Fed cattle trend lower on oversupply of beef

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
October 15, 2007

Cash fed cattle trade last week was underway by Wednesday as packers managed to pressure feedlot asking prices lower in the north. Although volume was light in the north and not yet established in the south, prices last week were $2-3 lower in Nebraska at $139-141 dressed, with a few reported live sales at $89.50. In Iowa and Minnesota, prices were reportedly $1-4 lower at $138-141 dressed basis, with the few reported live sales $2 lower at $89. An improving live cattle contract trade gave the market pause last week as fund buying and technical support pushed contract trade higher, giving feedlots reason to hold out for better money on the majority of last week’s trade. On the Chicago Mercantile Exchange, October contracts gained 57 points last Thursday to close the session at $94.67, while December tacked on 115 points and February added 117 to close at $97.77 and $99.57 respectively.

Feedlots are likely to have a good opportunity during the corn harvest to lock in lower corn prices. Many industry analysts expect USDA to increase their harvest estimates for this year when the report is released Oct. 12. In addition to an increase in harvest forecasts, the world carryover stocks were increased unexpectedly two weeks ago, which has added more cushion to this year’s estimates and put downward pressure on corn prices. That, combined with weakness in other grains and a rising dollar, has caused corn futures to slump, according to Virginia Tech commodity marketing agent Mike Roberts, who predicts further weakness in the corn market.

“It might be a good idea to hold off pricing near-term corn inputs if you can. Corn prices are expected to succumb even more to harvest pressure,” he said.

Meanwhile, packers finally followed through on their intended harvest cuts last week, with several dark plants reported or scheduled at mid-week. Their efforts cut last Wednesday’s harvest number to just 123,000 head, down from 128,000 head a week earlier, but still above year earlier numbers. For the week-to-date through last Thursday, packers had harvested 502,000 head, compared to 512,000 the previous week. However, their efforts were doing little to immediately trim the large oversupply of beef available to wholesale buyers at offered prices. Beef supply, given the record-high carcass weights, continues to be a burden to boosting the boxed beef price. Until something changes to boost retail demand, packers are not likely to be able to move the cutout high enough to justify the much higher prices expected later this fall as a result of the tight supply expectations.

There were two additional concerns weighing on the market last week as well. The stop and start nature of export markets, South Korea in particular, and the news of beef recalls aren’t doing anything to help improve the movement of beef either in the domestic markets or abroad. Although both problems are likely to be short-lived in terms of their market impact, neither is likely to bode well for improving demand and bolstering beef prices.

The boxed beef cutout last Thursday continued its downward trend. Choice cutout prices dropped $1.55 to trade at $144.23 at mid-day Thursday. Select lost an additional 74 cents, to trade down to $134.49. However, those firesale prices spurred bargain hunters at the wholesale level and movement was good with 197 loads of Choice cuts, 100 loads of Select cuts, 27 loads of trimmings and 49 loads of coarse grinds trading hands during the morning. Cow beef markets were mixed last week after a drop in the number of cattle being harvested. The cow beef cutout was down slightly from the previous week at $105, while the 50 percent trim moved more than $1 higher to $51.71 and the 90 percent lean gained $8 from the previous week to trade at $133.53 last Thursday.

Competing meats will also add problems to the beef market. Pork, in particular, poses a concern for the beef industry. The September market hog inventory report showed the largest number of market hogs on record since USDA began the data series in 1973. That has led to an ample supply of pork on the market which is favored heavily by retailers as a result of increases in the price of both beef and poultry, which are up 6 and 9 percent respectively from last year, according to Shane Ellis, Iowa State University agricultural economist.

“Poultry, in particular, has been expensive enough to drive consumers to the ‘other’ white meat,” Ellis said. “Competition from poultry is likely to continue to grow in the coming months as egg sets and chick placements remain consistently higher than a year ago. Generally, an increased supply of meat leads to lower prices, and a moderation in pork prices in the next quarter will be accompanied by additional consumption.”

Feeder cattle

Feeder cattle trended lower again this week, following the downward movement in the fat cattle futures, although few analysts believed the price depression in the feeder cattle trade would be nearly as severe as it turned out to be. Demand for lightweight calves that are either unweaned or have been handled a great deal is very light, something USDA Market Reporter Corbitt Wall says is likely to continue.

“The spreads between the preconditioned calves and the calves which are of a plainer type or haven’t been weaned is getting pretty extreme and will probably get even worse as we get later in the year. Things are pretty slow demand-wise right now as most farmer-feeders are busy with harvest, but once harvest is over with, there will probably be a little pump-up in the market when these guys start bidding again,” Wall says. “The difference will be that they are only interested in big, black steers for their feeding purposes, which could keep a pretty big price gap between them and the smaller calves,” said Wall.
Wall also explained that auction markets are currently flooded with calves in poor condition.

“There’s so many guys getting burned by calves coming out of drought areas it’s not even funny; there were so many calves taken off their mothers early in the southeast, and that flood of sick calves has reached the major auctions all over the country now. The one thing buyers are waiting for is a hard freeze when the market for these calves should pick up just a bit, as it’s easier to straighten the cattle out once it gets cold,” Wall said.

With a new harvest report due which could drive corn prices further down, Wall believes the fed cattle will slow or stop their downward slide in price, and feeders should follow suit.

“There are some guys out there saying the feeders will be bearish after the new corn numbers come out, but I don’t see how that could happen. I think that although the price gap between types and kinds of feeder cattle will stay the same or get bigger, the overall average for a good steer should jump up just a bit. What will likely keep [feeder prices] from getting too much higher is the lack of places to put these stocker cattle. There’s just not going to be any wheat pasture to be had, though there should be extra corn stalks around,” Wall says.

Superior Video Auction held a sale on Oct. 5, which set a partial trend for the next week’s offerings at auction markets around the country. A total of 34,200 head were offered, and moderate trade and demand was observed. Prices continued to be strongest in the north and south Plains states, and weaker in the western regions where distances and drought tend to have a price-depressing effect.

At the Oklahoma National Stockyards in Oklahoma City last week, 8,940 head sold in the Monday feeder cattle sale and compared to the previous week, most feeder cattle and calves were $3-5 lower, with some instances of $6-7 lower on fleshy unweaned calves. The demand was moderate, at best, for all classes of cattle with buyers very selective for kind, flesh and weighing conditions. The best action continued to be for calves which have been weaned for longer periods. Much of the wheat in Oklahoma is already planted and some areas have received rain, but there is not a great deal of interest in calves to go on wheat pasture. One lot of 625 lb. feeder steers sold for an average of $117.41, and a similar lot of the same weight heifers sold nearly 10 dollars lower at $108.63.

Further east in Joplin, MO, at the Joplin Regional Stockyards, 4,400 head of feeders were sold at last Monday’s sale. Compared to the week previous, steers under 750 lbs. and heifers under 600 lbs. were steady to $3 lower, with the heavier weights mostly steady.

 Demand and supply were moderate, with the calf trade being best on weaned, vaccinated offerings. One lot of heavy 900 lb. steers sold at $108.60, with no heifers for comparison of the same weight range.

Last week at Winter Livestock’s sale in La Junta, CO, 4,656 head sold where steer and heifer calves under 400 lbs. were steady, while calves over that weight brought $3-5 less compared to the previous week. Trade was active, with calves being in moderate to heavy flesh. Some steers weighing 570 lbs. brought an average of $111.10, and a heavier lot of steers weighing an average of 862 lbs. were sold for $107.86.

In McCook, NE, last week, steers and heifers under 700 lbs. were steady to $4 higher, and the trend was higher with good demand for the 2,700 head sold at Tri-State Livestock Auction’s Monday sale. One bunch of steers weighing 578 lbs. brought $119.35, while heifers of a similar weight and type sold six lower at $113.32.

A special feeder calf sale was held last week at the Stockland Livestock Auction in Davenport, WA, where the 4,410 head offered were selling on moderate demand, with 668 lb. feeder steers bringing $103.44, while heifers of approximately 620 lbs. were sold for $96.18 in one example.