Cash prices expected steady to slightly lower for the week

Markets
Dec 12, 2008
by WLJ

Cash prices expected steady

Live cattle trade was slow to start last week as packers ratchet down harvest levels in an effort to regain positive margins going into year end. For the week, market analysts were predicting steady to slightly lower trade in the $85-87 range for live cattle and $134-136 for dressed cattle. Only light trade had been reported at mid-day last Thursday in Nebraska at $84.50 live basis and $135 dressed. Previous week trade came in a range of $86-87 in the southern Plains and from $84-86 in the northern Plains and Corn Belt. Dressed sales sold from $135 to $139.

Packer losses were estimated by HedgersEdge.com last week at $60.70 per head as a result of the falling cutout prices, which are suffering from declining demand in domestic and export markets. It appears that much of the business for holiday needs has been completed and middle meat prices have started to erode as a result. That action has weighed on cutout prices, which may continue to decline into early 2009 from current levels. Last Thursday, the Choice cutout stood at $142.97 in morning trade, down $1.16 from the previous day. Select prices were down slightly to $133.39 with light trade and moderate to heavy offerings noted by market analysts.

A free-fall in the offal values was also cutting into packer profitability. Over the past several weeks, offal values have traded sharply lower as foreign buyers fall victim to economic conditions. The drop value last Wednesday was at $6 per cwt., down more than $5 since the peak in early October.

Cow beef cutout values last week were also declining slightly, although prices had more support as a result of good domestic demand levels. Consumers continue to trade down for their protein needs and the result has been continued good demand for cow beef in the sector. Although off their fall highs, the 90 percent lean were trading just below last year’s level at $120.17. The 50 percent trim price was well above last year’s price of $40.80 at $67.19, while the cow beef cutout stood at $98.05, still strong despite this fall’s heavy cow herd liquidation.

That level could begin to slide lower in January as the most recent round of dairy buyouts begins. Last week, Cooperatives Working Together (CWT) announced the completion of the latest round of bidding for dairy herd retirements. The second liquidation of the year will send just over 61,000 head of dairy cattle to slaughter at the end of January and early February 2009. The result of this CWT initiative could be a drop in cull cow prices early next year as those animals come to market at a time when prices traditionally begin working toward a seasonal peak.

USDA has released the most recent numbers for domestic per-capita production for the first three quarters of 2008 and the numbers are well above previous year levels for beef, pork and poultry, according to Livestock Marketing Information Center (LMIC) analysts. However, they noted that despite the increase in production, per capita consumption was flat this year.

"In fact, both beef and pork per capita consumption at retail was lower than a year ago over the eight-month period mostly due to larger exports, below year ago imports, as well as an increase in frozen stocks and the U.S. population," LMIC analysts noted. In 2007, estimated U.S. per capita total red meat and poultry consumption (retail weight basis) was 221.3 pounds per person, a record amount. However, contraction in the hog and poultry industries during the fourth quarter, combined with lower slaughter cattle numbers, suggests total per capita consumption will be down in 2008. Current forecasts for 2008 suggest per capita consumption (retail weight basis) will be about 217.9 pounds per person, the lowest amount since 2001. The year-to-year decline is mostly due to significant adjustments in the fourth quarter by the livestock and poultry industries in response to lower profitability."

Looking ahead, LMIC forecast that further declines are likely in 2009 and 2010 due to a drop in the production levels in breeding herds in the U.S. and Canada.

"Current LMIC forecasts suggest only modest gains in exports relative to 2008 given the uncertainty of the global financial situation. So, the preliminary forecast for total U.S. red meat and poultry per capita consumption in 2009 is 211.6 pounds, a decline of about 6 pounds from 2008 and about 9.5 to 10 pounds less than the record in 2007," analysts noted. "If exports and imports are at current forecasts in 2009 and pullbacks in pork and poultry continue, then total per capita consumption next year and into 2010 will decline to levels not seen in about a dozen years."

Feeder cattle

Corn futures and cash prices have continued to slide lower as concerns over the general state of the economy continue to grip commodity prices, and though feed has become cheaper, feeder cattle prices last week continued their decline.

USDA market reporter Corbitt Wall points out that neither buyers or sellers are sure of the dynamics driving the feeder cattle market right now, and that market uncertainty in tough times almost always means prices trending lower.

"Since Oct. 1, no matter how it is figured, whether it be a steer calf going on wheat, yearling heifer ready to go in the feed yard of steer that has been on feed, the value for that animal has declined $100 to some accounts of over $200 per head. All this equity has disappeared in 60 days and, according to analysts, fundamentals are not driving the train."

Indeed, tight supplies of feeder cattle no longer appear to be enough to drive market prices higher. Wall Street’s woes and pessimism over the economy, along with declining beef consumption, are now dragging the feeder cattle market along with the depressed live cattle prices.

"First, feeder cattle prices are plummeting due to limited demand from feedlots and, in our view, some excess inventory on grass, created by the decline in placements during the past three months," noted Chicago Mercantile Exchange (CME) analysts Len Steiner and Steve Meyer. "Without front cattle futures sharply lower compared to fall levels, feedlot breakevens continue to move lower and prices for feeder cattle are following suit."

The pair also explained that while it is unusual for feeder prices to move lower even when feed costs are coming down, it’s unlikely relief from the trend will be seen unless beef demand, and in turn the confidence of cattle buyers, improves.

"It is interesting that feeder prices are declining to this degree at a time when feed prices are also moving lower," they wrote. "At this point, the feeder market is mostly being driven by live cattle values (a function for the moment of the deteriorating economy) rather than by feed costs."

Last week’s sale at the Oklahoma National Stockyards in Oklahoma City, OK, saw receipts of 14,325 head. Feeder cattle were mostly $1-3 lower, with some afternoon steer sales improving steady to $1 lower. Steer and heifer calves were $4-5 lower. Demand was good for feeders and moderate for calves. Area wheat pastures are in desperate need of rain and not expected to produce much grazing, making few places to go with calves. The market continued to see heavy runs of fall calves plus more than normal numbers of yearlings, some coming in from out of state.

The Joplin Regional Stockyards near Joplin, MO, reported receipts of 9,200 head last week where steer and heifer calves were $4-8 lower. Yearlings moved $2-4 lower. Demand was moderate to light for the heavy supply. Calf and yearling trade improved from the sale opening as live and feeder cattle contracts traded higher on CME.

Receipts of 2,443 head were reported last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where steers from 300-650 lbs. were $2-4 lower and 650-1,000 lb. steers were steady. Heifers from 300-650 lbs. dropped $1-3 lower, with weights over 650 lbs. steady in a very limited test.

A total of 2,100 head were offered for sale last week at the Lexington Livestock Market in Lexington, NE. Compared to the previous sale, steer calves under 600 lbs. sold steady to $2 lower, while feeder steers over 600 lbs. sold mostly $2-6 lower with the biggest decline coming on the 600-700 lb. steers. Feeder heifers weighing 400-600 lbs. sold steady to firm, with 600-700 lb. heifers selling steady to lower on a light test. Heifers weighing over 700 lbs. were not well tested on light numbers.

The La Junta Livestock Commission Company in La Junta, CO, reported receipts of 2,514 head last week where steer calves under 450 lbs. were steady, with weights over 450 lbs. $3-5 lower. Heifer calves were steady to $3 higher, with the advance coming on those weighing under 500 lbs. Yearling feeder steers and heifers were scarce.

Last week’s sale at the Riverton Livestock Auction in Riverton, WY, offered 1,807 head for sale where compared to the previous sale, feeder steers and heifers were unevenly steady. Demand was moderate.

Some 5,198 head were received for sale last week at the Miles City Livestock Commission in Miles City, MT, where steer calves sold steady to $2 higher. Heifer calves were mostly $1-3 higher. A light test of yearlings was not enough to develop a trend. Overall demand was moderate with active trade. — WLJ

 

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to slightly lower for the week

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