Fed cattle prices slide

Cattle Market & Farm Reports, Editorials
Oct 16, 2006
by WLJ

Short bought packers last week jumped into the market early and got trade started at levels lower than the prior week. A combination of factors, including seasonal softening beef demand at the consumer level and a sharp decline in the Chicago Mercantile Exchange (CME) live cattle contracts on Monday worked against cattle feeders who, last Wednesday and Thursday, sold cattle in a range of $86-$87 live and $135-$138 dressed in the north and $87-88.50 in the southern Plains. Packer interest tapered off once moderate trade had developed, indicating they were not interested in buying more cattle than necessary to meet immediate needs.

A similar trend was evident the prior week, when trade developed very late in the day, Oct. 6, at very low volumes.

The widely expected news that packers were going to trim kill levels by reducing operating hours finally came through last week. Now all that remains is to see how much the cutback will actually affect slaughter volumes. Some analysts last week were quick to point out that previous announcements did little to decrease slaughter volume and didn’t last long. Despite packer statements that the cutbacks had been underway for several weeks, the slaughter volume for the month to date last week was still well above 2005. For Thursday last week, USDA estimated slaughter volume at 123,000 head, which was down 5,000 from the prior week but still ahead of 2005. For the week to date last Thursday, packers had processed 502,000 head, which was 1,000 head more than the prior week and 19,000 head more than the same week in 2005.

Reductions in harvest did boost boxed beef cutout prices, but not enough to boost packer
profitability very much. Choice boxed beef cutout values last Thursday were up just 14 cents, to $143.42, in morning trade. Select was also up 49 cents, trading at $134.36 for a Choice/Select spread of $9.06. Despite the improvements, packer margins were still deep in the red, according to HedgersEdge.com. Last Thursday, per head losses were estimated at $53.70. Movement of product was called moderate as wholesale buyers worked to fill needs before prices climb as a result of the cutbacks in kill levels.

On CME last week, early week trade was sharply lower as a result of bearish sentiment after the lower cash trade the week prior. October and December live cattle contracts lost 167 and 152 points respectively and were as much as $2-3 lower than the prior week. During last Monday's sell-off, contracts dropped below their 100-day moving averages which triggered technical fund selling which added to the pressure. Despite the early week losses and lower cash trade, CME live contracts bounced back last Thursday, with contracts closing higher across the board. October was 40 points higher at the end of the session, closing at $88.75. December was up 80 cents, the largest gain of the day, to close at $87.70. February and April contracts were both 77 points higher, closing at $89.87 and $88.90 respectively.

Mike Roberts, commodity marketing agent for Virginia Tech, said Cash sellers should consider protecting a portion of fourth quarter ‘06 and first quarter ‘07 marketings at this point.

“Hedgers sensitive to the downturn in this market should be on short positions now,” Roberts said last week.

Feeder cattle

Live cattle losses on CME last week were enough to pull feeder cattle contracts sharply lower. Figure in seasonally larger runs of cattle, higher corn prices, a cut in USDA’s corn crop estimate, larger numbers in auction markets, and lower cash trade in the country and it added up to a rough week for feeder cattle last week. Monday CME trade saw significantly lower trade especially in the nearby feeder cattle contracts. October feeders were 223 points lower at the end of the session, closing at $110.75. November was down 292 points to $108.32 and January contracts gave up 300 points to settle at $106.27. Those prices were more than $3 lower than a week earlier.

Feeder cattle sales trended lower all week as a result of a lack of support from either cash or contract trade and with the cutbacks in slaughter and lower prices being paid for fed cattle, it looked last week like it might be some time before that changes. If grain prices continue to rise like they did last week, it will add additional pressure to the feeder cattle market.

Numbers of yearling feeder cattle remain tight, which should help to support prices in the near term, however, rallies are likely to be limited on either the cash or contract side.
In Coleman, TX, last Wednesday, feeder steers under 500 lbs. were $1-3 higher, defying the week's trend. Those calves over 500 lbs. were steady to $1 higher. Feeder heifers were also $2-3 higher. Trade and demand were called good.

At Oklahoma City, OK, last week, feeder cattle and calves were $2-4 lower, except thin fleshed, long weaned or preconditioned calves under 500 lbs. which sold steady to $3 higher. Demand was called moderate to good for all classes, with the best demand for light weaned calves. Calves over 500 lbs. found narrow outlets as northern buyers pull out of the market.

In West Plains, MO, last week, feeder cattle were sharply lower with steers and heifers $2-7 lower. A few steers under 350 lbs. sold $12-15 lower than the prior week’s strong market upturn for light feather-weight steer calves. Supply was moderate to heavy with the demand called light to moderate.

In Dodge City, KS, compared with the previous week, steers 300-650 lbs. sold steady to $2 lower on a light test. Heifers in the 300-650 lb. range didn’t have enough volume for a test, but a lower undertone was noted at the market. Steers 650-950 lbs. were called weak to $3 lower, also on a light test.

La Junta, CO, markets sold steer calves under 500 lbs. steady with the previous week, while those over 500 lbs. were $3-5 lower with a full decline on cattle in the 600 to 700 lb. range. Heifer calves and yearling steers were $2-3 lower on active trade and moderate to good demand. In Riverton, WY, compared to the prior week, steer calves under 500 lbs. were $2-4 lower, and those over 500 lbs. were steady with some instances of $2-5 higher. Heifer calves at the market were under pressure with most steady to $2-3 lower. Yearlings steers were called steady with some instances of $3 lower. Heifers were steady with replacement quality animals in the 800-850 lb. range $4-5 higher on moderate to good demand.

In Billings, MT, last week, steer and heifer calves were $2-5 lower in a light test, except 600 lb. steers traded near steady. Demand was called moderate as a result of lower quality and smaller lot sizes being offered.

On the West Coast, in Toppenish, WA, last Tuesday, feeder cattle were called $2-7 lower on moderate trade and light to moderate demand.

In Famoso, CA, stocker and feeder cattle were $2-3 lower with excellent demand for stockers, especially the quality 450-525 lb. steers and heifers. Feeder cattle also met excellent demand, especially the 625-750 lb. quality steers and heifers.

At Madera, CA, stocker and feeder cattle were steady with the prior week with 500 lb. class steers bringing $102-117.75 and the heifers in the same class were selling between $99 and $112.50 in a light test.