Headwinds batter market

Cattle Market & Farm Reports, Editorials
Dec 9, 2008

Headwinds batter market
Strong basis levels had feedlots selling hedged cattle last Wednesday and Thursday to take advantage of the gap. The result was a $3 drop in live cattle prices from the previous week in the southern Plains, where cattle traded at $87 live. Corn Belt feeders saw an even greater decline with dressed prices falling $4-5, to $135-138 in Iowa, and with light trade reported in Nebraska at that level. Winter weather was making its way into the central and northern Plains last week, although it appeared to have little positive impact on market prices as business got underway before it moved into the area. The implosion in the boxed beef markets and a lack of support in the futures markets weakened feedlot resolve in the face of lower bids. Packer margins fell from strong levels just a few weeks earlier, well into negative territory last week as they struggled to move beef inventory out of cold storage. HedgersEdge.com estimated per-head losses were at negative $42.60 last Thursday. The moderate to heavy offerings of beef were being discounted sharply and still prices failed to find any significant support.

The Choice boxed beef cutout at mid-day last Thursday had fallen $2.30 from the prior day to trade at $146.45, while Select fell 74 cents, to $137.66 with very light movement. The negative retail environment which has suffered at the hands of a faltering economy has consumers paring back their spending ahead of the holidays. In such an environment, it will be difficult to entice much discretionary spending, which will lead to further weakening in the boxed beef prices into next year. Similar problems are spreading overseas and causing cuts in beef exports, however, the news two weeks ago that large South Korean retailers would resume sales of U.S. beef added a positive tone to an otherwise bleak market picture.

Some of that sentiment was leaking into the commodity markets last week and causing further deterioration in prices. On the Chicago Mercantile Exchange (CME), live cattle contracts were trading

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