Fed cattle trade steady to $1 lower

Markets
Mar 13, 2009
by WLJ

Fed cattle trade was starting to unfold early last week in Nebraska and Colorado at $80-80.50, or 50 cents to $1 lower than the prior week. In the southern Plains, a few dressed cattle were sold at $130 in Texas, while Kansas dressed cattle sales came in at $127 on Wednesday, lower than the previous week. By last Thursday, bids had improved slightly with midday at prices called steady with the prior week. There were reports of some light trade in Texas at $80-81 live basis with better numbers in Nebraska at $130 dressed. Those prices compare to prior week trade at $82 in the south while farther north, dressed cattle brought $130 with live sales at $81.50.

There continues to be concern among analysts about the pace of feedlot marketings. Vetterkind Cattle Brokerage analyst Troy Vetterkind noted that the lower prices paid for cattle earlier in the week were for heavy cattle that had been on the show list for at least a couple of weeks in Nebraska and Colorado. The current carcass weights being recorded by the industry is proof that despite anecdotal evidence to the contrary, feedlot inventory is not very current. Last week, USDA reported carcass weights for the week were 19 pounds heavier than a year prior and 28 pounds heavier than the five-year average. The result is a decline in the number of cattle required by packers to fill their needs. As beef cutout prices stagnate at current levels and packers begin to consider cutting production in an effort to boost prices, the carcass weight problem will be exacerbated. Analysts continue to stress the need for feedlots to remain current in their marketings if there is to be much of a seasonal increase in prices heading into spring and early summer as is currently expected.

The fundamentals of supply for the sector remain very positive and are expected to remain that way near-term, particularly if marketings can be increased. Last week, the Livestock Marketing Information Center (LMIC) released their pre-report cattle on feed estimates. LMIC analysts predict that the number of cattle on feed as of March 1 will come in 5.2 percent below 2008 while placements are expected to be down 2.4 percent from February 2008. However, the demand side of the equation continues to weigh on the marketing number with LMIC analysts predicting a number 5.2 percent below last year’s level, with much of the decline due to one less slaughter day during the month than February 2008.

Beef demand among consumers has been on the decline for several months and it has taken a toll on the marketing rate as evidenced by the drop in feedlot out-movement and the increase in carcass weights. Slaughter volume for the week through last Thursday was estimated at 481,000 head, up 2,000 head from the same period the previous week, but well below the 503,000 head for the same period in 2008.

One area of strength, however, has been in the boxed beef cutout levels which remain relatively steady considering the pullback in consumer and, subsequently, retail demand. Even the sharp drop in restaurant traffic, which accounts for a substantial volume of the Choice boxed beef movement, has not had the impact that market analysts have been expecting. Last week, the Choice cutout stood at $135.98, up 53 cents from the previous afternoon. Select was also higher, gaining 46 cents to trade at $135.34 with movement called light at 162 loads. Despite the lackluster movement, Vetterkind said demand was on the increase last week.

"We saw continued strength in most Choice/Select rib and loin cuts yesterday (March 11), with very good movement noted in Choice boneless ribeyes, bottom sirloins, and (tenderloins)," he explained. "There was continued lower trend in most of the end meat complex, in particular round cuts, where another round of hefty packer discounts were needed to move product The strategy worked though, as we saw active trade volumes of shoulder clods, chuck rolls, and outside rounds ... I will continue to look for a sideways trending beef market for the balance of this week."

Much of the reason for the narrow Choice/Select spread can be attributed to the high volume of Choice grading cattle making their way through the system. Some of that is the result of the additional number of days on feed. That difficulty should work itself through the system quickly if marketings pick up or demand increases.

Feeder cattle

Positive news in the feeder cattle markets is still somewhat hard to come by, although for those selling cattle, the future may be looking just a bit brighter.

As cattle feeders continue to struggle to find enough cattle to fit their mold, demand should continue to increase as the supply of feeder cattle, both on a seasonal and general basis, continues to decline.

Analysts point out that for the cattle feeding side of things, corn prices that are 35 percent lower than last spring should provide some relief, although profits are still elusive. It’s unlikely, however, based on recent survey estimates of planting intentions, that corn prices will take the roller coaster ride seen in 2008, which should provide some relief for feed yard managers.

"Livestock feeders should be able to find some solace in these numbers. With such adequate ending stocks for the current marketing year (at 1.74 billion bushels and 1.72 billion bushels for 2008-09 and 2009-10, respectively), dramatic corn price spikes like those in 2008 are rather unlikely," notes Darrell Mark of the University of Nebraska-Lincoln. "That doesn’t, however, mean that cattle producers shouldn’t be prepared for some moderate price increases at times."

Mark explained that tighter corn growing margins in 2009 could precipitate a drop in acreage. However unlikely this scenario is, just the fear of such a situation could cause corn price rallies in late spring. Further muddying the corn price predictions is the possibility that the full ethanol production mandate may not be reached.

"If that happens, corn prices may move even more favorably for livestock producers," Mark says.

Paying attention to general economic indicators is probably just as important for cattle feeders as keeping an eye on corn reports, says Mark. With the movements of Wall Street seemingly in control of the commodity markets, all bets are off.

"A note of caution is always warranted. Current forecasts of supply and use for corn don’t suggest any major run-ups in corn prices for livestock feeders to deal with. However, corn prices will likely be higher than levels in the early and mid 2000s as well," explained Mark. "Plus, with the general economy seeming to drive the commodity markets recently, things can change quickly."

The Oklahoma National Stockyards in Oklahoma City offered 12,148 head for sale last week where feeder steers were steady to $1 lower, except those weighing 700-800 lbs., which ended $1 higher. Feeder heifers were $1-3 lower. Demand was moderate to good for feeders. Stocker cattle and calves were steady with good demand. Demand for feeder heifers was moderate, with most of the action coming on those guaranteed to be open. Feeder cattle were in medium to fleshy conditions, with average to full weigh-ups.

Last week’s sale at the Joplin Regional Stockyards near Joplin, MO, had 7,209 head available for sale where steers and heifers were steady to $3 lower, except 600 weight steers and 500 weight heifers which were steady to $2 higher. Demand and supply was moderate. Buyers were most competitive for thin grazing cattle, with heavy yearlings and light calves finding fewer outlets.

A total of 5,528 head were received last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where steers and heifers from 300-700 lbs. were steady in a limited supply. Weights from 700-1,000 lbs. dropped $1-4 lower with the full decline coming on fleshy cattle or those carrying excessive fill.

The Bassett Livestock Auction in Bassett, NE, reported receipts of 1,750 head last week where steers and heifers trended steady to $2 lower. Demand and trade activity was moderate to good.

Winter Livestock in La Junta, CO, offered 5,714 head for sale last week where steer and heifer calves sold $5-8 higher. Yearling feeder steers and heifers were steady to $1 higher. Trade was active and demand good, especially for calves suitable for grass.

A total of 2,844 head were received last week at the Riverton Livestock Auction in Riverton, WY, where lower undertones were noted on steer calves under 700 lbs. Calves weighing over 700 lbs. were $2-4 higher, with feeder heifers over 500 lbs. steady to $1-5 higher, with instances of $10 higher on lot loads. Demand was moderate to good for feeder calves.

Last week’s sale at the Toppenish Livestock Auction in Toppenish, WA, offered 1,000 head for sale where feeder cattle were steady to $3 lower due to a lack of buyer attendance. Trade was moderate with light to moderate demand. — WLJ

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