Cut-out helps create surge in fed prices

Markets
Apr 17, 2009
by WLJ
Cut-out helps create surge in fed prices

Fed cattle prices got a good boost last week as buyers were aggressive in their search for the last remaining pens of yearling cattle as calf-fed cattle begin to come to market, according to analysts. Sales started early last week with prices in the Corn Belt and parts of Kansas and Nebraska trading cattle at $142-143 dressed, up $2-4 from the previous week. Live sales were in the $89-90 range in the area, up $2-3 from the prior week. Although trade had yet to develop in the southern Plains at midday last Thursday, it was expected at the $88-89 level when it finally occurred.

The improvement in the beef cutout was also partially responsible for the jump in cattle prices. Packers have been trimming production in an effort to help moderate supply and boost prices in recent weeks and it looked like it was finally beginning to work last week. Thursday Choice prices were reported at $147.20, up 69 cents from the prior day when the price surged, tacking on more than $3. Select was also higher, rising 99 cents last Thursday to trade at $145.16.

The improvement was enough to improve packer margins as the retail sector stepped into the beef market to book items for nearby delivery. Domestic demand remains lackluster, however, it should still improve going into the early weeks of summer as the weather begins to improve. Much of the country is still being hammered with winter-like weather and the slow start to the grilling season has kept a lid on demand for the time being.

"Reduced production the last several weeks, higher front end live cattle costs, and beef buyers keeping with a hand-to-mouth procurement plan has left the market a little short on inventory, and, as such, packers have raised offering prices on spot and forward delivery of beef cuts," said Vetterkind Cattle Brokerage analyst Troy Vetterkind. "Those needing to do business are now faced with paying higher money on most transactions. Once again, the complex was led higher by strong price gains in the loin complex as retail and wholesale buyers gear up for upcoming steak features in weekly advertisements."

He said ground beef markets also jumped higher last week for the same reason.

"This kept good buyer support in the boneless beef complex as grinders scramble to get product in place to satisfy hamburger demand," he explained. "We will continue to look for higher beef markets into next week as packers will once again be faced with covering sharply higher live inventory costs."

The rise in ground beef prices helped to push cow beef markets higher last week as well. The cow beef cutout rose to $112.96 while the 50 percent trim gained more than $3 to trade at $80.75. The 90 percent lean was steady at $145.27. Slaughter cow and bull prices also remain solid, with better kinds selling from the mid-$50 level to nearly $70 and in some cases, higher in select markets for slaughter bulls. There remains a good deal of concern about cull cow prices going into summer as the dairy herd retirement kicks in, however, at the present time, the increase in dairy cow numbers being liquidated appears to have had little impact on the market. There may be some risk for lower prices if numbers flood into the market, but the strong demand for cow beef and grind product appears to be supporting prices in the near-term. In fact, there may be more risk to fed cattle prices from a dairy cull if consumers continue in their preference for cow beef cuts and ground beef products.

The contract trade on the Chicago Mercantile Exchange last Thursday was also benefitting from the higher cash fed cattle market and triple-digit gains helped push the April contract to $88.50, up 107 points from the previous close. June live cattle contracts were up 47 points to close at $85.25 while August and October were both 22 points higher at $85.37 and $89.12 respectively.

Another factor driving the contract trade last week was positioning ahead of the cattle on feed report due out last Friday, said Vetterkind.

On feed numbers for April 1 were projected to be down 4.4 percent from 2008, while placement numbers during March are expected to be 3.8 percent higher than March 2008. Marketings are expected to be down 0.8 percent from a year earlier.

"If anything, the placement figure could possibly be a little smaller than forecast as placements during the first half of March were heavy, however, slowed towards the end of the month," Vetterkind said. "Regardless, I think the report would indicate that near term supplies of fed cattle are going to get tighter and should be positive for the bull spreads."

Feeder cattle

Cash markets for feeder cattle were also higher in most markets last week as they followed the trend set by the fed cattle markets. In particularly high demand were cattle suitable for grazing, a trend which has continued over the past several weeks as some parts of the country are greening up.

Cattle numbers are said to be tight in most markets and stocker operations looking for cattle for summer grazing are reportedly having to compete for the limited supply of cattle, a trend some analysts predict will continue for the next several months until the fall runs begin. That tight supply is a result of the heavy culling of cow herds over the past two years. With numbers not expected to increase significantly this year, it could be a trend which favors the cow/calf producers. Those with calves are finding the market strong and prices good in most areas.

The contract market is also reflective of this condition and prices are beginning to improve for fall calves. September contract prices rose to $102.02 last Thursday with October at $102.22. November was even higher at $102.50. The jump in fall calf prices ahead of the start of the early video auctions is a positive sign for consignors to those sales, typically some of the strongest of the year.

In Oklahoma City, OK, last week, feeder steers and heifers sold $1-3 higher. Steer and heifer calves were lightly tested, but sold at prices which were steady with the prior week. Demand was called moderate to good. Steady rains the previous weekend created muddy conditions in the area and limited receipts slightly.

At the market in Joplin, MO, compared to the prior week, steer calves were steady, while yearling steers sold $1-3 higher. Heifer calves and yearlings were called steady to $2 higher. Demand was reportedly moderate to good on a moderate to light supply of cattle as a result of muddy conditions throughout the region.

In Dodge City, KS, last week steers from 300 lbs. to 750 lbs. sold firm in an extremely limited test. Those in the 750-950 lb. class were called $2-4 higher. Heifers from 300-600 lbs. sold firm in a very limited test, while those in the 600-750 lb. range were firm to $1 higher and those from 750-900 lbs. were $2-3 higher.

At the auction market in Riverton, WY, last week, feeder steer calves were reportedly selling unevenly steady with instances of $1-2 lower, feeder heifers sold with higher undertones noted and in some instances, as much as $2-3 higher. Those over 600 lbs. were $4-6 higher with good demand reported.

Farther north in Montana last week, at auction markets across the state, feeder and stocker steers sold with mixed results. Offerings under 550 lbs. were trending $1-6 higher while those in the 550-700 lb. range sold steady to $2 lower. Feeder offerings over 700 lbs. sold steady to $3 higher. Feeder and stocker heifers under 750 lbs. reportedly sold steady to $3 higher; offerings over 750 lbs. were not well tested last week. Demand was said to be good to very good for feeder and stocker cattle, with the most buyer interest occurring on lots suitable for turnout on grass, with moderate to good demand noted on all other classes. — WLJ

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