Fed cattle steady, boxed beef higher

Livestock Markets
Jan 16, 2009
by WLJ

Fed cattle steady, boxed beef higher

Cash trade in the fed cattle markets last Thursday remained slow, although some business had been completed in Colorado at $83.50, steady to 50 cents higher than the previous week. Nebraska and Corn Belt dressed trade was also underway at mostly steady prices despite light to moderate demand from packer buyers. Southern Plains trade was inactive at midday with feedlots holding out for higher money with asking prices reported at $86-87. Some market analysts remained optimistic that some higher trade was likely in order for the week given the improved processing margins, surging cutout prices, and jump in the drop value last week.

The beef cutout values last Thursday showed signs that they may be nearing a top, but it was enough to allow packer margins to regain positive territory after five weeks of lower kill levels. Choice boxed beef rose 82 cents during Thursday morning’s session to trade at $150.72 while Select gained 72 cents to trade at $143.53 although volume was light with just 134 fab loads trading. Packer margins were estimated at $44.75 per head, the best levels seen since early December.

Despite the price pressures in the economy, packers have apparently managed to work their way through the situation with better results than those of the prior year. Some industry earnings reports were released last week and two major packers reported better results than just a year earlier.

National Beef Packing Co. said last Tuesday that higher beef prices helped the company narrow its first-quarter profit loss. National stated that the company lost just $3.2 million in net profits during its first fiscal quarter ended Nov. 29. Although the company’s earnings remained in the red, the performance was better than the $13.7 million loss in the same period a year earlier. National said its sales increased 2.2 percent to $1.43 billion, which the company said was the result of a 6 percent increase in the average sales price per head of cattle while the average volume of cattle processed fell by about 3.1 percent.

Cargill, which doesn’t report earnings for individual segments of its business due to its status as a private company, said last week earnings for the second quarter surged 25 percent, mostly due to the sale of its stake in fertilizer concern Mosaic. The commodities-processing giant said it earned $1.19 billion during the quarter ended Nov. 30, up from $954 million for the same year-ago period. The company did acknowledge its earnings would have been lower if not for the sale.

"We don’t expect our company to be spared the difficulties that come with a worsening economic environment," said Lisa Clemens, Cargill director of investor relations.

The worsening economic environment was evident in other earnings reports being issued last week, particularly those with ties to the high-end restaurant trade. Those restaurants account for a significant portion of the sales of middle meats, which have been hit hardest in recent sales. Middle meats account for as much as 30 percent of the carcass value and a drop in restaurant sales hits the beef cutout hard. Some restaurant chains last week reported a decline in sales near 20 percent in the fourth quarter of 2008, and many lowered expectations for a recovery in the first half of 2009.

Until demand improves, increases in cutout price and, subsequently, fed cattle prices will be difficult to achieve or sustain, analysts pointed out last week. However, the contract trade did show signs of improvement last week as traders looked past the current situation to focus on the oversold status of live cattle contracts. Combined with the improvement in boxed beef last week and the steady to slightly higher cash trade, contracts were solidly higher at midday last Thursday with the up-front months providing the best gains. February added 85 points to reach $84.20 while April gained 82 points to trade at $87.65 and June added 40 points, trading at $86.10 just before the closing bell.

Feeder cattle

A limit in the number of marketable cattle should see price increases in the cash feeder cattle trade, said some analysts last week, who pointed out that some optimism in the spring cash fed cattle markets could also spur some increases in feeder cattle prices.

The economy, as always, will play a role in this, as packers and the industry at large continue to have concerns over slumping demand. Consumers continue to trade down the protein ladder, choosing chicken or pork over beef. The initial fall in stock prices in Wall Street were certainly seen in board prices for fed and feeder cattle which, in turn, reflected negatively on the cash feeder cattle trade.

Since then, however, a nice rebound has been seen, though analysts say it’s anybody’s guess whether the feeder cattle market will hold its position. Buyer demand is keeping pace with the supply of feeder cattle for immediate delivery, with prices generally steady for most classes of available cattle.

A drop in the number of feeders coming to market is expected to be seen sometime soon, however, that may spur buyer competition over limited numbers. The bulge in numbers seen during early January was likely related to a lack of available pasture, along with producers who held their calf crop for later marketing, say some analysts.

Those ranchers who held their calves in an attempt to ride out the market slump were mostly rewarded with higher prices for heavier weights, despite the market slump. Cattle feeders have generally demanded larger cattle and prefer the heavier placement weights.

This seasonally-heavy run of feeders in early January is likely to taper off, say some experts, until early March when most cattle on wheat pasture will be kicked off and sold.

Dillon Feuz, an economics professor at Utah State University, has compiled data that shows 2009 is likely to be as rough for cattle feeders as 2008 was, though he doesn’t anticipate any drop in demand for bunk-ready cattle. Feed yards choosing to keep their pens full will likely find significant competition from other buyers, possibly moving cattle prices higher as a result.

"The reality of the feeding industry is there is an excess capacity relative to the size of the cow herd and available supply of feeders," he explained. "The result is that to obtain sufficient cattle to run the feedlot at an economically optimal capacity, there is bidding pressure for a limited supply of feeders."

Feuz’s estimates show that week-to-week profitability of Nebraska feedlots are likely to follow the same trends as they did in 2008; that is to say, negative returns of nearly $250 per head in some cases.

"It is painful to observe and more painful for those feedlots who have gone or who are going broke, but that is how capacity will come back in line with the available supply," he said. "Given the current environment of volatile feed and cattle prices and the still excess supply of feeding capacity, it is likely that some feedlots will remain unprofitable this year and more will be forced to shut down."

Last week’s sale at the Oklahoma National Stockyards in Oklahoma City, OK, had offerings of 11,783 head, where feeder cattle were steady to $1 lower. Steer and heifer calves were steady to $3 lower, with demand moderate to good for feeders. Demand was moderate for stockers as conditions in the area remained very dry. Many cattle were carrying ample fill and flesh, with the bulk of the supply being heavy, long-weaned calves and feeders over 750 lbs.

There were 10,500 head received last week at the Joplin Regional Stockyards near Joplin, MO, where steers and heifers were steady following the previous week’s sharp upturn. Demand was moderate to good for the heavy supply. The bulk of the cattle were in medium to thin flesh, with a few fleshy offerings. The cool, dry weather in the area was beneficial for gathering and transporting stock.

The Winter Livestock Feeder Cattle Auction in Dodge City, KS, reported receipts of 5,974 head last week, where steers from 350-700 lbs. went $1-2 higher. Steers from 700-1,000 lbs. sold $1-4 lower, with the bulk going $1-3 lower. Heifers from 400-500 lbs. sold $2-3 lower, with weights from 500-750 going steady to $2 higher and those weighing 750-900 lbs. steady to $1 lower.

Steer calves were steady to $1 higher last week at the La Junta Livestock Commission Co. in La Junta, CO, where 4,344 head were offered for sale. Compared to the previous sale, heifer calves were steady to $2 lower, with the decline coming on those weighing over 550 lbs. Yearling feeder steers were steady to $2 higher, with the advance coming on those weighing 800-900 lbs. Yearling feeder heifers were called $2 higher.

Last week’s sale at the Riverton Livestock Auction in Riverton, WY, reported receipts of 1,620 head. Compared to the previous Tuesday, feeder steers were steady with instances of $1-2 higher, with the most advance coming on 650-670 lb. calves which were $7-8 higher. Feeder heifers under 500 lbs. were steady with instances of $2-6 higher. Heifers weighing 500-650 lbs. dropped $2-3 lower, while weights over 650 lbs. sold $2-3 higher. Demand was moderate to good.

The Miles City Livestock Commission in Miles City, MT, offered 3,784 head for sale last week where steer calves under 550 lbs. sold mostly steady. Offerings over 550 lbs. sold mostly steady to $3 higher. Heifer calves under 500 lbs. sold $5-8 higher, with offerings over 500 lbs. selling $2-5 higher. Demand was good for both stocker and feeder cattle with the most interest coming on cattle suitable for turnout on grass. — WLJ