Fed cattle prices hold the line

Markets
Feb 6, 2009
by WLJ

The downward trend in the boxed beef market was offset by the tight supply of market-ready fed cattle last week. Packers came to the table at midweek offering steady money to prices which were $1 higher than the previous week at $130-131 dressed basis for the early trade last week in Nebraska. Volume was light, but analysts expected much of the week’s trade to be steady in the south to slightly higher in the north when it finally developed in earnest. Previous week sales were in a range of $78-81 live and $130-131 dressed in the north, while in the south, live sales came in at $80-82.

Weakening beef demand continued to take a toll on packer margins as they slashed prices last week to move product. Although packer margins remained positive at midweek last week, there was talk among some in the sector that production levels would be trimmed soon in an effort to boost margins. Early week sales were light last week until Wednesday when the cutout pricing finally reached a level that induced some good clearance, although supplies remained heavy. Last Thursday, Choice boxed beef was lower at midday, trading at $139.64, while Select was down 93 cents at $135.97. Analyst Troy Vetterkind said he expected the declines to continue into the next couple of weeks until retailers see some signs of increased demand with the onset of early spring in at least some parts of the country. Until consumers are enticed to grill by warmer weather, many retail buyers are likely to remain on the sidelines, analysts noted last week.

Production for the week through last Thursday was running ahead of last year’s pace when packers were losing money, but remained behind the prior week’s levels as margins tighten. The week to date total stood at 491,000, down 6,000 from the previous week, but 1,000 ahead of the same period in 2008.

Some of the increase in pricing was attributed to a slight improvement in hide and offal pricing which has slowly been improving since bottoming out at $5/cwt. last month. Since then, prices in the market have regained nearly $2/cwt., which has added significant value to processing margins. However, until export demand, particularly for hides, improves, those prices are likely to remain depressed. Analysts noted that hide demand has been weak as a function of the drop in auto sales over the past year. The result has been a stockpiling of hides until the need for leather improves, a scenario which remains well in the future as automakers’ projections show little likelihood of improvement before the end of the year.

One additional area of weakness which has started to emerge was found in the grind markets last week as supply started to outstrip demand, according to Vetterkind. The result was some steep midweek discounting by sellers to get product moved onto the retail level. The slow down in export volume has left additional supply of chuck and round products to be absorbed by the domestic market. Additionally, the heavy harvest of cull cows in the U.S. has added to the supply of ground beef. The price declines have been slow but steady as consumer demand for lower priced cuts of beef and ground product remains good, however, pricing levels are worth watching, particularly as the dairy buyout begins this spring. Last week, the cow beef cutout stood at $112.48, nearly even with year-earlier prices, while the 90 percent lean was $5 higher than a year ago at $144.23 and the 50 percent trim was $17 higher than the same date in 2008 at $66.47.

For beef producers, fortunately, it appears that any attempt to fund the buyout with bailout funds has been killed. However, the buyout initiative funded by Cooperatives Working Together remains to be completed. That buyout, although significantly smaller than the one discussed two weeks ago, will have some impact on cull cow prices into the spring as those cow herds are liquidated, particularly if economic conditions deteriorate further in the U.S. and abroad.

Feeder cattle

Trading at nearly all auction markets across the country saw feeder cattle prices on the upswing after the effects of last week’s futures market tumbles began to subside. Previously, a full decline was being posted on heavier feeders, while demand for stocker calves also suffered due to drought conditions in the southern Plains.

With large numbers of feeders coming off of wheat earlier in the year than normal, some analysts say they expect buyers will have a particularly hard time finding quality cattle once the run subsides and low receipts begin to dominate markets once again.

USDA Market Reporter Corbitt Wall pointed out that the roller-coaster cattle futures and economic uncertainty are to blame for such wildly-shifting cash feeder cattle prices, a trend he thinks is likely to continue.

"The opening month of 2009 was a continuation of the volatility that has become the norm in the feeder cattle market arena. The first full week of marketing saw prices surge to double digit gains on cash feeder prices with buyers responding to ideas of tight numbers both in the feedlot and available for placement," he noted.

Though trading remained fairly active in many areas due to tight supplies of feeder cattle, University of Nebraska-Lincoln ag economist Darrell Mark agreed that slumping beef demand and fed cattle trade will continue to have a greater impact on the feeder cattle market than most anything.

"The big challenge for the cattle and beef markets will be on the demand side as the U.S. and global economic worries and recession continue," Mark said.

Indeed, some analysts believe that supply and demand cattle market principles may be taking a backseat to fluctuating economic news.

"Very little can change the fact that our replacement numbers will be in tighter hands this spring, summer and fall, and the markets will hinge on the attitude toward the economy rather than the old supply and demand for feeders," wrote one DTN analyst.

Last week’s sale at the Oklahoma National Stockyards in Oklahoma City, OK, saw offerings of 9,344 head where feeder cattle were steady to $2 higher. Stocker cattle and calves were $2-4 higher, with demand for the feeder cattle supported by sharply higher futures. Trading was active, and calf demand improved after some moisture was received across much of the region. Receipts included large numbers of heavy feeder cattle as well as heavy, long-weaned calves for this time of year, most of which are coming off of wheat. These larger runs are prompting some to believe that many March cattle are already making their way to the sale.

The Joplin Regional Stockyards near Joplin, MO, reported receipts of 3,944 head last week where steers under 700 lbs. were $2-4 higher. Heifers under 500 lbs. were $5-10 higher, weights of 500-700 lbs. $2-5 higher, and steers and heifers over 700 lbs. steady to $2 higher. Demand was moderate to good for the moderate supply. Higher cattle futures, cooperative weather and lower corn contracts all had the effect of providing a boost to the calf and yearling market on sale day.

There were 5,291 head received last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where compared with the previous week’s light test, steers and heifer from 400-700 lbs. were $1-4 higher. Steers from 700-950 lbs. moved $2-4 higher and heifers of the same weight went $1-3 higher.

Demand was good and trading active on all weights last week at the Tri-State Livestock Auction in McCook, NE. Receipts totaled 2,300 head and attendants saw steers and heifers trade steady to $3 higher.

Last week’s sale at the La Junta Livestock Commission Co. in La Junta, CO, had reported receipts totaling 3,051 head where steer calves were $1-2 higher with instances of $3 higher on weights of 550-600 lbs. Heifer calves sold $2-4 higher. Yearling feeder steers moved $3-5 higher, with yearling feeder heifers steady in a light test.

The Miles City Livestock Commission in Miles City, MT, reported receipts of 3,058 head last week where feeder and stocker steers and heifers sold mostly $1-2 higher, moving up to $5 higher for steers and heifers weighing less than 500 lbs. Buyer attendance was good with good demand and active trade.

A total of 625 head were received for sale last week at the Stockland Livestock Auction in Davenport, WA, where trade was active and demand was good, though there were not enough feeder cattle to establish an accurate trend.

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