Fed cattle trade expected to move higher

Cattle Market & Farm Reports, Editorials
Oct 2, 2006
by WLJ

—Packers expected to trim harvest levels soon.

Fed cattle traders were still several dollars apart with asking prices in the range of $92 live basis and $142-145 dressed basis last Thursday. Trade was anticipated to occur at prices steady to $1 higher than the previous week once it got underway. The last confirmed trade was Sept. 22 at $88.50-90 in the southern Plains and in the north, live sales traded at $87-89. Dressed sales sold at $137-141.

Boxed beef prices, supported by lower packer harvest levels, moved upward last week. Choice cutout values rose 17 cents on Thursday last week to close at $141.72. Select cuts were also slightly higher, gaining 15 cents to trade at $132.82. Volume was much improved last week as wholesale buyers finally found a price point they were satisfied with. Analysts last week said they anticipated packers would continue to attempt to move the cutout value higher in an effort to improve margins. According to HedgersEdge.com, the average packer margin was still considerably below break-even prices at minus $36 per head last Thursday.

Erica Rosa, economist at the Livestock Marketing Information Center, said she expected the market to move higher again last week, but that packers would cut harvest levels the following week to improve cutout margins.

“The past two weeks, packers have come to the table with more money, somewhat unexpectedly, but they’re also working on the other end to move prices higher. I expect we will see cuts in kill-levels over the next week or two to help boost boxed beef prices,” Rosa said. “The problem recently has been the boxed prices will move higher one day and drop the next. Packers haven’t been able to maintain the upward momentum in the cutout value.”

Rosa said, seasonally, she expects the boxed beef market to move higher, although not to the levels enjoyed during the fourth quarter last year when it reached record high prices.
“Last year’s prices will be tough to beat and I don’t think we will do it this year, but I think the mid to high $140s are a reasonable target for Choice boxed beef during the fourth quarter,” she said.

Factors which will determine the market are still playing out, according to Rosa. The contract trade in recent weeks has been largely dependent upon the cash market to determine direction and even a bearish cattle on feed report, such as the one issued Sept. 22, has done little to move the market. She said there has probably been some speculation in the contract trade with regard to trade with South Korea, and some improved demand on the consumer level as a result of declining energy prices, to boost the market. Beyond those two factors, there isn’t a clear direction for the market during the weeks ahead.

“Right now, feedlot break evens are very high based on feeder cattle prices and right now packers appear to be willing to pay more money for them, but they have to be able to work toward better margins or they won’t be able to sustain that practice,” Rosa said.

It looked early last week like packers might decrease harvest levels. On Monday, packers killed only 116,000 head, however, the remainder of the week’s harvest rate picked up and Thursday, packers moved 126,000 head through processing chains. That number was 1,000 lower than the previous week and 5,000 head more than a year ago. As of Thursday, for the week, harvest had reached 496,000 head, down from 505,000 the prior week, but well above a year ago when 476,000 head had been harvested.

The Chicago Mercantile Exchange (CME) provided little market leadership last week as floor traders awaited cash trade to develop. In the meantime, contracts drifted sideways last week, with Thursday trade mixed to mostly lower last week. The nearby October contract was down 32 points during the session, closing at $90.67. December was down 25 points to $89.77 and February was down 12 points to $90.45. Back end contracts for August 2007 through February 2008 were slightly higher in last Thursday's trade, with the largest gain coming on the February 2008 contract which closed up 20 points at $89.30.

Feeder cattle last week didn’t receive the normal boost from the fed cattle market and for the week, most auction markets were mixed to lower as a result. There is some optimism in the southern Plains for much improvement in the winter grazing prospects this year. Farmers are in the fields planting wheat, which is bolstering the stocker prices in some markets in the south. The rising corn crop estimates and fair weather as the crop moves closer to harvest has been pushing corn prices lower as well. According to Rosa, the decline in corn price is also bolstering the market for feeder calves.

“Corn prices are declining and it’s adding value to what buyers are willing to pay. Hay is another matter, but rations can be adjusted, so it’s positive news for the feeder cattle prices,” she said.

In Pleasanton, TX, last week, feeder steers sold steady to firm, with instances of $2-4 higher. Feeder heifers were called steady with instances of prices as much as $3 higher than the prior week on active trade and good demand.

At Oklahoma National Stockyards, in Oklahoma City, OK, compared to the previous week, feeder cattle were mostly steady in a very light test. Feeder cattle numbers in the state remain very tight as this summer's drought, along with a good market, had many cattle moving early. Buyers last week were selective for kind and condition with some better quality black-hided feeders going to out of state buyers. Steer and heifer calves were reportedly steady to $3 lower, with the most loss on heifer calves. Calf demand was called moderate to good, with best action on long weaned calves.

In West Plains, MO, compared to the previous week, feeder steers under 750 lbs. sold $4-6 lower, with some cases of $6-8 lower, heifers under 550 lbs. were steady to $2 lower, cattle in the 550-750 lb. range and heifers were $2-5 lower, steers and heifers over 750 lbs. were called fully steady on comparable weights. In West Plains, the large supply of feeders, many of which have health liability concerns, is keeping buyers on edge with filling orders and as a result, most have chosen to take a strong stand with what price they put their bidder cards back in their shirt pockets.

In the northern tier, fall runs of cattle, what few are left in the country, anyway, are starting to increase the fall runs although most market sources are expecting fewer numbers than in prior years as a result of early weaning and drought-forced marketing. In La Junta, CO, last week, steer calves under 600 lbs. traded hands $2 lower although quality was noted to play a role at the sale. Steers over 600 lbs. and heifers were called steady. The few yearling feeder steers and heifers available were also trading hands at steady prices.

In Bassett, NE, last week, testable weights on steers trended steady, with heifers trading fully $2 lower. However, it should be noted that many heifer consignments were carrying more condition than at the previous sale.

In Philip, SD, the market was one of the few which moved higher. According to reports, steer calves under 500 lbs. sold steady to $3 higher, with some instances of as much as $5-10 higher on value added offerings. Cattle in the 500-600 lb. class moved $2-5 lower. Heifer calves under 550 lbs. sold $2-5 lower. Yearling steers and heifers were not well tested. Buyer demand was called good for steer calves with both spring and fall shots and moderate for heifer calves and cattle lacking both spring and fall shots.

In Torrington, WY, a good run of feeder steers and heifers sold near to unevenly steady, with 800 lb. steers steady to $1 lower. Heifers in the 650-700 lb. range were steady to $1 higher. According to market reports, many of the calves sold were preconditioned and sold in good size bunches as did many of the yearlings. Demand was good for all classes of feeders.

Mike Roberts, commodities marketing agent for Virginia Tech, said although contract prices for feeder cattle were slightly lower as a result of live cattle prices last week, there isn't too much reason for concern. He said losses were limited because there is a shortage of feeder cattle outside of feedlots which can be placed the remainder of the year.

“Interest for feeders is expected to rebound. Cattle feeders may want to watch these markets still looking to catch those up days to sell,” Roberts said.

He also said cattle feeders should keep a sharp eye on the corn market if they haven’t yet locked in their contracts for winter needs.

“Corn users may still think about pricing a significant portion of corn supplies at this time as input prices may have established their lows. Try to catch the low bounce in this choppy corn market to price your corn if you haven't already,” he said.
On CME last week, feeder cattle contracts were also lower, along with the cash trade in auction markets. In the Thursday session, the only contract in the black was the nearby October, which gained 40 points to close the day at $116.07 last Thursday. October was down 62 points to $113.22, November and January 2007 contracts were the biggest declines of the day, with both losing 97 points, closing at $111.52 and $108.97 respectively. — WLJ