Industry awaits stronger beef demand

Markets
Jan 30, 2009
by WLJ

Seasonally strong beef demand is right around the corner, or at least that’s what the cattle industry—from bottom to top—is hoping for. Analysts expect January’s higher slaughter rates to slow down somewhat in February as packers and retailers try to deal with their current oversupply of middle meats and a decreased availability of fed cattle. Steaks and other pricier cuts have taken a backseat in demand to cheaper sources of protein and consumers continue to carefully watch their spending at the grocery store.

Compounding beef demand woes could be a higher trend in dairy cow beef slaughter, especially as dairy operators liquidate their herds at an alarming rate in an attempt to cope with a glut of milk on the market. Efforts by dairy industry lobbyists to attach a 320,000 head dairy cow herd retirement to the economic stimulus bill circulating through Congress failed, but even without government aid, dairy producers are cutting deep into their herds and putting a sizeable amount of cow beef on the market.

With the culls that many beef producers have been forced to make, some analysts are predicting that the large number of dairy cows coming to market may simply plug a hole created by a waning number of beef cows going to slaughter. With grinding and canning product being in the greatest demand, the hope is that there won’t also be a glut of cow beef on the market during the spring as well.

"Following the collapse of dairy values, U.S. dairy operators have responded by quickly accelerating the pace of dairy cow liquidation. While dairy cow slaughter growth slowed down in September and October, it has quickly shot higher so far this year," notes Chicago Mercantile Exchange (CME) analyst Len Steiner.

"As for beef slaughter, it continues to lag well behind last year’s levels. It remains to be seen whether the current slowdown in beef cow slaughter is sustained going forward," he explained. "The general bias among market watchers is that the U.S. beef cow herd will likely remain in a liquidation mode. However, as the herd gets smaller and smaller, it becomes increasingly difficult to simply cull the less productive animals.

"As some point," Steiner continued, "producers will have to go out of business en masse in order to maintain the pace of liquidation we observed in 2007 and 2008. So far, the increase in dairy cow slaughter has been more than offset by the decrease in beef cow slaughter. As a result, U.S. cow meat supplies are not especially burdensome and this has helped support the market for lean grinding beef."

Bullish talk on beef demand will have to wait at least until warmer weather for grilling, say most analysts, as consumer spending in January in February is generally curtailed as families work to pay off additional credit card debt accrued during the late holiday season.

Slaughter totals were expected to reach 640,000 head last week after good trade was reported in Kansas and Nebraska, though trade wasn’t expected to happen in Texas until Friday at the earliest. Texas feeders were holding firm at $83-84 while Kansas and Nebraska feedlots were selling in the middle of the week at $78-81 live and mostly $130 on a dressed basis.

Beef cutouts were lower at midday Thursday, especially on Choice product which was trading $2.02 lower at $144.21. Select had dipped 61 cents by the middle of the trading day to $140.21 on moderate box movement of 121 loads of Choice cuts and 42 loads of Select cuts.

On CME, late afternoon trading on Thursday saw February and April live cattle contracts both slightly lower as February traded 7 points lower at $81.10 and April 10 points lower at $84.32.

Feeder cattle

Buyers at auction markets around the country were in consensus last week as they all bought feeder cattle at lower prices than during the week previous. Some analysts have begun to wonder whether highly-publicized reports of heavy feeding losses during 2008 started to hamper buyer confidence. Indeed, many weeks during recent months have seen feeder cattle selling to strong demand due to the dwindling supply for which buyers are competing.

Perhaps now this is no longer the case, says DTN’s Walt Hackney, who says that keeping pens full has been taking precedence over making money for too long.

"Industry reports analyzing the condition of the cattle-feeding sector have painted a subjective position that our feedlot industry finds itself in and further suggests that partially, if not totally, the culprit has been the unbridled lust for possession of feeder cattle with little or no regard for the ultimate outcome financially at time of delivery of the finished cattle," he said.

Weather, though not in the form of moisture, is beginning to have a strong influence on the movement of feeder cattle in many major marketing areas, says USDA market reporter Corbitt Wall. Backgrounders who stockpile their grass cattle early in the season are doing so at an accelerated rate during the extremely tight numbers of lightweight calves available this spring, says Wall, who points out that some growers may not have the luxury of available feed come spring.

"Many Midwestern cattle growers have ample stockpiles of hay to hold calves until the green grass arrives, but southern Plains grazers will have to rely on a growing yard ration—which could become permanent if some form of moisture doesn’t arrive soon," he explained. "Drought conditions in Texas, Oklahoma, and Kansas have become severe after one of the best early-fall years in recent memory. Wheat cattle are being moved off dusty pastures and filling vacant area feedlot space or dropped off at local salebarns."

Other analysts have pointed out that while tight supplies should help feeder cattle prices weather the economy to some degree, their attachment to fed cattle prices and the low demand for beef worldwide is likely to keep feeder prices from moving dramatically higher anytime soon.

Last week’s sale at the Oklahoma National Stockyards in Oklahoma City, OK, saw receipts of 8,603 head where feeder steers and heifers were mostly steady to $3 lower. Steer and heifer calves were mostly $2-4 lower. Price levels and trends varied somewhat throughout the day. Demand improved for steers as the day progressed, with many sales coming back to near steady only to fall back to previous levels. Calf demand decreased late in the day as the weather made it difficult to find a home for them. Winter storms moving through the state with temps in the 20s and freezing drizzle made the roads slick and hazardous. This weather produced weighing conditions in cattle that were very favorable to buyers, with weigh-ups being mostly gaunt to average.

The Joplin Regional Stockyards near Joplin, MO, reported receipts of 2,766 head last week where steers under 600 lbs. and heifers under 700 lbs. were $2-4 lower, with steers over 600 lbs. and heifers over 700 lbs. $1-3 lower. Demand was moderate for the light supply. Receipts and buyer attendance were curtailed as a winter storm moved into the area dumping snow and ice.

There were 2,287 head put up for sale last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where compared to the week previous, steers from 650-1,000 lbs. were weak to $2 lower and heifers from 650-800 lbs. were $2-4 lower. Steer and heifers under 650 lbs. were not present in enough numbers for an accurate market trend, though an extremely higher undertone was noted.

Receipts totaled 4,700 head at the Bassett Livestock Auction in Bassett, NE, where price trends last week fluctuated wildly throughout the sale. Weights under 700 lbs. trended $3-4 lower, with the exception of 500 weight grass steers which remained steady. Weaned calves over 700 lbs. took a heavy decline of $5-7. The bulk of the offerings consisted of good quality, one-owner cattle.

The La Junta Livestock Commission Company in La Junta, CO, reported receipts of 2,292 head last week where compared with the previous sale, steer calves under 600 lbs. were steady to $1 lower, while weights over 600 lbs. were $2 lower. Heifer calves were $2-3 lower except for 550-600 lb. heifers which were steady. Yearling feeder steers were $3-5 lower. Yearling feeder heifers were $2-3 lower. Demand was noted as being moderate to good. — WLJ

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