbs. Eight-weight steers sold in the $101-102 range, but lighter steers and heifers of 600 lbs. were only a $2-3 higher in most cases.

Receipts totaled 1,476 last week in Clovis, NM, and compared to the last sale, feeder steers under 500 lbs. were $8-12 higher and steers over 500 lbs. were steady to $3 higher. Heifers sold mostly steady to $1-3 higher. Trade was active and demand good. Feeder cattle accounted for 75 percent, and steers made up approximately 62 percent of the run. Steers and heifers over 600 lbs. totaled 64 percent. — WLJ