Fed cattle trade steady, cow prices improving

Markets
Jan 2, 2009
by WLJ

Most fed cattle trade appeared to be set for a Friday event last week as the New Year holiday interrupted the week’s business. There were a few cattle sold in Nebraska at $135 dressed, although the numbers were not enough to call the week’s trend. Most analysts were predicting steady cash trade at $87-88 live and $136-138 dressed when it finally occurred.

The supply side of the fed cattle markets remains positive for now, with numbers of market-ready fed cattle well below year-ago levels and placements in feedlots sharply lower than 2007, however, the demand side of the market leaves much to be desired. Middle meats continue to find weak demand at the wholesale level and the result means that packers are having to fire-sale beef to get it moved, keeping pressure on beef cutout values. Last Wednesday, the Choice cutout stood at 143.24, down slightly from the previous day while Select was slightly higher at $135.63. Slaughter volume for the week through Wednesday remained light for the third consecutive week. The volume was down, partially due to the holiday-shortened week’s schedule, but also due to the light demand as packers worked to improve margins by reducing production. USDA estimated harvest numbers for the week to date at 300,000 head, down 3,000 from a week earlier and down 2,000 head from the same holiday-shortened week in 2007.

Going forward into 2009, weather is expected to begin playing a role in fed cattle markets in January as winter weather is forecast to take a turn for the worse in the northern feeding regions, according to Vetterkind Cattle Brokerage analyst Troy Vetterkind. That prediction, if it comes to fruition, may serve to help support prices in the region and offset any expected increase in the volume of fed cattle coming ready for slaughter during the month, he noted.

On the Chicago Mercantile Exchange, fed cattle contract trade last week was mixed in light trade. Last Wednesday, the December contract was trading 12 points higher ahead of expiration at $86. Meanwhile, at midday, the rest of the board was trading in the red with February down 35 points at $85.55 and April was leading the way lower, trading down 45 points at $88.95.

Vetterkind noted that the cow beef markets last week were experiencing some good buying activity, particularly for deliveries immediately after the first of the year. The seasonal improvement in beef demand could be underway as consumers come back to the market and look for features after the holidays.

"The beef should continue to find some support from active buying interest in end meats, ground beef, and boneless beef into the first of January," he said.

That buying interest should serve to bolster cow prices for the weeks ahead. Cow beef markets have turned slightly lower over the previous six weeks, however, the seasonal trend through the first quarter should be higher as supplies grow tighter. The dairy herd buyout now underway may serve to temper some of those upward gains, but producers who have been feeding cull cows should benefit from the advance in demand and subsequently higher prices being paid for cows at auction markets.

Feeder cattle

Nearly all auction markets around the country remained closed last week as the holiday season came to an end, though the few sales which were completed showed improvements in the market, similar to the previous week’s market which may have found a bottom.

Until the holidays were concluded, runs were unsettled and markets awaited the chance to level out to more predictable trends with the return of regular cash trade. Case Gable of Cattlefax pointed out that the markets he watches do indeed point to some kind of price bottom having been passed, though he’s not sure how high prices will move in the future.

"It feels to me that we’ve found a bottom a few weeks ago, and it seems like the feeder market is gaining strength," he said. "Also, word from out in the country is that the country direct trade has been a little better as well."

Gable points to a few factors for the recent resurgence in feeder cattle prices, notably strength in board prices and the prospect of better feeding margins.

"Better deferred live cattle futures have definitely helped, and with the price of feed falling substantially, I think a lot of buyers are maybe more interested in putting cattle on feed than what they were a month or two ago," he said.

Although input prices have indeed dropped much lower than just a few months ago, Gable says he’s not sure there’s profit in feeding cattle out now—but at least it’s not a loss.

"I don’t think that you could pay cash for corn, hedge your feeders and then feed cattle out today at a profit. It’s still probably a push, but that’s incentive enough for buyers to want to fill their pens."

Additionally, Gable believes that buyers have become more calm and optimistic in their views of the general economic situation, which has helped restart demand for feeder cattle.

"I think there’s been a change in psychology where people have realized that the world isn’t coming to an end and we’re not going into a major depression. That’s certainly helped get the markets back on track."

Last week’s sale in Kingsville, MO, at the Kingsville Livestock Auction saw steers and heifers from 500-750 lbs. sell $2-11 higher with most of the increase on better quality offerings. Demand was moderate to good for the 1,308 head received for sale.

The Winter Livestock Auction in La Junta, CO, reported receipts of 444 head last week, where feeder steers and heifers were too lightly tested for a comparison, though a strong undertone was noted.

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