Fed cattle up $1-2

Markets
Mar 20, 2009
by WLJ

The fed cattle market appeared to be gaining again last week ahead of any serious trade volume. Although there was some light trade early, most significant volume looked to be waiting for the end of the week and the cattle on feed report before getting started. Despite the lack of action, the week’s contract trade was decidedly higher, and the weaker cash basis had feedlot managers holding tight to their inventory. The week’s trade was expected $1-2 higher than the prior week at $82 live and $130-132 dressed.

The futures market got a boost last Wednesday from the Federal Reserve’s announcement that it would pour an additional trillion dollars into the bond markets. The action is generally regarded as inflationary, which helped commodity markets. Last Thursday in midday trade, live cattle contracts were up sharply with most contracts posting triple-digit gains during the morning session. April was up $1.35 at $84.90 while June and August added $1.65 to trade at $83.05 and $84.47 respectively. The market trend added to feedlot managers’ expectations for a higher cash market for the week.

Action in the boxed beef markets last week was less inspiring and the continued lack of demand from the consumer level was evident in the lackluster movement for the week, despite the fact that the Choice/Select spread was inverted last Thursday during morning trade, with Select trading 16 cents above Choice product. Choice traded at $133.16, down $1.18 from the previous day’s trade while Select was off 82 cents at $133.32, however, the discounts did little to inspire significant advances in sales of product with only 302 loads of fabricated product and 57 loads of trim and grind product trading hands. Week-to-date slaughter through last Thursday was estimated at 489,000, up 8,000 head from the same period a week earlier but 14,000 lower than the same period last year.

Although demand has taken a toll on boxed beef prices, the volume of Choice grading product has been also been a significant factor in the slippage of prices as well. The mild winter in many portions of the major cattle feeding states this winter coupled with a longer period on feed has led to a record number of Choice grading cattle being harvested. According to the latest USDA data, the percentage of the steer and heifer slaughter mix grading Choice topped 63 percent for the week ending Feb. 28, the highest level for the data set which started in 1997. The heavy volume has helped to push prices lower and the lack of demand to absorb the increased production has helped cause the inverted price spread.

On the other hand, the mild weather during the first three months of the year has help improve feedlot productivity, according to the Kansas State University "Focus on Feedlots" survey. The survey reported significant improvement over the same period in 2008. The average closeout weights for steers and heifers was reportedly above January 2008, largely because average daily gains and feed efficiency both improved as a result of better weather conditions.

"Although costs of gains still remain rather high for current closeouts, looking head, costs of gain for cattle placed this winter have finally started to decline," the survey reported.

According to the report, in "January, the average closeout weight for steers was 1,359 lbs. versus 1,322 lbs. in 2007 and 68 pounds heavier than the 2002-2006 average. Heifers closed out at a record average weight of 1,255 pounds in January, 42 lbs. above last year and 6 percent above the prior five-year average. Of note, placement weights for both steers and heifers were heavier than the year prior, which contributed somewhat to the heavier closeout weights in January."

According to the survey, feedlots reported steers sold in January were on feed an average of 149 days, four days less than 2008, while heifers were on feed an average of 149 days, which was 23 days less than a year ago. Average daily gains were rather impressive in January, with steers posting an average daily gain of 3.62 pounds versus 3.44 pounds per day in 2008. Feedlots reported average daily gain for heifers at 3.38 pounds per day, well above last January’s 2.98 pounds per day. At the same time, the amount of feed needed per pound of gain in January for both steers and heifers was less than 2008’s. Thus, feedlot performance was quite remarkable in January. Of note though, feedlots reported a higher death loss for steers and heifers in January of 2009 compared to a year earlier.

As expected, feedlots reported higher costs of gain in January due to high feedstuff costs. The average cost of gain for steers sold in January was $89.54 per cwt. versus $74.11 per cwt. in 2008, while the cost of gain for heifers at $92.19 per cwt. was nearly $14 per cwt. above a year earlier. When compared to the prior five-year average, the cost of gain this January was more than 50 percent higher for both steers and heifers.

Kansas feedlots reported the average price of corn in mid-February at $4.42 per bushel, 38 cents per bushel lower than in 2008 and the lowest monthly price reported since a year ago. However, hay prices were quoted at $145.61 per ton, over $24 per ton above the prior year price. Looking ahead, those feedstuff costs suggest the feeding cost of gain for steers placed in February is $71.50 per cwt., a cost of gain not seen since late 2007.

Feeder cattle

Supply problems continue to plague the feeder cattle market, although not nearly as bad now as what many analysts expect it will be once the spring run of feeder cattle is over. Many market experts have begun to speculate that the doldrums of summer could be an interesting time for the feeder market as very tight supplies combat what could be a shaky grain market.

Even so, buyers in today’s market run the gamut from those on the sidelines taking a more measured approach, to those who have managed to find a price niche and are working to fill feedlot pens. This according to USDA Market Reporter Corbitt Wall, who says that even as many feeding operations hemorrhage, a short supply-side market has developed that has kept feeder cattle demand steady.

"The red ink that continues to flow out of the feedlot sector has many buyers more cautious on procuring replacement stock, however, some feedlots in the northern Plains are reported as being aggressive at filling pens cattle," said Wall.

In fact, since January of 2008, cattle feeders have lost a staggering $4 billion because of high feed costs. A report released by the Congressional Research Service in September of 2008 shows the dramatic increase in production costs in the past years. According to the report, "the main driver was feed, which may account for 60-70 percent of total livestock production costs in any given year. Overall, total U.S. feed expenses were forecast to reach a record-high $48 billion in 2008, a jump of nearly $10 billion or 26 percent over 2007—a year that was $6.7 billion higher than 2006."

Drought conditions across regions of the western Plains are likely forcing owners of feeder cattle into a bind as they scramble to find a place for their cattle, Wall noted. Some wheat-growing areas to the east and south received moisture recently, but poor wheat grazing has caused most cattle in those areas to be kicked off wheat and sent packing.

"Parts of wheat grazing country received light rain or snow this week, increasing prospects of graze out wheat," explained Wall. "Western Kansas and the panhandle of Texas continue to be dry and cattle that were on wheat intended to be harvested for grain are now either sold already or at least penned up."

A number of analysts have also noted that feeder cattle buyers appear in some cases to be completely ignoring cash fed cattle trade, even as the economy continues to pressure beef prices lower. The limitation of feeder cattle supply has become evident, especially as finding quality cattle becomes an ever greater challenge.

Last week’s sale at the Oklahoma National Stockyards in Oklahoma City, OK, had offerings of 8,968 head where feeder steers and heifers were $1-3 higher. Stockers and calves were $2-4 higher, and demand was good for all classes with active bidding. Recent rains in the area were a welcome sight to producers with dry wheat and pastures, boosting the stocker cattle demand.

The Joplin Regional Stockyards near Joplin, MO, reported receipts of 7,555 head where steers under 650 lbs. moved $2-4 higher. Weights from 650-800 lbs. moved $3-6 higher. Heifers under 550 lbs. were steady to $4 higher, while those weighing from 550-700 lbs. were $2-6 higher. Steers over 800 lbs. and heifers over 700 lbs. were $1-3 higher. Demand was moderate to good for the moderate to heavy supply. The bulk of the cattle at this sale were in medium to thin flesh, with a few being fleshy.

A total of 4,126 head were received last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where steers from 300-700 lbs. were firm to $2 higher. Weights from 700-950 lbs. were steady to $2 higher. Heifers weighing 400-750 lbs. were $1-4 higher, while those weighing 750-950 lbs. were firm to $3 higher.

The La Junta Livestock Commission Company in La Junta, CO, reported receipts of 1,084 head last week where compared with the previous sale, feeder steers and heifers were steady in a light test. Demand was good and trade was moderate.

Last week’s sale at the Miles City Livestock Commission in Miles City, MT, took in 4,921 head of cattle where there no was no applicable trend due to a light test the previous week. However, when compared to the sale two weeks prior, stocker and feeder cattle exhibited a higher to sharply higher undertone. Demand was good to very good on mostly all classes and weights with active buyer participation. — WLJ

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