Contract market drop pulls cash prices lower
Sales of fed cattle got off to an early start last week after a midweek slide in futures markets offered incentives for feedlots to sell cattle before additional declines hit the market. Cattle were trading in light numbers in Texas at $85 live basis and at $134 dressed in the Corn Belt on Thursday. Nebraska trade was recorded at $136 dressed, prices that were $1-2 lower than the previous week.
A round of profit-taking on the Chicago Mercantile Exchange (CME) pushed contract prices sharply lower on Wednesday last week with near-limit lower prices at the close. Another round of selling Wednesday pushed February live cattle contracts below the $84 mark and violated technical resistance levels. At midday, February contracts were down 215 points, trading at $83.62 while April was off 185 points at $87.10 and June was down 100 points at $85.45.
Vetterkind Cattle Brokerage analyst Troy Vetterkind attributed some of the decline to a slip in the boxed beef markets, but much of the lower action was the result of technical positioning ahead of the "Goldman roll," he said last week.
"Live and feeder cattle futures settled with sharp losses (Wednesday) on some continued long profit taking after the recent rally in prices. There were also some concerns in the market that if packers are going to get serious about cutting kills into early next week, that the cash fed cattle market would not live up to early week expectations," he said. "I think another factor in the sell off was positioning ahead of the "Goldman Roll" and this index fund rebalancing, which is supposed to begin (Thursday)."
He said it would be difficult to spark much improvement in the contract trade until the fund trading was complete, however, he pointed out that it would also create some buying opportunities on the breaks in price.
"Such a break in the futures market would be a buying opportunity, in my opinion, as fundamentals of the cattle market would point to higher prices by spring. It will be interesting to see how the market handles some of this money movement over the course of the next couple of days," said Vetterkind. "I would be prepared to take advantage of extreme moves in the market should they occur. Support numbers that I have for the rest of the week are February live, $85 and below that $83, April live, $88.80 and below that $87."
The boxed beef markets were lower last week as competing meats, which continue to fall in price, pressured sales of beef at the wholesale and retail levels. Packers have been trimming slaughter volumes both to boost cutout values and as a function of the short supply of cattle in the country right now. The market fundamentals in terms of supply remain very positive. However, demand from the consumer is hurting the ability to improve pricing at all. Choice boxed beef values were down slightly last Thursday at $143.46 while Select managed a 17 cent gain to trade at $136.41. Harvest for the week through Thursday stood at just 478,000 head after a 107,000 head production day last Wednesday. For the week, the numbers were well above the previous week, which was interrupted by the New Year’s holiday, but 12,000 head lower than the same period in 2008. Further production cuts among packers last week and into the following week were expected to help support cutout prices, particularly as demand continues to be stagnant. However, with larger supplies of market-ready fed cattle on tap as we move into spring, packers aren’t likely to be able to continue to use production cuts as a crutch for propping up prices for long.
As the new year gets on a roll, so too has the feeder cattle market which has seen good buyer activity and demand for most classes of cattle. A pessimistic futures market was not enough to dampen buyer moods last week, as auction markets around the country reported mostly higher trends on cattle after a hiatus for the holidays.
Market reporters have made note of a strong attention from buyers in the procurement of yearlings, something that analysts expect could lead to an interest in heavy-weaned calves should the shift persist.
Furthermore, analysts expect that reports of a limitation of immediate delivery yearlings is likely to leave a hole in the numbers for at least the next few months. However, as noted by CME analyst Len Steiner, yearlings and heavy calves may not be the only feeder cattle in high demand in the coming months.
Steiner predicts that based on a sharp decrease in Canadian and Mexican feeder cattle imports, the market for domestic feeders could continue trending up for quite some time. Mandatory Country-of-Origin Labeling (COOL) is largely to blame for the significant drop in feeder cattle imports, he says, and without a change in MCOOL, the trend will be towards feeders being in short supply.
Steiner noted reductions in imports of slaughter Canadian steers which were 35 percent lower than a year ago, and imports of Mexican feeder cattle which were 39 percent lower than year ago levels.
"Ironically, the reductions in imports from both countries came at a time when a significant devaluation in the value of the peso and Canadian dollar normally would have been conducive of increased imports from these two countries," he said. "Under normal circumstances, one would expect cattle imports to actually increase rather than be cut by almost 40 percent."
Steiner points to a graphical representation of import declines and places most of the burden on MCOOL, though it’s not been an overnight switch.
"One thing to keep in mind when looking at the data is not just the date when MCOOL went into effect (Sept. 30), but also the provision in the last farm bill that all cattle imported in the U.S. before July 15 would be considered of U.S. origin while those imported after that date would be considered of foreign origin," he notes.
Last week’s trade at the Oklahoma National Stockyards in Oklahoma City, OK, saw receipts of 8,796 head where compared to the last sale, feeder cattle moved $4-7 higher, with calves going $5-10 higher. Demand was very good for all classes. Buyers were active and aggressive for numbers, especially for grazing cattle. Cattle quality was mostly attractive with most consignments being No. 1 native or northern-bred cattle. Very few new crop, unweaned calves were in the mix.
The Joplin Regional Stockyards near Joplin, MO, received 8,344 head for sale last week where compared to the last good market test on Dec. 15, steers under 650 lbs. and heifers under 700 lbs. moved $6-12 higher. Heavier weights moved $5-7 higher. Demand was good for the heavy supply. The bulk of the cattle were in medium to thin flesh. Weather on sale day was good for gathering and transporting cattle, and buyers were looking to fill orders in the first sale of the new year.
Some 3,969 head were received for sale last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where compared to the previous week, 300-750 lb. steers and heifers were steady to $4 higher. Steers from 750-950 lbs. and heifers from 750-850 lbs. were steady to $3 higher. Heifers weighing 850-925 lbs. were steady to $2 lower.
A good advance was seen on feeder cattle last week at the Bassett Livestock Auction in Bassett, NE, where 1,450 head were available for sale. Compared to the previous sale, 500-weight steers advanced $5 or more, with 600 lb. steers reaching $10 higher.
The La Junta Livestock Commission Co. in La Junta, CO, reported receipts of 1,699 head last week where compared to the most recent sale, steer calves were $5-8 higher. Heifer calves sold $3-5 higher except for weights from 400-500 lbs. which moved $10 higher. Yearling feeder steers were $3-5 higher, while yearling feeder steers were only lightly tested.
Last week’s sale at the Miles City Livestock Commission Co. in Miles City, MT, reported offerings of 2,455 head, though no trend was offered due to no recent sales. A higher undertone was noted on all classes for the first sale of the year. Feeder cattle offerings consisted of mostly weaned steers and heifers with preconditioning shots. Demand was good to very good for all classes with very active buyer participation.