Demand is primary market driver

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ

The cash fed cattle market last week was at a standstill Thursday with trade expected to slide lower by as much as $4 when it finally got underway. There was light trade reported in Nebraska at mid-day Thursday at $144-145 dressed basis, which was $3-5 lower than the prior week. However, most feedlots were still holding out for better money in hopes of at least steady trade, although it appeared unlikely.

Prior week trade occurred at $96-96.50 live in the south. Live sales in Nebraska and Colorado came in a range of $95 to $96.50 and dressed sales were at $150.

 Iowa/Minnesota live sales traded from $93 to $95 and dressed sales ranged from $147-150, with good numbers changing hands in all areas.

The downside to the cattle markets continues to be weak demand at the retail level. Competing meats are value priced and far more attractive for retail features than beef right now. A tightening of consumer belts in the wake of rising household expenses has made beef less attractive and more difficult to move. The result has been lackluster movement at the wholesale levels and has made it difficult to push the beef cutout higher than the $147 level since early in the summer. Last Thursday, the Choice cutout stood at $147.28 at mid-day, up slightly from the previous day, while Select was up 50 cents at $136.78. Movement of product was slow.

According to Dow McVean at McVean Trading, there is more downside risk to the market ahead.

“Cattle futures have lost $2 thus far for the week and the thoughts of sluggish beef demand against competitive meats is starting to gain some traction in the trade which, up till now, has been pretty much ignored with higher cash cattle and big kills by the packers,” he said. “Packer margins are a negative $100 a head at current levels. We think the big kills to gain market share by individual packers will be a game too expensive to continue and we’ll see kills cut back.”

Despite the ongoing packer woes and mounting losses, slaughter volume remained robust last week and rumored packer cutbacks have either been short-lived or failed to develop at all. The result has been slaughter levels which continue to run above year-ago levels, making it difficult to convince retailers to pay up for product. The week-to-date kill through last Thursday was estimated at 512,000 head, up from 505,000 head a week prior and 12,000 head greater than the same period in 2006.

Cow beef markets were down again last week although they remain above year ago levels. The cow cutout slid more than $1 from the previous week to trade at $104.71 last Thursday. The 90 percent lean dropped to $124.50. The 50 percent trim market however, bounced nearly $2 higher to hit $53.06, well above prior year prices of $36.87, largely as a result of consumer demand for ground beef over whole muscle cuts.

Adding to the downside of the fed cattle market equation are carcass weights that are even with last year’s record high numbers. The October live cattle contract on the Chicago Mercantile Exchange, trading at a significant premium to the August contract, caused many cattle feeders to hold market-ready cattle longer, adding weight and contributing to overall beef supplies when cutout levels were already difficult to maintain as a result of production levels. However, instead of cutting back on harvest, packers last week reportedly began implementing discounts for heavy carcasses, a trend which could continue until the heavy cattle are through the production chain.

Despite the disappointing cash trade and retail picture, there is still good news ahead for the industry. The supply picture going into the end of the year continues to look tight and if retail demand can be improved, $1 fed cattle remain a good possibility in late 2007 and early 2008. However, the key is going to be the demand side of the equation, which must be a focus for the industry.

Adding to optimism is the likelihood of harvest pressure on corn prices, said Virginia Tech Commodity Marketing Agent Mike Roberts.

“Good weather and good yields are being reported across the Corn Belt. This news served to put a lid on corn prices even though they were supported by a good showing in wheat and consistent good demand. The December chart shows that is it trying to go back and fill the bullish gap established week before last,” he said. “Cash bids for corn in the U.S. Midwest were steady to firm across most locations as producers were reluctant to let go of their corn. Opening bids for cash corn in the U.S. Mid-Atlantic States found weakness in prices ranging from 6 cents per bushel to 14 cents per bushel last Monday.”

He said it might be a good idea to hold off pricing near-term corn inputs due to expected downward movement in corn prices.

Feeder cattle

Northern Livestock Video Auction (NLVA) held a sale on Sept. 28 in which nearly 16,500 head of cattle were offered, giving a good gauge of the feeder market in northern areas. NLVA Manager Joe Goggins said that prices were good overall, but certain factors were having a small negative impact on demand.

“The really light calves took the hardest hit I think. The four-weight and low five-weight calves were quite a little cheaper than they have been. The 500-600 lb. calves sold better, but in all the lighter feeder calves, there was a really big difference between the reputation calves, or preconditioned calves, compared to the mediocre and plain-Jane groups,” said Goggins.

Goggins said there were no significant shake-ups, and that he sees things remaining strong in the feeder cattle market for some time to come.

“The big feeders were really steady, but you could feel some resistance. A lot of the calves we sold are going to the Midwest, but I think local demand and demand form the farmer-feeder is what got hurt recently. All the farmers are in the field right now and are pretty busy at this time of year, so they just aren’t buying. Once they get done with harvest and field work and everything else, I think they’ll get back into the market and wonder where all of the good stuff went,” Goggins said. “I think the market will remain strong for a long time because we just don’t have enough calves to satisfy demand. The difference is that corn is still kind of up right now, so I see some good opportunities in the very near term to get in on calves that will be well worth the money. If you were to take 30 cents off of corn though, the market would get pretty jazzy again,” Goggins explained.
Most lots in the Sept. 28 video auction came from Montana and Wyoming, with some coming from the Dakotas, Idaho and Nevada. A large number of the feeder cattle offered qualified for natural beef programs and were age/source verified. Good examples of continued strong prices included a 1,198-head group of feeder steers weighing an average of 563 and selling for $124.84 with an October delivery date attached. A similar group of heifers weighing 570 sold at $116.19 with similar delivery terms.

In auction markets around the country last week, demands for cattle similar to what was offered by NLVA were seen, with the market demanding more quality out of the feeders as an abundance of unweaned calves are coming up for sale.

At the Joplin Regional Stockyards in Joplin, MO, last week, 5,124 head sold and compared to the last sale, steer calves were $1-2 lower, with heifers following them down and going $2-3 lower. Demand and supply was moderate, with a few of the calf offerings being weaned with shots, though most were right off of the cows. Buyers at the sale had mixed feelings on the downward fed cattle futures, which added pressure to the feeder cattle trade. Five-weight feeder steers weighing nearly 575 sold for an average of $116.93, with heifers of a similar weight trading nearly $15 lower at an average of $101.99.

At the Oklahoma National Stockyards in Oklahoma City, 8,783 head were seen last Tuesday, where feeder steers and steer calves were steady to $1 higher, with an advance on six-weights suitable for the feedlot. Feeder heifers were lightly tested but steady, with calves as much as $3 lower. Demand was good for steers but light to moderate for heifer calves, with buyers being very selective for kind and conditions. In this season in between grass and wheat pasture, middle weight, fleshy un-weaned calves, especially heifers, are in light demand. Some feeder steers weighing an average of 683 brought $123.16, with heifers of a similar weight and condition bringing approximately $10 less.

Further west in La Junta, CO, last Wednesday, an offering of 2,115 head was seen, and demand followed a familiar trend. Steer and heifer calves of good quality and condition were steady to $1 higher, while plain fleshier calves were $2-3 lower. Yearling feeder steers and heifers were mostly steady in a light test and active trade conditions. One lot of 820 lb. yearling steers brought $112.25, while $105 was paid for a similar load of 840 lb. heifers.

At the Stockland Livestock Auction in Davenport, WA, receipts totaled 2,164 last week. Compared to the previous sale, feeder cattle trended steady to $2 higher, with the most advance on 550-600 lb. steers. Trade was moderate with moderate to good demand. Five to six weight steers sold between $107.50 and $114, with heifers following mostly between $96-105.

A total of 1,586 head were seen at the Western Stockman’s Market in Famoso, CA, last week, where prices were steady for stockers and mostly $2 lower for feeder cattle. Demand was strongest for quality lots, and was strong on heifers of 700-800 lbs. Crossbred steers of 600-700 lbs. sold between $90-100, with choice heifers of the same weights selling $90-95.75.