Market steps back

Cattle Market & Farm Reports, Editorials
Sep 17, 2007
by WLJ
—Surge in corn adds to caution in cattle markets.

—Fed cattle supply supportive of higher cash ahead.

Packers slowed their chain speeds last week in an effort to stay out of the market as long as possible. There were reports of dark plants last Monday and USDA pegged the harvest at just 113,000 head. For the week through Thursday, the tally was just 490,000 head compared to 502,000 during the same period in 2006. Packers were working to prevent the beef cutout from sliding any further as a result of soft retail movement. The added bonus for them came in the form of pressuring feedlots to lower asking prices.

By mid-day last Thursday, there were reports of some trade in the north at $144-145 dressed, along with some light live cattle trade at $91-91.50. Trade in the south Plains had yet to develop, although the consensus was for trade to break out in the $93-94 range late in the week despite light trade and moderate carry over from the prior week when cattle traded at $95 live in the south and $147-148 dressed and $93-94.75 live in the north.

Analysts last week said they expected steady to higher trade coming into the week, however, the eroding cutout and weak trade on the Chicago Mercantile Exchange (CME) caused them to re- evaluate that position.

“I thought coming into the week we’d see at least steady and perhaps $1 higher,” said Cattle-Fax market analyst Troy Applehans. “But now I think we’re going to have to take a step back for the next one to three weeks.”

He said the supply side of the fed cattle business was very supportive of cattle feeders in the weeks and months ahead and particularly good for late fourth quarter marketings. The current state of feedlots and light placement numbers are also helping to support their trading position. Estimates for Sept. 1 cattle on feed numbers by Livestock Marketing Information Center were 6.4 percent below last year. Placements were expected at 7.6 percent of year-ago levels.

“I think we will wander in the $92-95 range for awhile before picking up toward the end of the year and testing the high-$90s and even $1,” Applehans said. “I think cattle feeders are pulling quite a few cattle forward right now but they’re still pretty green, so there’s no big rush to sell them, particularly when the board is supportive. That said, I think there is more downside risk in this market than there is upside potential.”

He added that the retail situation, although difficult to pinpoint, appears to be improving going into fall, which will add some support.

“There is a lot of out-front business being done right now—21 or more days into the future, so it’s a little difficult to get a handle on—but beef featuring looks pretty good and retailers are switching away from middle meats and toward end meats for their fall lineup,” Applehans said. “Right now, beef is competitive with pork and poultry, more so than we have been so far this year, which has helped with movement at the retail level.”
Last Thursday, Choice boxed beef traded lower.

Looking ahead, Applehans said he expects cash to become the predominant driver in the marketplace as basis narrows.

“There are a lot of hedged cattle out there in the country but for now, basis is still a risk,” he said. “As the board starts to trade in line with cash, feedlots will probably become more willing sellers.”

Last Thursday on CME, October contracts closed at $94.67, down five points from the previous close. December live cattle were down 37 cents to $98.62 and February contracts shed 150 points to end the session at $100.22. The June contract was the session’s only upward-moving contract, which gained 7 points to close the day at $96.32.

The cow markets last week bounced back to regain some of the prior week loses despite cull sale numbers which are beginning to creep higher. The cow beef cutout increased to $113.03, 90 percent lean sold higher at $136.99, and the 50 percent gained slightly to reach $49.39. Compared to last year, prices remain strong. The cutout during the same week in 2006 sat at $107.81, while the 90s were at $133.88 and the 50s at $40.56.

Feeder cattle

With the rally in corn prices following a record-breaking USDA corn report, Troy Vetterkind of believes that maybe the cash trade on feeder cattle will finally begin to soften a little bit.

“The September corn report should slow things down on the feeder cattle side of things. In both August and September, we saw the market rally after what most analysts believed were optimistic corn reports, leading me to believe it’s the market’s way of telling us that people don’t have a lot of faith in the USDA’s big corn numbers,” said Vetterkind. “Regardless, the price jump in corn was real, for whatever reason, and I think cattle feeders were caught a little bit off guard by the reversal in the corn market—it had been slipping,” Vetterkind explains.

Vetterkind said he believes this will ultimately lead to lower cash trades at auction markets around the country because of tight margins throughout the production and processing industries.

“There’s definitely a fair amount of risk in buying feeder cattle right now. I still believe that because of corn prices, there has been a delay in some placements. We’re getting down to the end of summer and privately held as well as feed yard-owned cattle coming off of grass, along with fall calves, will start to flood the market to some degree,” Vetterkind says.

Although margins are tight, Vetterkind says it won’t stop feed yards from placing large numbers of feeders.

“With corn prices going up again, margins for people feeding cattle are getting tighter, but there are a lot of empty pens around. Corn prices aren’t going to stop the yards from taking most of these cattle. Yearlings have been especially strong recently, but the sales we saw where yearlings were lower is showing to me that reality is beginning to catch up with people who have been paying exorbitant prices for some of these feeder cattle,” explained Vetterkind.

In the cash trade at auction markets around the country, feeder prices were mostly steady to lower, following a bullish September USDA corn report. In Oklahoma City last week, 11,703 head sold, and feeders were mostly steady to $1-3 lower. Demand was good for feeders and moderate for calves, with buyers being very selective for flesh and quality. Many lots came from out of the state, and the supply was heavy with reputation ranch calves. Fill conditions ranged from gaunt to full, and flesh conditions ranged from thin to fleshy, but a number of thin or very thin cattle were offered. Six weight fleshy steers brought prices ranging from $120-126, with heifers falling in at $111-117.

A cold front pushing through the Oklahoma area, coupled with moisture from the Gulf of Mexico due to a dissipating hurricane, has provided much of Oklahoma and parts of Texas with heavy rains. Extremely high wheat prices and the heavy moisture may be tempering local demand for calves to put on wheat pasture later in the coming months.

In Joplin, MO, receipts totaling 6,776 were seen last week, with steer and heifer calves under 650 lbs. steady to $2 lower. Steers over 650 lbs. were steady, and heifers of the same weights were $1-2 higher. Demand was good for yearlings and weaned and vaccinated calves, but moderate for all others. Supply was moderate to heavy. Fall pastures in the area have benefitted from recent rains and cooler temperatures. Some very heavy rains in a few places caused fences, hay bales, and roads to wash away. Large steers 600-700 lbs. were selling mostly between $117-125.50, and heifers sold $111-113.

A run of 1,664 head was seen last week in Clovis, NM, where feeder steers and heifers were mostly steady on active trade and good demand. Feeder steers and calves between 600 lbs. and 700 lbs. sold between $111.50-118, with feeder heifers going for $102-111.

In Davenport, WA, feeders last week were very uneven compared to the last sale, with a slight trend of lower prices paid on lighter weight steer and heifer calves, and some instances of up to $2 higher on feeders above 600 lbs. The feeder cattle trade was moderate to active with moderate demand for the total run of 1,642 head. Prices paid for nearly all weights of steers between 600- 900 lbs. bottomed a little over $100, with six weight steers bringing up to $112. Heifers trailed about $5-10 lower in most cases with some lots bringing $108. — WLJ