Storm has little effect on market
Fed cattle trade was very light early last week, with only one reported purchase in Kansas at $85.50. Analysts were calling for prices to be in the area of $86, which would be $1-2 lower than the prior week in the live cattle market and in a range of $135 to $137 in the beef, when trade finally developed in earnest. The market was called lower last week despite a widespread snow storm across Colorado southward into the Texas panhandle, which did little to move cattle early or boost prices.
Much of the downtrend in prices can be attributed to packer losses, which have been growing. HedgersEdge.com estimated packer margins at negative $35.85 per head last Thursday. Many analysts were expecting a bounce in cutout values following the Thanksgiving holiday as consumers turned to beef products after tiring of turkey. However, weak retail sales movement last week had caused Choice cutout values to decline to $140.24 on Thursday, while Select traded at $126.74. The slide in packer margins caused some plants to cut kill levels last week. Thursday’s harvest volume was estimated at 127,000 head. There was no kill the prior Thursday because of the holiday, however, the harvest was 1,000 more than in the same day in 2005. There were reports that packer cutbacks would continue through the week in an effort to regain lost margins, however, the jump in harvest from Wednesday’s tally of 119,000 head indicated the cutbacks were short-lived. For the week through last Thursday, harvest totaled 498,000 head, up from 385,000 for the same period during the prior holiday-shortened week.
Some futures traders, based on contract trade on the Chicago Mercantile Exchange (CME), don’t expect a market recovery any time soon. Last week, a few bearish traders adjusted their positions on the live cattle market, calling for trade in the $80-81 range in the near-term.
“I think the Chicago traders are looking back at last year’s unraveling of the market and expecting the same this year,” said Jim Robb, director of the Livestock Marketing Information Center. “If they think the same thing is going to happen this year, I think they’re nuts.”
Robb said he expects the market to trade mostly sideways for the rest of 2006 and into the first quarter of 2007.
“Without severe weather, we aren’t going back to $90 feds, but I think trade will be mostly steady looking ahead. A lot of things would have to go wrong in the market for cattle to trade down to the $80-81 level,” Robb said. “However, sometimes the more bearish the futures market gets, the better it is for the cash fed cattle market.”
On the CME, live cattle contracts last Thursday were mostly higher. The December contract gained 50 points to close at $85.70 and February was up 70, to $89.10. April contracts moved 67 points higher to end the day’s session at $90.30. Deferred contracts moved slightly higher, making up for sharp losses the prior day when up front contracts dropped more than $1.
Record high carcass weights have begun to decline seasonally and the cold weather last week was expected to hasten the drop, which could also help to boost prices as a result of the production decline. Robb said the cold front, which at mid-week stretched from Alberta, Canada, well south into Texas, would prevent any excess weight being put on cattle and could help movement out of feedlots, both of which could create positive effects for the market.
The beef market has also been helped by a decline in the volume of beef imported from other beef producing nations. According to USDA’s Foreign Agriculture Service (FAS), the value of cattle and calf imports is estimated at $1.6 billion, up from the August number of $1.3 billion, due to higher U.S. feeder cattle prices and increased imports from Canada and Mexico. On the meat side however, imports of fresh beef and veal during 2007 are forecast at 1.1 million metric tons, unchanged from the August estimate. The value of those imports is predicted to total $3.6 billion, up from the August forecast of $3.3 billion. During the current year, according to FAS statistics, imports of beef from Canada equaled 242,856 metric tons, down 20.6 percent from a year ago, while imports of beef from Australia totaled 241,129 metric tons, 9.1 percent lower than a year ago mostly because Australia is focusing primarily on Asian markets where the U.S. has lost market share. Beef imports from New Zealand totaled 162,629 metric tons, down 5.3 percent from last year. Beef imports from Japan totaled nearly 27.0 metric tons.
Through Nov. 13, the U.S. imported 14,725 metric tons of beef from Uruguay which was 8.2 percent lower than last year. Uruguay continues to supply beef to those markets lost by Brazil and Argentina which were hit with foot-and-mouth outbreaks.
The cash feeder cattle markets were slightly higher last week and it appeared that despite rising corn prices, much of the news had been priced into the market. December new crop corn futures on the Chicago Board of Trade settled last Thursday at $3.77 per bushel, while March contracts moved five cents higher to $3.90. Meanwhile, cash prices in Kansas City, MO, moved higher to trade in a range of $3.67-3.69 per bushel. The CME cash feeder cattle index was steady to a few cents lower at $100.04 despite the rise in corn prices.
One unexpected side effect of the sharp decline in the feeder cattle market this fall has been the canceling of some cattle sold in late summer and fall. There have been some reports of canceled deliveries of forward contracted cattle. Although the reports are scattered, it seems that the high prices paid earlier in the year, before prices began the slide, are too much for some buyers to stomach.
Along the West Coast, feeder cattle prices continue to soften slightly as a result of high freight costs and the rise in feed prices that have affected everyone this year. In Vale, OR, last week, demand was slightly better than during the prior week, particularly for cattle in the 300-500 lb. range. Prices on the heavier calves and yearlings on offer were under pressure as a result of sluggish demand on cattle that will finish earlier. Steers in the 400-500 lb. class sold in a range of $111-124, while their heifer mates brought $99-110. Steers in the 500-600 lb. range sold from $96-108 while the same weight heifers brought $87-96. Farther to the north, despite a string of bad weather, in Davenport, WA, feeder cattle traded $4 higher on active trade with good demand.
In the northern Plains, where the fall runs are mostly finished and cold weather prevailed last week, trends were difficult to determine as a result of light offerings and a lack of sales the prior week. However, in areas where enough cattle were offered to call a trend, it was mostly lower. For example, in Mandan, ND, feeder steers over 500 lbs. were $2-4 lower and feeder heifers over 500 lbs. were steady to $1 higher. Feeder steers and heifers under 500 lbs. were not well tested Buyer demand was reportedly good on all classes of cattle.
In Sioux Falls, SD, compared to the sale two weeks prior, feeder steers were mostly steady, except 500-550 lb. cattle which were $3 lower. Feeder heifers under 950 lbs. sold steady to $2 higher on a light test. There was reportedly good sale attendance with good buyer demand on all classes.
In Ericson, NE, last week, feeder calves under 600 lbs. trended $3-5 higher, with weights over 600 lbs. trading steady to $3 higher. No trend was called on a short string of yearlings, but very good demand was noted. Cattle quality was called good, with very good buyer demand.
In Joplin, MO, steers under 700 lbs. were called steady to $3 lower, while those over 700 lbs. were steady to $2 higher compared to a light test the previous week. Heifers under 600 lbs. were $3-5 lower and those over 600 lbs. were steady on light to moderate demand for calves on offer and moderate to good demand for yearlings.
In Oklahoma City, OK, compared to the prior week, feeder cattle and calves were called firm to $2 higher, except for steer calves in the 500-700 lb. class which were $1-2 lower. Demand was called good for all classes except moderate for heavy, fleshy calves and quality was reported to be mostly average.
At the auction market in Abilene, TX, last week, feeder steers under 500 lbs. were $1-2 higher and those over 500 lbs. were called $2-4 lower. Feeder heifers under 500 lbs. sold steady to $3 higher, while those over 500 lbs. were $1-2 higher.