Cash trade picks up despite short market week

Dec 30, 2008
by WLJ

Cash fed cattle trade started last week off light, but as the holiday break approached and packers began offering $135 on a dressed basis, trading picked up rapidly. Selling interest for the dressed deals significantly outstripped that of the live cattle, as the few deals done in the south early last week hovered in the $84-85 range. Packers were expected to offer $85-86 in late trading to cover short-term needs.

Asking prices on Wednesday were around $87-88 in the south and $136-plus in the north. Beef cutouts were expected to be higher in light movement. Cattle futures were moderately higher near midmorning, boosted by short covering and stronger feedlot business. December live cattle were trading 145 points higher at $87.10, while February contracts had picked up 110 points and were trading at $88.05.

Feedlot dressed sales in the north where there was significant trade volume was generally $3 higher than last week and along with significant price moves in hide and offal values, served as a possible signal to some analysts that the market may have reached a temporary bottom. Others point out that because of limited volume, it’s tough to count on such price swings as good market indicators, and that it may represent only a short term bounce.

Certainly, boxed beef trade has shown that greater economic woes continue to put a damper on any rally in prices. Higher sales seem generally unsustainable for more than two or three days, and the Choice-Select cutout continues to narrow.

Troy Vetterkind of Vetterkind Cattle Brokerage also points out that there are more factors than just the holiday-shortened week for the limited marketings, something he thinks will be supportive of prices for the few trades that do happen.

"The Nebraska showlist is said to be down close to 20,000 head as cattle are kept off the market to recover from last week’s winter weather. Cash fed cattle markets should be supported this week on reduced numbers for sale and a little better tone to the beef market, despite the fact we will have a short kill week," he explained.

It was estimated that packers were hoping for a slaughter total of about 495,000 head, and the production cutbacks were said to be supportive of the market. Vetterkind said that buying interest from packers will likely increase early this week as they work to fill orders ahead of the New Year.

"I think packers will have some beef orders to fill when we get back from the holidays, which is going to keep some support under the market. I would expect to see some strength after the holidays as well."

While short-term processing interruptions may have the effect of creating a slight boost in prices, the situation remains dire for the beef industry if the economy doesn’t begin turning around. Chicago Mercantile Exchange (CME) analyst Len Steiner notes that restaurant sales continue to drop alongside the faltering demand for pricey muscle cuts, something that needs to be reversed if cattle prices are to post a sustained increase.

"It is difficult to predict when restaurant business will turn around, especially given the general consensus that the unemployment rate will continue to climb in 2009. The U.S. Bureau of Economic Analysis released its final update for Q3 GDP, showing consumption for the quarter declined a whopping 3.8 percent, the biggest quarterly decline since the early 1980s," noted Steiner. "U.S. consumers are in no mood to spend money and this will remain a concern for the restaurant business in general, especially concepts such as family, casual and family dining. Bottom line is that the meat industry needs a robust and growing restaurant industry in order to sustain higher price levels in 2009."

Feeder cattle

Most auction markets were dark last week as they prepared for the Christmas break. A few markets which hold their sales on either Monday or Tuesday were active, however, and sales at those markets appeared to show another uptick in the market.

Feeder cattle prices had been steadily dropping for several weeks, but a slight shift began to occur two weeks ago as prices slowly began crawling back upward. DTN Analyst Walt Hackney reported good demand for winter-ready cattle at those auctions which were active.

"A few late bloomers were showing up last week and some auctions scheduled a fairly significant run of calves that are native northerns with all their shots, boosters included, with a large percentage being weaned," Hackney said, pointing out that marketings will likely increase to make up for lost time once normal trading resumes. "There will be the usual New Year’s special ads put out for early ’09 auctions and larger runs can be expected by mid-January forward into the first quarter."

Hackney pointed out that the continuing downward trend for placements points to an overall tightening of the feeder cattle supply, which should be mildly supportive of feeder prices in 2009.

"The recent Cattle On Feed report gave cattlemen a reason to feel more optimistic about feedlot cash markets as we progress into the second quarter and more interest is expected on feeder cattle at the same time. Availability appears to be the challenge for buyers in most of ’09 and demand for feeder cattle should reflect increased competition," he said.

USDA Market Reporter Corbitt Wall explained that the majority of the feeders currently being marketed have all been weaned and are straightened out, allowing buyers to be much less picky when attending sales.

"This time of year, feeder cattle are actually feeder calves as the more aged yearlings have mostly been sold. Buyers have become much less particular on the heavier weight calves as the majority have now been weaned several weeks and cold weather has cut down on airborne illnesses."

Wall said that demand has also increased for lightweight calves now that corn prices have dropped and many corn farmers in the Midwest are looking to get back into the cattle feeding business.

"Lighter weight calves (under 600 lbs) shared the higher price trends as farmers have now parked their implements and are ready to dry winter some calves on hay stockpiles to have stocker cattle ready for spring grass," he said. "But, calf outlets are tightening in the southern Plains as wheat pastures are very dry and in desperate need of a heavy blanket of wet snow."

Although general economic woes are impacting the feeder cattle market, Wall says that the recent upward turn in prices has given some analysts reason to believe that market forces may drive feeder prices up in the new year despite the economy.

"Attitudes were generally brighter as to the future of the cattle markets and a larger percentage of prognosticators feel that we may have seen the bottom and are in for higher prices after the first of the year," he said, while pointing out the myriad factors currently putting pressure on feeder prices. "The feeder market has sound fundamentals, but has seemed to find pressure from fed cattle, the economy, the stock market, and maybe even the price of tea in China."

The Woodward Livestock Market in Woodward, OK, saw receipts of 3,370 head last week, the last sale until Jan. 9. Feeder steers were $1-2 higher, with feeder heifers steady to $1 higher. Steer calves were $2-4 higher while heifer calves were $1 higher. Demand was good for all classes which showed up with average-to-full fill.

Last week’s sale at the Tri-State Livestock Auction in McCook, NE, saw receipts of 650 head, too few to establish a market trend. Demand was moderate, as was trade activity.

Receipts of 444 head were reported last week at Winter Livestock Inc. in La Junta, CO, where steer and heifer calves were mostly steady in the seasonally-light test. — WLJ