Holiday beef demand is beginning to pick up

Cattle Market & Farm Reports, Editorials
Dec 20, 2007
by WLJ
December 10, 2007

Some light cash trade was underway by mid-day last Thursday at $145-147 in Nebraska, however most other areas were quiet, with the majority of trade expected to occur on Friday. Analysts expected a steady to weak trend last week. Prior week trade came in at $95-95.50 in the southern Plains. Live sales in Nebraska and Colorado sold from $95-96 and dressed sales ranged from $150-151. Live sales in Iowa/Minnesota sold from $94-95 with dressed sales from $148-150.


Packers werte working off available supplies of contract and formula cattle and slaughter volume early in the week was indicative of a healthy supply of cattle available. Week-to-date total harvest through last Thursday was pegged at 520,000 head, compared to 505,000 for the same period a week earlier and 502,000 for the same period in 2006. The heavy slaughter volume indicates that the packer battle for market share, despite heavy losses for much of the year, continues. Packer losses last week were estimated at $56.25 per head by HedgersEdge.com. Without positive margins in pork and poultry production, packers would likely be in far greater trouble than they are. Current packer margins in the pork industry were estimated at $8.60 per head by HedgersEdge.com.


Analysts at the Livestock Marketing Information Center (LMIC) said that pork margins are at their best in six years. That profitability comes despite heavy production levels indicating very good demand for the product.

“Very strong byproduct prices and surging numbers of slaughter-ready hogs have bolstered pork packer gross margins. The live-to-cutout price spread is the difference between the purchase price of a hog and the value of the wholesale meat cuts plus the by-product value. On a monthly basis, the pork live-to-cutout price spread was estimated at nearly $21 per hog in November, the largest since December 2001,” LMIC analysts said last week in a release.


The volume of pork and poultry production remains a concern for beef producers simply due to the fact that competing lower-priced proteins keeps a lid on beef sales at the retail level and reduces consumer willingness to pay up to purchase beef. Seasonal demand for rib and loin products helped to support the boxed beef market last week, however, end meats traded lower for much of the week and pulled cutout prices down with them. The Choice cutout at mid-day last Thursday was down another 40 cents to trade at $147.81, while Select moved 93 cents lower to trade at $131.42. Volume at mid-week was heavy with nearly 600 loads moving last Wednesday.


The export market for protein has been a key this year to supporting prices and last week’s export numbers showed the importance of overseas sales to the beef and pork markets in particular. High volumes of both meats are being shipped with an emphasis on trade with Mexico. For the week of Nov. 23-29, beef export volume to Mexico totaled 5,100 metric tons. Shipments to Canada, the next largest customer by volume, accounted for 1,000 metric tons of beef. Advanced sales for delivery in 2008 to Mexico totaled 600 metric tons.


Iowa State University ag economist Shane Ellis said the falling dollar has been a boon for agricultural exports and meat, in particular. As the dollar has weakened over the last eight months, other nations have increasingly used their purchasing power to buy supplies of U.S. farm goods, including beef. He pointed out that U.S. beef exports are up 26 percent over year ago levels. Poultry exports are up 14 percent.


“Growth in meat export volumes has occurred for several reasons. First, foreign markets have growing economies, increasing wealth, and willingness to pay for U.S. food products. Second, the foreign consumer’s opinion of beef safety is improving, which builds consumer preference,” Ellis said. “In the case of poultry, disease has hampered other countries’ ability to produce the product.”


Exports to Asia included just 500 metric tons for Japan and 200 metric tons for Taiwan during the Nov. 23-29 period. The importance of the Asian markets has many asking when they will come back online. Most analysts are expecting trade will resume with South Korea and Japan sometime early in 2008. The best news is that trade is expected to open wider as the two nations loosen standards to allow imports of bone-in beef from older animals.


The cow markets, which have been solid throughout the fall, continued to perform well last week, said Ehedger.com market analyst Troy Vetterkind.


“Boneless beef markets were mostly steady as supply and demand are in balance, although it is said that fed cattle 50’s were becoming available, which has some thinking lower toward the end of the week,” he said. “The beef market should find a little stability toward the end of this week, going into next (week of Dec. 10) now that packers have cleaned up some inventory.”


Vetterkind said the live cattle trading action on the Chicago Mercantile Exchange last week was the result of low volume and concerns about cash direction for the week. He said the technical signals in the market were creating a tough situation for traders.


“The next meaningful support on the charts for December live cattle looks to be around $92.50. Perhaps the fundamentals won’t let us get down there in the near-term, however, the funds are going to be looking to sell cattle on rallies now,” he said. “As I have been mentioning, any near-term strength in the cash markets that gets the futures market to rally needs to be sold from a hedge standpoint going into the first of the year.”


Feeder cattle


Western Video Market and Superior Livestock Auction both held sales last week, with well over 20,000 head sold in both. Western Video reported strong demand for all classes of feeder cattle, with a large majority of deliveries being current, with some January delivery dates. Large runs of feeder cattle were seen at auction markets around the country, causing the recently rising prices to be tempered, even falling into a glut in some markets where weather also played a factor.


USDA Market News Reporter Corbitt Wall explained that there are too many feeder cattle for the current feed situation.


“Being as there is not very much wheat available and many places had a very dry year, there are just way too many calves coming to market, and no place to put them,” said Wall. “There were a few Midwestern and Corn Belt auctions where everything was called $5-10 lower, and that was even being optimistic.”


Wall explained that while demand for calves from farmer-feeders is strong, they are not absorbing enough cattle in the Corn Belt to counter the supply.


“One of the problems with a lot of farmer-feeders in the northern areas is that the only thing they want is big steers,” says Wall. “Further south, where buyers for commercial yards are at the auctions, they look at some of the heifers which are way back in price and will buy them; but to the north, most farmers don’t want any heifers. It’s just dragging the price down.”


“Oklahoma City saw over 13,000 head sell and there weren’t even enough yearling cattle to set a trend,” continued Wall. “It’s pretty easy for most people to make the decision to bring small and unweaned calves to market when they don’t have much competition.”
DTN analyst Walt Hackney explained that high corn and distillers grain prices are also contributing to the softening market.


“Originally, cattle feeders felt that with the all-time record of corn produced this year, the price of corn would settle to more manageable levels. But so far, anyway, corn is seeking higher ground and taking the byproduct with it,” Hackney added.


At the Oklahoma National Stockyards in Oklahoma City last week, there were 13,532 head sold, with larger feeder cattle being lightly tested and selling $1-2 lower. Steer calves were mostly steady, with heifer calves steady to $2 higher. Demand was moderate to good for calves, with the least demand on short-weaned or grain fed fleshy calves. Most morning sales were certified preconditioned calves quoted as value-added. The large run was partially due to the number of program calves and traditional year-end receipts. Steers weighing an average of 735 lbs. sold for $109.86, and heifers of the same type weighing 723 lbs. sold at $102.48.


In Joplin, MO, last week, there were 9,050 head sold, with steers and heifers steady to $3 lower. Demand was moderate, with a heavy supply. The weather was cool and dry, which was ideal for transporting and marketing cattle. Steers of 718 lbs. at this sale went for $106.05, while heifers weighing 724 lbs. sold at $95.21.


To the north in Bassett, NE, last week, there was no trend on the 4,650 head sold, though a firm to higher undertone was noted. The quality of cattle was good to very good, with strong demand for 500-550 weight steers and heifers. A short list of yearlings also received very competitive bidding. A group of 708 lb. steer calves sold at $109.95, while heifer calves weighing 710 lbs. went for $98.


In Dodge City, KS, last week at the Winter Livestock Feeder Cattle Auction, there were 4,013 head sold. Steers between 400-700 lbs. were steady, with weights 750-950 lbs. going $1-3 lower. Heifers at 350-650 lbs. were steady to $2 lower, with other weights not well tested but showing a lower undertone. Steer calves weighing 720 lbs. were good for $105.50, while good heifers weighing 740 lbs. were selling at $103.


Last week in Torrington, WY, a total of 3,550 head were sold with steer calves under 700 lbs. selling steady to $2 lower, with instances of $3 lower. Heifer calves under 600 lbs. were $103 lower. There were not enough comparable sales on yearling steers and heifers for a good price comparison. Demand was moderate to good, with overall quality not nearly as attractive as the week previous. Steers of 725 lbs. sold for $103.50 at this sale, with 725 lb. heifers bringing $99.75.


At the Cattlemen’s Livestock Market in Galt, CA, last week, there was a total of 1,550 head of feeder cattle sold with steers and heifers under 650 lbs. selling $1-3 lower. Feeder steers and heifers over 650 lbs. were $2-4 lower. Feeder steers weighing 600-700 lbs. sold for $97-105, while heifers weighing 600-700 lbs. sold for $85-93.

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