Feeder cattle prices move sharply higher

Apr 24, 2009
by WLJ

Feeder cattle prices

Fed cattle trade developed last Thursday with live trade at $88 in Texas and dressed trade at $143-144 in Nebraska, $1 higher than the prior week’s action. Some solid improvement in the boxed beef cutout as a result of production cutbacks, along with positive trade in the contracts, helped cattle feeders push prices higher than the prior week in most areas.

The slaughter volume for the week remained low, with the industry looking for a 640,000-head week. That’s down about 60,000 head from the same time last year. Analysts are warning that continued slow beef production levels will begin to cause a backlog in market-ready fed cattle supplies into the summer months. Any inventory overhang will serve to limit market price gains as demand improves seasonally. Projections for second quarter average prices are currently in the $92 range. Although that price level may be attained, it appears somewhat overdone, given current futures markets and the larger economic problems facing U.S. consumers.

Last Thursday, midday action in the contract markets on the Chicago Mercantile Exchange had live cattle contracts mostly higher, with April trading 27 points higher at $87.85 while June was up 57 points at $83.72 and August up 50 points at $83.82. The competing proteins could add some support to beef prices going into the summer months as both pork and poultry prices look set to increase. Last week, analysts noted that broiler sets continue to lag behind last year’s levels as producers work to boost prices. The poultry market has been hit hard by a slow-down in foreign demand and as a result, prices in the U.S. have been sliding as a result of the increased supply flowing to U.S. consumers. As broiler production slows, prices could begin to rebound, adding support to beef prices.

That support will be critical for cattle feeders who continue to face difficult market conditions and in many cases, red ink on closeouts, according to data compiled by the Livestock Marketing Information Center (LMIC). Analysts projected that southern Plains closeouts continue to lose about $160 per head during the first three months of the year.

"Estimated losses for average performing cattle in feedlots are expected to continue into the summer months," LMIC analysts projected. "But, above average performing cattle sold beginning in April will make some money."

In January, estimated feeding loss was nearly $230 per steer, nearly matching the record loss posted in December 2008. Projections showed February losses at $150 per steer and March losses at $105 per steer.

"So, for the quarter, feeders’ loss of about $160 per steer was essentially the same as posted during the first quarter of 2008," LMIC analysts noted.

According to LMIC: "Estimated breakevens for a 750-pound steer placed into a southern Plains feedlot to be sold in April are about $90 per hundredweight. Looking ahead, breakevens will decline with estimated steer breakeven sales prices ranging from the mid $80s to $90 per hundredweight through July. However, estimated breakeven sale prices began to increase again in early April along with the run-up in feeder cattle prices. Many feeder cattle currently being placed into feedlots will only make money if corn prices decline significantly from current levels."

Some of the improvement in feedlot margins can be attributed to the continued improvements in beef shipments to overseas markets. Despite concerns that exports would drop in the wake of the global economic slowdown, foreign buyers remain an important factor in the market. According to USDA data, beef exports for January and February 2009 rose 7.3 percent in tonnage from the same period in 2008. North American trading partners have reduced their purchases of U.S. beef, however, other markets have stepped in to fill the void, said University of Missouri economists Glenn Grimes and Ron Plain.

They pointed out that beef sales to Mexico for January and February were down 15.3 percent while shipments to Canada were down 22 percent. Shipments to Taiwan fell 28.4 percent while beef sales to Hong Kong were down 25.4 percent.

Of those countries increasing their purchases of U.S. beef, South Korea led by a wide margin, with beef purchases increasing an impressive 4,038 percent from January and February 2008. Vietnam shipments were also up sharply, rising 74.9 percent, while buyers from the Bahamas increased their purchases by 24.2 percent from the same period a year earlier. Shipments to Japan rose just 12.9 percent.

The increase in exports is mostly attributable to demand for muscle cuts of beef, according to the two economists who pointed out that the increase has helped carcass prices at the same time that variety meat sales have declined, a factor which is limiting the drop value and helping to keep a lid on fed cattle prices in the U.S.

"The value of beef exports per animal slaughtered for January-February in 2008 was $58.04 per head. In 2009 for these two months, the value of beef exports per animal slaughtered was up to $68.50 per head," said Grimes and Plain. "The value of beef variety meats for January and February in 2008 was $20.29 per head slaughtered. In 2009 for these two months, beef variety meat value declined to $17.94 per head slaughtered."

Feeder cattle

Tighter than expected supplies of feeder cattle continue to push prices higher this spring. Most auction markets are reporting good action on offered lots, particularly in the central and southern Plains markets where stocker operations are competing with feedlots for available cattle. Two severe winter storms which came within about a week of one another caused damage to winter wheat crops in the south and now producers are looking for cattle to graze those frost-damaged acres in the southern Plains, according to USDA market analyst Greg Harrison.

The seasonal increase in demand and the current limited availability, particularly of cattle suitable for grazing, has buyers scrambling to put together loads of cattle, pushing prices higher by as much as $10 last week in some markets.

Harrison noted that the improvement in the fed cattle markets has been very supportive of the feeder cattle prices as well. The continued rise in boxed beef markets as seasonal demand improves, coupled with the very current state of feeders in the north, should continue to support feeder cattle prices, he noted.

On the CME last Thursday, feeder cattle contracts were mostly lower, with only the April contract in the green at midday. April was up 17 points, trading at $99.75, while May was down 15 points at $99.25, August was off 22 points at $100.85, and September was down 22 points at $101.

In Oklahoma auction markets last week, prices on a run of nearly 10,000 head were reported with feeder cattle and calves selling $1-3 higher, with some cases of as much as $4 higher than the previous week, when participation was dampened by weather. Demand was called very good for cattle, particularly those bound for cattle-suitable for grass.

In West Plains, MO, last week, steer prices were called uneven, with weights under 450 lbs. and over 650 lbs. selling firm to $1 higher. Steers in the 450-650 lb. classes were called steady to $1 lower, although most 600-650 lb. steers were $2-3 lower. Heifers sold steady to $2 higher, with several lots under 450 lbs. and over 600 lbs. selling as much as $2-3 higher. Supply was reportedly moderate with good demand.

At Platte Valley Auction in Nebraska, on a limited test last week, steers and heifers trended steady to $2 higher, with demand and trade activity called moderate to good. While at Loup City, NE, last week’s sale traded fully steady to $4 higher with instances of $5 to $6 higher than the last comparable sale two weeks prior. Demand and trade activity was called moderate to very good.

In La Junta, CO, last week, feeder steer sold steady to mostly $2 higher. Feeder heifers were $2 to $5 higher with the most advance for 600 to 650 lb. calves.

In Madera, CA, last week, stockers were $3 to $5 dollars higher than the previous week’s sale in a very good test. Last week’s special sale was met with very good buyer support and a good offering of cattle. Single lots and plain cattle were called $6 to $12 dollars softer. — WLJ


move sharply higher