Fed cattle trade expected to move higher

Cattle Market & Farm Reports, Editorials
Sep 10, 2007
by WLJ

—Feeder cattle sales strong, video yearlings sell as high as $122.

Fed cattle trade appeared to be trending back to the late week trade pattern of fall after a couple months of cattle trading early in the week. Trade was stalled last week with no action expected until Friday. Last Thursday afternoon, there was $5 separating packer bids of $92 and feedlot asking prices of $97 live and $154-155 dressed. Ehedger.com analyst Troy Vetterkind said last Thursday he expected trade to develop at prices steady to higher than the prior week at $96 live and $152 in the beef. Prior week trade was in a range of $94-95 live and $148-149 in the north and $94.50 to $95 live basis in the south, with some Kansas dressed sales at $149.50-150.

Packers last week were working hard to make their way through cattle on hand despite negative margins, and the week-to-date tally through last Thursday stood at 387,000 head for the holiday-shortened week. Clearance over the holiday weekend appeared to have been good and buyers were back in the market last Wednesday with nearly 500 loads of fab and grind loads trading hands. That movement initially pushed boxed beef prices higher, with Choice moving up to $148.99 last Wednesday and Select was up to $142.36 before weakening and dropping back last Thursday. Primal prices last week were stronger across the spectrum with those from the round leading the way higher early in the week. On the downside, cow beef markets dropped back sharply last week with seasonal weakness taking a big chunk out of the market, which had been the bright spot for the industry so far this year.

“Boneless beef markets were sharply lower yesterday (last Wednesday) with 90 percent cow beef losing close to $8 and fed cattle 50’s losing $3 per cwt. Demand for boneless is soft after the holiday with supplies described as ample. This could be the beginning phases of a seasonal downturn in cow beef prices,” Vetterkind said. “All-in-all, I would expect to see further gains in the Choice/Select markets going into the first of next week. Any near-term setbacks in the cash beef market should be supported, as buyers will be looking to procure beef to meet increasing demand and usage patterns going into fall.”

On the Chicago Mercantile Exchange last Thursday, live cattle issues were mixed at the closing bell, with up-front contracts slightly lower despite expectations of steady to higher cash last week, while deferred months ended in the black. October was down 25 points, at $96.80. December was off 32 points, closing at $100.22, and February was down 10 points, ending the day at $100.90. April 2008 contracts tacked on seven points to end the session at $101.25 and June gained 12 points to finish at $96.85.

Vetterkind said the volatility in the market last week was to be expected. “Technically, the market still looks to be on sound footing and we are going to see a little volatility at these high price levels. To be perfectly honest, the market can go one way or the other as fundamentals remain bullish,” he said. “However, the market is overbought and due for a correction. The way we acted yesterday (Sept. 5), we may have seen enough of a correction for the time being. It still feels like December and February (live) cattle want to go to $102-103 and if attainable, I would hedge another portion of expected marketings for that time frame. I still like being long October live cattle on any further breaks due to fund rolling of long positions.”

Feeder cattle

Superior Livestock Auction held a sale headquartered in Denver, CO, last week from Sept. 5-7, offering approximately 112,200 head from all regions in the U.S. Market reports available as of press time on Sept. 6 indicated strong but variable prices for most lots sold on Sept. 5, with delivery dates ranging from current through January. Prices paid for feeder steers and heifers appeared to be strongest in the south-central states as well as in the western mountain states. Large feeder steers ranged from $113.40-127 for six-weight calves, and heifers trailed up to 10 dollars in most cases, bringing between $106-118. All cattle sold during the sale’s first day were under 800 lbs., with the majority being 600 lb. and under calves.

“We’re having a really, really good sale,” said Superior Livestock General Manager Richard Stober. “Demand is good and we’ve just had a really good turnout here in Denver.”
Brett Crotts of Schwieterman, Inc. said that the seemingly never-ending ride up on the feeder roller coaster is simply due to support on the live cattle side of the market.

“You’ve got live cattle above $100 in several months and although the margins are extremely tight in most cases, there are apparently plenty of buyers out there willing to take on some of these high-priced feeder cattle for various reasons. With live cattle up and corn down, feeders have no choice but to go up,” explained Crotts.

Crotts also said that maybe some of the best deals he sees right now in the cash trade is on small heifers.

“Some of the better numbers we’ve seen pencil out are for little heifers, around 500 lbs. They’re lower by $10 or better than the steers in a lot of cases and if you’ve got wheat pasture or corn stalks, you can afford to keep them around through next summer to take advantage of some longer-term marketing,” Crotts said.

He also explained that for the individual and the feed yard operators both, it is critical to play both sides of the market.

“With margins so tight, you absolutely have to be long on feeders and short on live cattle. If you’re not willing to play both sides of the market, you’re definitely not going to see any profit on 700 lb. steers. Some of this demand we’re seeing is maybe by feed yards who are staring at empty pens and are willing to take the risk, but most is still driven by individuals who are in the cattle for the long term. Hay is getting cheaper in most places and if you have a cheaper feed source, there are a few opportunities out there,” Crotts explains.

In the cash cattle trade at auctions around the country, demand remained moderate to good but supplies were fairly limited in most places. In Amarillo last week, 1,056 head were offered and feeder steers and heifers were both firm to $2 higher on the limited test. 600-650 lb. steers sold for $118-121, with heifers of the same size and weight $2-3 lower at $115.50-119.

Receipts were down last week in El Reno, OK, where 2,621 head were run through the Wednesday sale. Compared to the week previous, feeder steers were $2-3 higher, with lower grades or lighter muscled cattle $4-5 higher. Feeder heifers, as well as steer and heifer calves, were lightly tested, but the few lots sold were mostly steady. Demand was extremely good for feeder cattle as feedlot pen space appears to be larger than the numbers being offered. Feeder cattle were mostly in thin to moderate flesh with average to full weigh ups. Medium and large feeder steer calves in the 600-685 lb. range sold from $115-123.50. Yearling steers from 665 lbs. and up sold from $108-124.

Further north in Ogallala, NE, a good offering of 3,200 head was seen last week, though no trend can be established because there has not been another recent feeder sale. Trade was active on all weights and prices reflected very strong demand for the mostly yearling cattle, as six- to seven- weight steers sold between $122.50-128. Heavier nine-weight steers sold for an average of $113.94. Heifers were several dollars behind the steers, with 600-700 lb. heifers selling between $114.50-119.75. Nine-weight heifers also sold a fair deal lower than the steers, with a 218-head lot bringing $108.84.

A strong offering of 8,500 head was seen last week in Torrington, WY, where, compared to the previous sale, steers and heifers over 700 lbs. sold $2-3 higher on good demand. Seven-weight steers sold for averages between $120.57-124.64, with heavier 900-1,000 lb. cattle bringing $108-114. Heifers in the 600-700 lb. range brought averages in the $116 range.

A light run of 432 head was seen last week in Madras, OR, in one of the few sales open in the Pacific states due to the Labor Day holiday. In the light test, feeder steers sold mostly $98-105 for 600-700 lbs., with heavier 800-900 lb. feeders selling $100-105. Heifers of six and seven weights were highly variable, bringing $85-102. — WLJ