Feeder cattle market gains strength

Cattle Market & Farm Reports, Editorials
Dec 9, 2008
Feeder cattle market gains strength

Market (from page 1)

lower at mid-day last Thursday, with December trading down 52 points at $83.30 while February slipped 72 points to trade at $83.35. April was down 60 points, at $85.45, while June slid 55 points.

Competing proteins were also struggling last week as pork prices slipped despite positive fundamentals similar to those facing the beef business. The single exception to that came in the form of ham values, which rose $4.45 per cwt. last Wednesday as wholesale buyers booked hams ahead of the holiday. Retailers are focusing on pork for holiday features because of the relative values offered by the meat and the margins that can be priced in at present levels.

Poultry producers were also facing problems. Pilgrim’s Pride filed for bankruptcy protection last week as the company attempted to deal with the high input costs and a difficult credit environment. The move had been largely anticipated by industry analysts after the company struggled weeks ago to refinance some of its debt. The company said it would continue to operate after it received a commitment for up to $450 million in debtor-in-possession financing arranged by the Bank of Montreal.

“We expect to emerge from this restructuring a stronger, more competitive company that is well positioned for growth and enhanced profitability,” said chief executive Clint Rivers. However, the company, and the industry in general, face stiff headwinds as a result of oversupply and declining demand. In particular, export market demand has put a crimp in the industry’s plans. Last week, Russia, the single largest importer of U.S. poultry, said it would like to cut shipments from U.S. producers by as much as 300,000 metric tons. The news came just ahead of a meeting between U.S. and Russian trade officials to discuss the 2009 quota.

The woes of poultry producers are more quickly corrected by the industry than any of the competing segments of the protein business due to the much shorter production cycle of the birds. Last week, according to USDA production estimates, it appeared that the industry was quickly responding to the market conditions by cutting production. For the week ending Nov. 29, egg sets were down 8 percent at 202.29 million, while the number of chicks placed fell 10 percent to total just 158.75 million.

The slide in placements will help to boost poultry prices, bringing them more in line with beef and pork prices, a move that will help beef producers in early 2009 as beef prices become more competitive between the three meats.

Feeder cattle

Feeder cattle prices were mostly uneven last week as buyers continued to battle with fluctuating futures and generally poor economic news when making their purchasing decisions. Last week’s receipts were on the increase at most auction barns in comparison to the previous week’s run. As the fall calf run continues to gain steam, analysts say that sustained positive economic news is needed to provide the spark in the feeder market that many sellers are looking for. “The feeder cattle industry is on the fence enough, and any financial news, either positive or negative, will drive the attitude of the buyers that way (up or down),” explained DTN Analyst Walt Hackney. “The trade was set to show some real strength after a good close. However, the financial stress from Wall Street last week took some wind out of our sails and we are back to square one, with indecision imbedded in the minds of the buyers, and slow trading.”

Though corn still isn’t cheap, the rapidly free-falling grain markets may not have given many feed yard managers time to readjust their purchasing habits, speculate some analysts.

While November Cattle on Feed data continued to show that placements favored placing heavy yearlings on feed, current market data suggests that returning to a calf-feeding system is much more profitable.

Purchasing a 650 lb. steer calf with the intention to feed them to 1,275 lbs. by late May can result in a projected profit of $65 per head, say University of Nebraska- Lincoln (UNL) economists.

In contrast, placing an 850 lb. steer on feed to finish out at 1,375 lbs. in early April generates a projected profit of $20 per head. “Given the relative feeder and fed cattle price changes and drop in the corn market, we now project calf finishing profits to exceed yearling system profits. As projected corn prices for these two systems have declined since July, projected profit differentials for the calf and yearling systems have changed dramatically,” wrote UNL economists. “Clearly, in the past, the incentive has been to place heavy feeder cattle on feed and background light weight calves and finish them as yearlings. Given the projections above and the rapid drop in corn prices, there may be more incentive now to place calves on feed as opposed to yearlings.”

The Oklahoma National Stockyards received 7,850 head last week where feeder steers and steer calves were steady to $2 lower. Feeder heifers and heifer calves were steady to $2 higher, except 600-700 lbs., which were steady to $1 lower. Demand was moderate for steers. Heifer demand was very uneven, improving as the day progressed and some additional heifer orders became active. The commodity markets were sharply lower on sale day, adding pressure to the feeder market. The price spread remained large between long-weaned calves and fleshy un-weaned calves.

Last week’s sale at the Joplin Regional Stockyards near Joplin, MO, saw receipts of 6,000 head. Compared to the previous week, steers under 650 lbs. were steady, with heifers under 550 lbs. steady to $2 higher. Steers over 650 lbs. and heifers over 550 lbs. were steady to $2 lower.

Demand and supply were both moderate. There were 4,370 head available for sale last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where compared with the previous sale, steers and heifers from 500-1,000 lbs. were steady in a limited test of Medium and Large number 1’s, while the bulk of the trade was weak to $5 lower.

The Bassett Livestock Auction in Bassett, NE, saw 3,300 head offered for sale where feeder calves under 600 lbs. trended $4-6 higher, with weights over 600 lbs. remaining steady.

Prices varied according to weaning status and quite a few consignments were showing some extra fill. No trend was available for yearling weights, but demand was good with a higher undertone.

Last week’s sale at the La Junta Livestock Commission Company in La Junta, CO, saw receipts of 2,821 where steer calves were steady to $2 higher with the advance coming on weights from 500-700 lbs. Heifer calves were steady to $1 higher. Yearling feeder steers and heifers were steady. Demand was good, with most calves being weaned for four to six weeks.— WLJ