Feedlots hold out for more money

Cattle Market & Farm Reports, Editorials
Oct 9, 2006
by WLJ

Fed cattle trade continued its recent trend of slow development last week as packers once again worked hard to convince feedlots they intended to stick to offering prices. As of Thursday last week, bids were still as much as $5-6 below asking prices. Very little trade had taken place and analysts were calling the market steady to perhaps $1 higher at $91 live and $140-142 dressed basis when buyers and sellers finally came together.

At those prices, packers were well into the red ink, with an average per head loss, estimated by HedgersEdge.com, of $45.70 last Thursday. Attempts to move the boxed beef cutout value higher have been difficult to sustain and packers seemed reluctant to trim kill rates, despite widespread belief they intend to do so soon. Choice cutout values last Thursday were near steady at $142.39. The Select trade was slightly higher at $134.72.

For the week-to-date last Thursday, harvest was estimated at 501,000 head, 5,000 more than the prior week and 15,000 more than the same week last year. When combined with the record steer and heifer weights, it amounts to a substantial increase in the amount of retail product being offered at the wholesale level.

Jim Robb, director of the Livestock Marketing Information Center, said the cutout values moved higher but that doesn’t necessarily reflect the number of steers and heifers being slaughtered.

“If you look at the volume of cattle being slaughtered, it becomes pretty clear that the numbers are higher than last year for the month of September. What isn’t getting as much attention is the fact that the increase is entirely in the cow and bull slaughter,” Robb said. “Preliminary numbers show cow and bull slaughter last month was up 12.5 percent over last year. Steer and heifer slaughter for the month was actually down 2.2 percent.”
That slaughter mix has hit cow cutout values extremely hard as the market attempts to absorb the additional volume. USDA cow cutout values last Thursday had dropped to $101.02. The 90 percent lean was trading at $124.30 and the 50 percent trim was $36.87. Those figures compare to last year, when cow harvest year, when cow harvest was considerably lower, in a very negative manner. During the same week in 2005, the cow carcass cutout value was $105.87. The price of 90 percent lean was $130.70 and 50 percent lean traded at $51.38. The combination of sagging demand at the consumer level and beef output more than 5 percent ahead of last year, has packers at the lowest gross margin in many years.

The Chicago Mercantile Exchange was higher in last Thursday’s session, despite quiet in the cash market. Despite pressure as fund traders moved money out of October contracts to December, the nearby contract gained 97 points to close the day at $91.35. It lent some support to feeder positions as they held on for better offers last week. December traded 82 points higher at $90.10 and February rose 80 points, closing at $91.35.

The gains in the corn market last week took their toll on the feeder calf traders and sent the market down. In most auction market trade, where lighter than normal fall runs are beginning, prices were sharply lower as a result of strong Chicago Board of Trade corn contract movement. Last Thursday, new crop December corn closed the day’s trade at $2.74 per bushel. The upward momentum has feedlots scrambling to secure their corn prices if they haven’t already done so.

Robb said the calf and yearling markets were being dominated by the news from the corn pit.

“The feeder market, and particularly the contracts, are being linked to gains in corn, perhaps even more than they should be at this point.”

Add the recent dismal reports from wheat pasture regions to the pressure from the corn trade and there was ample reason last week for buyers to sit on their wallets. According to Derrell Peel, agricultural economist at Oklahoma State University, hot, dry, windy conditions in the state are erasing hopes of good grazing conditions, which just weeks ago were looking very promising. Temperatures into the 90s last week, along with a lack of precipitation, have already taken their toll on newly sprouted wheat pastures.

“There are some reports that the wheat has blown out with the recent winds and will have to be replanted. Emerged wheat needs moisture very soon to avoid losing the young stands. In other cases, dry-planted wheat is still waiting for moisture to germinate. In still other cases, the locally heavy September rains washed out some dry-planted wheat that has or will be replanted,” Peel said. “All of this confirms that fall wheat forage production for grazing will be minimal.”

The resulting poor prospects have put a damper on the demand for stocker cattle in the southern Plains.

“Oklahoma feeder markets have developed a weaker undertone the past two weeks with lack of wheat pasture demand for stockers compounded by limited feeder demand due to swelling feedlot inventories. Feeder cattle auction volumes are still at or above last year’s levels but should moderate in the coming weeks as earlier drought-induced sales are expected to result in reduced weaning calf runs in October and early November,” Peel said. “This should help moderate seasonal calf price decreases, but the poor wheat pasture prospects described above may mean that demand weakens more than supply, thereby keeping prices on the defensive.”

Along the West Coast, the feeder market is less affected by the dry conditions of the southern Plains, however, markets there were also under pressure last week. In Vale, OR, the first real readjustment of the fall run happened last week. The market was called $3-7 lower. In addition to the corn news, buyers there reported the lower fed cattle futures in the first quarter of 2007 were cause for concern.

In Famoso, CA, the market trend was steady on feeders and $2 lower on stocker cattle last week. Most demand was found on the feeder cattle, particularly those steers and heifers in the 650-800 lb. range. Demand for feeder cattle from 450-550 lbs. destined for spring harvest was also called good.

In Billings, MT, steer and heifer calves over 500 lbs. were steady to $2 lower, with weights under 500 lbs. called steady to $4 lower. Yearling heifers sold $1-2 lower. Calf demand last week was light to moderate, with the weakest part of the market for 600 lb. heifers. Demand for yearlings last week was moderate to good.

In Torrington, WY, compared to the prior week’s auction, feeder steers under 650 lbs. were mostly steady, with the 400-450 lb. steers $2-4 lower with quality not as attractive as the previous week on the lighter steer calves. Cattle in the 700-900 lb. range were steady, while those over 900 lbs. were steady to $1 lower. Feeder heifers 400-500 lbs. were steady to $3 higher, and 700-750 lb. heifers were steady with some instances of $2 lower on good demand.

At Hub City, SD, compared to the previous week, yearling steers and heifers sold steady, with a large run of high quality yearlings coming off grass. Spring calves sold $1-2 lower in a light test. For spring-born calves, best demand was for light fleshed weaned calves with both spring and fall shots.

Farther south in Dodge City, KS, in a light test last week, steers in almost all weight classes were weak to mostly $3 lower. Heifers between 400-650 lbs. were weak to $5 lower, while those from 650-800 lbs. were weak to mostly $3 lower.

In West Plains, MO, last week, steer and heifer calves sold $2-5 lower, except light/feather weight stocker calves under 375 lbs. and 500-600 lb. steers were steady to $2 higher. Yearlings mostly steady on moderate supply. At the market, it was noted temperature changes and expanding numbers in sick pens on feedlots prevented buyers from bidding up the market.

In Oklahoma City, OK, a limited test on feeder cattle left the market mostly steady with moderate to good demand as light numbers made it difficult to create even loads. Steer and heifer calves were steady to mostly $2-3 lower.

In Abilene, TX, feeder steers were called $2-5 lower, with yearlings steady to $1 lower. Feeder heifers were $2-4 lower, and yearlings steady to $2 lower in active trade.