Fed cattle prices jump in early trade
Active trade in the north got going on Wednesday last week as packers paid $2-3 more for close to 40,000 head of dressed cattle at prices in the $136-138 range with most of the trade at $137. Southern Plains trade hadn’t developed by midday last Thursday as feedlots were passing on the packer’s $86 offer. Market analysts said last week they expected to see most trade in a range of $87-88 after the futures market surged Thursday at the opening bell, adding leverage on the side of the feedlots ahead of the long holiday weekend.
The boxed beef cutout also saw some decent gains last week as an early week reduction in processing levels allowed packers to demand more for product from retailers. For the week through Thursday, packers had only harvested 476,000 head, down 4,000 from the same period a week prior and down 27,000 head from the same period a year earlier. That sharp reduction has helped support the beef cutout, however, it will also begin to take a toll on prices paid down the road as carcass weights increase seasonally, allowing packers to cut kill levels while maintaining production volume. The Choice boxed beef cutout at midday last Thursday stood at $137.64, up 27 cents from the previous day while Select was up 80 cents at $137.60 although volume was very light, with just 154 loads trading hands.
For the week ending April 4, the Choice/Select spread ended in negative territory with Select trading above Choice product for the week. Chicago Mercantile Exchange (CME) analysts Len Steiner and Steve Meyer noted last week that the inverted spread is the result of the heavy production of Choice carcasses this spring. They pointed out that USDA graders have been doing a better job of grading carcasses over the past several months as the agency works to improve the consistency in its grading service. Other significant factors are the change in the placements of cattle and calves in feedlots over the past two years, with a shift toward placing older, heavier cattle on feed, which helps to boost carcass quality.
"Lower corn prices have likely shifted rations back toward higher corn inclusion, which could also be driving grading percentages this year. And finally, the cattle have gotten better. That is a variable that changes slowly, but specific selection for marbling and higher Angus influence have both contributed to a higher potential for Choice-grade carcasses," they offered as explanation for the continued narrow or negative spread of Choice and Select prices. "And that brings us to demand. Sixteen straight months of low restaurant performance, according to the National Restaurant Association, is manifesting itself in lower demand for Choice beef. A shift of consumer purchasing to supermarkets suggests higher demand for Select beef that comprises much of many chains’ offerings. Does the similarity of the 2008 and 2009 patterns suggest an entirely new seasonality for the spread?"
The question could have far reaching impacts on the cattle industry if Select continues to trade at or near par with Choice product, long considered the gold standard by consumers for quality. If the economy does truly improve going into the second half of the year, it will be worth it to watch the spread to see if Choice values begin to pull away from Select as consumers return to the beef case with more disposable income.
Vetterkind Cattle Brokerage analyst Troy Vetterkind said last week that there has been good interest from buyers in both forward and spot purchases of middle meats, which has been supportive of cutout prices in recent days.
"The problem areas of the carcass (chuck and round) are getting cheap enough where they will fit into grinding formulations and that will keep a floor under those items," he said. "If we can stabilize the end meats and keep the middle moving higher, overall cutout values will be trending higher into the end of April and first of May. Look for higher money in the beef market next week."
In general, markets were improving last week with some signs that the overall economy is improving this spring. The signs of a bottom in markets added to surges in the equity markets which spilled over into commodities last week. The live cattle contracts got a sharp boost last Thursday with April gaining 140 points to end the session at $87.45 while June added 95 points, closing at $84.75, and August gained 67 points, ending the week at $85.35.
Feeder cattle prices improved again last week as the market benefitted from improved weather conditions and optimism among buyers that the fed cattle markets were on track for continued steady improvement. Most markets reported prices at least $1-2 higher than the prior week. Some markets reported even better gains, and few reported prices below the prior week. Grazing conditions in many areas are showing rapid improvement, particularly in areas where precipitation was prevalent the previous three weeks, particularly in the southern Plains.
An additional factor driving feeder cattle prices last week was concern over supply, according to DTN analyst and order buyer Walt Hackney.
"Buyer activity continues to build momentum as spring progresses into early summer and rumors abound that the availability of feeder cattle, both summer yearlings off grass programs and fall delivery calves off cow ranches, are in a very limited supply," he said. "Possession will govern procurement, rather than the choice and selection that are usually reserved for the buyer sector. No doubt the available numbers will be 2 to 5 percent short depending on type of cattle preferred, but after a lifetime in this industry, I have never seen us run out of cattle before we ran out of money!"
Hackney explained that line of thinking could be dangerous for buyers caught up in the procurement frenzy this year and cautioned against too much enthusiasm over improving prices at any sector just yet.
On CME last week, feeder cattle contract traders were also caught up in the surging markets. At the closing bell, April was up 142 points last Thursday, ending the week at $98. May added 150 points to end at $98.87 and fall feeders broke the $1 mark, with August gaining 107 points and closing at $100.82, while September added 97 points to end at $101.32 and October rose 90 points to close at $101.70.
Feeder cattle prices in Oklahoma City, OK, last week were reportedly $3-5 higher for steers and steer calves on a much larger run than the weather-restricted run the prior week. Feeder heifers and heifer calves were called $2-3 higher on extremely good demand on all classes of cattle.
Meanwhile, in Bassett, NE, last week, a limited test of comparable offerings with the previous sale saw prices trending $5-7 higher on very good trade and demand.
In Torrington, WY, last week, steers and heifers were called steady to $2 higher on moderate to good demand. In Billings, MT, feeder cattle went lightly tested last week with very few comparable sales so a trend was not established, however, a higher undertone was noted. Demand was called moderate to good on all classes on offer.
On the West Coast in Galt, CA, feeder steers and heifers across all weights sold steady with the prior week. High quality feeder steers in the 400-500 lb. range sold between $103 and $121, while 500-600 lb. steers brought $104-117 and those in the 600-700 lb. class sold between $95 and $102 at last week’s sale. Heifers from 500-600 lbs. sold in a range of $90-105 and 600-700 lb. feeder heifers brought $85-91 at the sale.