Pre-holiday fed market is higher

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
November 26, 2007

The rally in the boxed beef market last week of more than $4 was expected to help cattle feeders move prices higher. Analysts were calling for trade in the range of $147-$148 dressed basis in the north and $94 and higher in the south. The cutout values, which reached $148.06 on the Choice and $135.07 for Select last Wednesday, have helped boost packer margins closer to breakeven and a holiday-shortened harvest last week, along with a surge in demand for beef, drove beef prices to their highest point since early September.
Although trade had yet to develop in significant quantity at mid-day last Wednesday, market watchers were anticipating trade at $1.50-2.50 higher than the prior week. Early trade was underway last Wednesday at $95 live in the south, $148 dressed basis in Nebraska, and $150 dressed in the Corn Belt. That compares to the prior week’s activity of fed cattle traded at $92.50-93.50 live in the south and at $93-94 live and $146-147.50 dressed in the north. Corn Belt trade came in at $91.50 to $92 live and $145 dressed basis the previous week.

The week-to-date slaughter remained robust at 390,000 head, compared to 358,000 for the same period a week earlier and 386,000 for the same period a year earlier. However, despite the strong beef kill, it was nothing compared to the numbers being chalked up by hog processors, who last week scheduled the first Sunday slaughter since 1998, according to Jim Robb, director of Livestock Marketing Information Center.

Robb said the pork market had reached a likely bottom and was set to rebound, which would benefit beef producers.

“Pork and hog margins have been super strong, which in turn has helped the beef market,” Robb said. “Without the money being made by packers in the pork industry, beef would be trending lower than it has.”

He said the overall market picture, with competing meats starting to climb and the export picture picking up, looks good as fed cattle supplies tighten. However, the U.S. economic picture poses a concern, particularly if consumers remain pinched as it looks like they will. “In the U.S., the economic picture looks okay. U.S. exports are strong and we have a strong overseas economy because of the weaker dollar, but U.S. consumers account for about 70 percent of all U.S. economic activity,” Robb said. “The fed cattle forecast prices are too high if we slip into a serious recession. The big question is can the strong world economy make up for it? So far, the answer has been yes.”

He said the overall supply picture looks supportive well into next year.
“We expect to see a year-to-year decline in the U.S. beef cattle herd when the Jan. 1 numbers are released and we expect to see declines in Mexico, Canada and Argentina,” said Robb. “So overall, the world supply side of the market looks to be very supportive ahead.”

In the futures markets last week, that picture was evident with prices that were more reflective of actual market conditions, said Robb.

At the close of business last Wednesday, December fed cattle contracts were 17 points higher, settling at $96.35, while February contracts gave up 7 points to end at $98.20 and April lost 12 points to finish the abbreviated trading day at $98.40.

In the cow beef markets, at mid-day last Wednesday, cow beef cutout values were up slightly to trade at $103.17, while the 90 percent lean moved at $123.01 and 50 percent trim reached $53.66. Robb pointed out that cull cow prices have remained strong and he said they will remain so as slaughter volume drops off for the remainder of the year and into next year.

Feeder cattle

Limited supplies at auction markets around the country last week were partially due to the shortened holiday week as well as strong demand for feeders, which is currently outstripping supply in most major feeding areas.

Derrell Peel, livestock marketing specialist for Oklahoma State University, said that the most recent cattle on feed report shows the dynamic feed environment which currently exists, and explains the high-demand situation.

“Feedlots are beginning to take advantage of the available supplies of heavy yearling cattle coming off of summer grazing programs,” said Peel, who says demand for lighter-weight feeder cattle is somewhat less.

“I suspect that some of the 600-700 pound feeders, and certainly most anything lighter than that, would have stayed on winter pasture if forage conditions were better in the country,” Peel said. “In Oklahoma, wheat pasture is limited, much of the state is quite dry and although considerable hay was harvested this summer, much of it is poor quality. All in all, it isn’t easy to put together a stocker or backgrounding program, but the incentives to do so continue to build.”

Peel explained that the unusual feeder prices are occurring because of high demand for heavy feeders from feedlot buyers, and that the limited forage makes it difficult to put stocker programs together to meet the feedlot demand.

“The market will continue to offer incentives for forage- based gains until enough producers respond,” said Peel.

At the Joplin Regional Stockyards in Joplin, MO, last week, demand was moderate to good on the moderate supply of 3,600 head. Compared to the previous sale, steers and heifers under 500 lbs. were $2-5 higher, with weights over 500 lbs. steady. The best buyer activity was seen on light weight calves.

Winter Livestock’s sale in La Junta, CO, last week saw a total of 1,353 head sell, with steer calves steady to $1 lower and heifer calves steady. In a light test, yearling feeder steers and heifers were steady, on moderate trade and demand.

There was a total run of 1,405 head last week in Riverton, WY, at the Riverton Livestock Auction. There was lighter offering compared to the week prior, with feeder steers under 550 lbs. coming under pressure, with weights over 600 lbs. going $1-3 higher.