Higher cash expected

Cattle Market & Farm Reports, Editorials
Oct 22, 2007
by WLJ

—Studies begin to question sustainability of the ethanol industry.

Fed cattle trade was off to a slow start last week as traders waited for the USDA cattle on feed report before exchanging cattle for cash. Expectations of increased placements and lower marketings did little to dampen hopes of higher cash for the week, however. As of Thursday, analysts were expecting cash trade to develop $1 higher, at $94 live and $141-144 dressed.

Cash trade the week prior in the south came at mostly $92.50, while farther north, Nebraska and Colorado cattle traded from $90-92.50, with dressed sales from $140-143. Dressed sales in the western Corn Belt traded from $138-141 with live sales in the $88-90 range.

Stagnant consumer demand and record protein production is creating a difficult situation for packers and cattle feeders alike. The Chicago Mercantile Exchange (CME) premium for October contracts vs. the August contract caused feeders to hold onto supplies longer, adding weight to already finished cattle. That has led to a short-term oversupply of very heavy animals which packers are discounting as they work through them. For the week ending Oct. 6, packers for the first time produced more than 1 billion pounds of red meat in a single week. For the week ending Oct. 13, the total was 975.5 million pounds, of which 503.5 million pounds was beef, well above the same period a year earlier when 486.8 million pounds were produced. Adding to the supply was a robust increase in pork production which, at 468.7 million pounds, was more than 36 million pounds more than a year earlier. The record pork production is driving prices lower, making “the other white meat” an attractive option when compared to beef at the retail level. However, despite lower prices, University of Missouri agricultural economists Ron Plain and Glenn Grimes noted last week that retail demand actually increased during the first three quarters of 2007, although beef showed the smallest gains of all proteins.

“Demand for all meats at the consumer level for January-August was up but broilers. Beef demand was up 0.8 percent, pork up 1.9 percent, turkey up 3.2 percent but broilers were down 1.9 percent,” Plain and Grimes said. “The demand for both live fed cattle and live hogs showed strong growth for the first eight months of 2007. Live fed cattle demand was up 3.8 percent and live hog demand was up 3.3 percent.”

They attributed the increased demand for fed cattle to growth in both domestic and export markets.

However, it’s likely that competing meats will continue to drag on beef sales, making it difficult to maintain cash fed cattle prices in the mid $90 range. Without significant winter weather, hitting the $1 market, which seemed likely during late summer as a result of tight supply, may prove to be difficult.

Packers, however, seemed little concerned about losses averaging $30 per head last week. Beef cutouts last Thursday were slightly higher on the Choice, moving up 37 cents to $145.64 and slightly lower on the Select, which was down 47 cents to $133.24. Slaughter volume remained strong for the week through last Thursday, totaling 516,000 head, 14,000 more than the previous week and 17,000 more than a year earlier. Live weights for the week ending Oct. 13 were five pounds heavier than a year earlier, averaging 1,295 lbs., four more than the prior year’s record. The increase in red meat production and the stagnant domestic consumption serves to illustrate the importance of improving export demand and market access for all U.S. meats, but beef in particular.

Feeder cattle

In auction markets around the country last week, the cash trade for feeder cattle picked up slightly in some places and was able to stop its downward slide to remain steady in others. A burgeoning corn harvest estimate was not enough to depress corn futures, although the bulk of the rise in corn markets last week was due to export speculation after China announced that it will not export any more corn this year.

While the corn market, though higher, still had a positive effect on stopping the downward-spiraling prices on feeder cattle, the biggest price boost to the feeder cattle trade remains in the short supply. Demand both for fed cattle and cattle to place on feed is far outstripping the supply of cattle available, especially now as the largest runs of yearlings through sale barns have dwindled and buyers have mostly a few remaining new crop calves to wait for.

“The feeder cattle trade and prices have certainly stabilized, but I don’t want to get too brave and say it’s going to go a lot higher,” says Troy Vetterkind of Ehedger.com. “There’s a lot of optimism among some buyers regarding what they are able to do with a few of these calves if they have forage, which is helping to keep things from sliding too far down. But right now, I think we’ve shown that the market has essentially broken and corrected itself just a bit,” Vetterkind explains.

Vetterkind said that feeder cattle are more closely tied to fed cattle price swings than anything else.

“When the fed cattle stopped going down, so did the feeders, so I think what the market is trying to tell us is that no matter what corn seems to do, the feeder cattle prices are affected more by the short supply than feed issues,” Vetterkind said. “After the cattle at auction markets have been picked through, we’re seeing more demand for specific types and kinds of cattle which can go straight to feed, because yards need to fill their pens right now.”

In Oklahoma City last week at the Oklahoma National Stockyards, a large run of feeder cattle produced one of the few local auctions where any class of steers and heifers were lower, though not sharply. Of the 8,627 head run, the steer and heifer calves were $2-3 lower, where demand was moderate for calves but good for larger feeders.

A group of 631 lb. steers brought $116.10 at this sale, with heifers of similar weight and condition bringing $10 less. Buyers were very selective for flesh and weighing conditions with the best action being on long-weaned calves and yearlings in thin flesh. The bulk of the supply has turned to calves with the majority going to feed yards. A line of rain storms went through the state late Sunday leaving most areas with beneficial rain, the exception being the far northwest part of Oklahoma.

Compared to the previous sale, last week’s sale in Joplin, MO, at the Joplin Regional Stockyards saw prices steady except on 450-550 weight steers which were $3-6 higher. Demand was moderate to good on the moderate supply of 4,000 head. A group of 629 lb. steers sold for an average of $115.22 at this sale, and heifers of 620 lbs. sold for $106.66.
The Bassett Livestock Auction in Bassett, NE, was one of the few places in the country last week which had a large run of yearlings. The 2,600 head that showed up at the sale consisted entirely of average to good quality yearlings, for which there was moderate to good demand. It was clear that buyers in attendance at this sale were ready for high quality, ready-for-feed cattle, as a six weight steer would have brought an average of $118.42, and a large number of steers weighing an average of 868 lbs. sold for $115.20. Heifers followed suit with strong prices as well, bringing a $113.26 average on 655 weight cattle, and $109.38 for heifers weighing 872 lbs.

Steer and heifer calves under 500 lbs. were $2-5 higher at the Torrington Livestock Commission in Torrington, WY, last week, with 500-700 lb. feeders steady to $1 higher on good demand. An average of $114 was paid for 824 lb., ready-for-feed steers, while $116.02 was paid for small, weaned 568 lb. steers. A limited run of larger heifers was seen, but prices on 871 lb. cattle averaged $106.49.

Last week in Davenport, WA, at the Stockland Livestock Auction, nearly 2,040 head sold in uneven fashion, with weights under 500 lbs. bringing $2-6 higher compared to the previous sale, while weights over 500 lbs. were $2-6 lower. Trade was active with moderate to good demand, with a limited test of heavy feeders ready for the bunk. An average of $97.09 was paid for unweaned calves weighing 638 lbs., and heifers of a similar condition weighing 622 lbs. brought $92.82. — WLJ