Higher fed prices look likely

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
October 29, 2007

Feedlots, helped by an on feed number which shows tight supplies ahead, dug in their heels last week in their efforts to increase fed cattle prices. Trade was at a standstill as packers looked for any available bargain cattle before coming to the table in earnest, something that looked to be a Friday affair last week. The previous week, the tactic worked in favor of feeders who pushed trade as much as $4 higher. The last established trade in the southern Plains was in a narrow range of $94-94.50. Live sales in Nebraska sold from $93-93.50 and dressed trade was at $145. Colorado live sales were in the $93-93.50 range and dressed trade was at $145. Fed cattle in Iowa and Minnesota sold from $90-92 with dressed sales at $143-145.

EHedger.com analyst Troy Vetterkind said last week that while higher prices were likely for the week, the weeks ahead could be difficult for cattle feeders.

“Next week concerns me a little bit as not only will October go off the board next Wednesday, but packers will be able to draw off of November contract and formula cattle,” Vetterkind said, pointing out that those supplies could be used to leverage cash prices lower after the first of November.

Packer margins continue to be a source of concern for the industry. Packers are chasing Choice beef right now and too much competing protein has prevented packers from pushing beef cutout prices high enough to sustain the higher cattle prices being commanded in the country. End meats continue to drag on the cutout values as warm temperatures and low-priced pork and poultry cut into demand. Last Thursday, the mid-day cutout values were lower again with Choice boxed beef dropping another 52 cents to $143.56, while Select shed 92 cents to trade down to $130.36 on light to moderate trade in the midst of moderate to heavy offerings by packers who are continuing the practice of fire sale trade in an effort to move any significant quantity. One of the few upsides for packers is the drop value, which is trading at all-time highs. Last week, the by-product drop value was trading near the $10 per cwt. level, helping to ease the strain.

Some of the problem is the result of heavy slaughter numbers by packers who are harvesting record-heavy carcasses for this time of year. The week-to-date harvest through last Thursday was estimated at 517,000 head, compared to 516,000 for the same period a week earlier and 502,000 head for the same period a year earlier. Last week, average live weights were seven lbs. heavier than the previous year’s record weights. That is contributing to an enormous amount of beef production, which is meeting with sub-par consumer demand. Coupled with the difficult nature of the current export situation, it amounts to a bad situation for the packing sector which remains caught in the middle and is bleeding red ink as a result.

The picture doesn’t appear likely to change in the near future with tight supplies of fed cattle likely to continue into 2008 and a retail consumer which is, arguably, unwilling or unable to pay more for higher priced beef cuts. That market scenario is likely to make achieving, let alone sustaining, fed cattle prices in the high-$90 to low-$100 levels difficult this winter or next spring barring any significant changes in the U.S. economy or international trade picture.

The cow beef markets have regained some footing over the past two weeks and prices have stabilized despite increases in harvest as fall culling sends more cattle to town. Cull cow prices have been steady at the mid-$40 to low-$50 level for much of the fall. Meanwhile, the cow beef cutout value was steady at $104.50 last Thursday and the 90 percent lean was trading at $123.80, while the 50 percent trim sold at $47.93. Those prices are only slightly lower than last year’s levels despite gloomy predictions of a market decline until the Canadian border issue is resolved next month. The consensus among analysts is for the possibility of a short-term price impact on cull cow prices once the border opens to older Canadian cattle. However, there are likely to be fewer cattle shipped south than many expect and the impact should be minimal and short-lived as those cattle work their way through the supply chain.

Meanwhile on the Chicago Mercantile Exchange last week, live cattle contracts were trending lower as the end of the month forced fund liquidations of long contract positions and basis adjustments took their toll on prices, Vetterkind said.

“We continue to see long liquidation in the front month live and feeder cattle issues as open interest in these contracts continues to decline on the down days. Technically, the market is starting to look a little tough with December live cattle closing under its 200-day moving average at $96.25 and April taking out the low set two Wednesdays ago,” Vetterkind said. “I believe the live cattle futures market is in the process of adjusting the basis in December-April futures as we have been carrying a pretty hefty premium in those contracts for the last several months. If we were to trade some $95 cattle this week and come back next week and trade some $93-94 cattle, then December should find some support at $94-95 by the first part of next week.”

Feeder cattle

The cash trade for feeder cattle gave up some, if not most, of the strength it gained the previous week and in areas of the country, weather is still the motivating factor for most buyers. Grain prices and the low availability of wheat pasture continue to keep feeder cattle prices depressed, although feeder cattle placements begin to look like a more viable option as feedlots continue to look for cattle to fill pens, artificially bolstering cash feeder cattle prices in some areas.

Western Video Market offered 13,000 head on video in a sale which recently concluded on Oct. 18 and owner Ellington Peek said that despite severe drought in many western regions, the prices paid for feeders seems to remain slightly above actual demand.
“The prices we’re seeing are really not too bad, considering the drought that people are suffering through in a lot of areas out west,” Peek said. “There’s not a bit of feed in California, and the same goes for most of Nevada where they are really short on grass after a tough summer, and hay prices are through the roof. There’s a pretty large area out here where the absolute worst hay is going for $150 per ton,” said Peek.
Peek explained that some of the better deals to be had right now are for lighter heifers, assuming you have a place to put them.

“Right now, you can buy a lot of good heifer calves for $95, which compares pretty favorably to some of the steers. Probably the top 4-5 weight steers are bringing $1.28 or so, and the top natural steers are bringing $1.14 for a 6-7 weight. That’s still better than $1.38 or $1.25 for those same steers not too long ago,” Peek explained.

Peek also says that a stronger undertone would probably be felt if some areas could receive enough rain to satisfy ranchers for at least a short time.

“If we would get a few good rains to drop in this fall, I think the market would get stronger for two to three weeks, but as it is now, every week is a little bit worse than the last,” said Peek. “There’s some good-looking calves out there, but there’s simply no place to put them where you can afford to feed them through the winter.”

Last week at the Oklahoma National Stockyards in Oklahoma City, OK, steer and heifer calves were uneven to mostly steady, some going for $2 lower than in the last sale. Of the 9,282 head offered at last week’s sale, a large amount of the supply consisted of large frame 1-2 calves with numerous Brahman crosses. A group of feeder steers weighing an average of 575 lbs. brought an average of $115.98 at this sale, with feeder heifers of similar condition weighing 581 lbs. bringing $108.38.

Just to the east at the Joplin Regional Stockyards in Joplin, MO, 3,914 head were offered last week and compared to the last sale, steer and heifer calves were $2-4 lower, with most yearlings steady. Demand was good for yearlings, but only moderate for calves on moderate supply. A load of 800 lb. steers brought $111.25 at this sale, reflecting the desire of buyers to search for full loads of heavier cattle to place in feedlots.
At Winter Livestock Inc. in La Junta, CO, last week, 4,689 head were offered for sale where more of the thin steer calves under 600 lbs. were selling for $1-2 lower than compared to the previous sale. Cattle in full or fleshy conditions were $5 lower, and those over 600 lbs. were steady to $1 lower. Smaller heifer calves of under 450 lbs. sold $5 lower and heifers over that weight were steady to $2 lower. Trade was moderate to active with the bulk of the offerings being in full and fleshy conditions, with moderate to good demand. Buyers were paying $103-107 for 650-700 lb. steers, and $96-99.50 for heifers weighing 650-680 lbs.

At the Five States Livestock Auction in Clayton, NM, last week, there were 1,972 head offered for sale, with feeder steers and heifers under 500 lbs. $2-4 lower, with cattle over 500 lbs. steady to $2 higher on active trade and demand. A group of 616 lb. steers brought $113 at this sale, with buyers paying $105 for heifers weighing 633 lbs.
At the Stockland Livestock Auction in Davenport, WA, there were 1,875 head offered last week with feeder steer and heifer calves steady to $3 lower compared to the last sale. Most of the declines were on heifers, with yearlings not being well tested. Trade was moderate to active with moderate to good demand.