Fed market slips

Markets
May 1, 2009
by WLJ

 

Fed market slips

Fed cattle markets were expected to trade lower last week although the competition between feedlots and packers remained deadlocked at midday last Thursday. Trade was predicted at $87 live and $140-142 dressed, down $1-2 from the prior week when cattle traded at $87.50-89 live basis while dressed trade was in a range of $141-143 in the north and $141-144 in the Corn Belt.

A rise in the April contract just ahead of expiration last Thursday helped trim the expected decline in cash prices as the beef cutout prices were hit by declining interest among wholesale buyers, particularly for end meats, analysts said.

The Choice boxed beef cutout last Thursday was down sharply, losing $1.12 to trade at $150.66 while Select cuts were off 95 cents, trading at $147.48 on light to moderate demand and heavy offerings. Packers were having to cut prices in order to spur wholesale buyers into action as spot purchasing activity has dropped off in the past few weeks. Chuck and round prices have been falling, however, the middle meats were also beginning to show some weakness last week, according to Vetterkind Cattle Brokerage analyst Troy Vetterkind. He did note that ground beef demand and prices were stable and he expects that trend to continue in the near-term.

Another factor weighing on the fed cattle market last week was the inventory of cattle that packers had accumulated over the previous two weeks. Buying was heavy at the middle of the month, cleaning up showlists in an effort to have cattle on hand as they began to ramp up production slightly. That inventory helped to delay trade last week, even as kill levels increased. Production for the week through last Thursday was estimated by USDA at 508,000 head, 7,000 more than the same period the prior week, but 4,000 head fewer than the same period in 2008. For the weekly total, the industry was looking for a 640,000-head week, a good sign for the industry going into the summer months when demand should begin to improve with the weather.

One factor that should be generally supportive of prices going into the summer is the sharper than normal decline in carcass weights, according to USDA data compiled by the Livestock Marketing Information Center (LMIC).

"Based on the most recent actual weekly data (through the week ending April 11), steer and heifer weights are now well into their seasonal decline, with average steer and heifer weights dropping each week since mid-March," LMIC analysts noted. "But that seasonal decline in 2009 began later than normal. As of mid-April, steer and heifer weights remained well above a year ago, but year-to-year increases have moderated dramatically in recent weeks."

For the year through April 11, the latest information available, the trend for dressed weights continues to move higher with steer carcass weights rising 2 percent, or 21 pounds over the same period in 2008, and 5 percent above the five-year average, according to LMIC. Similarly, heifer weights are also on the increase, with the average gaining 20 pounds over the same period last year and rising 5 percent over the five-year average.

"Dressed weights are expected to decline into May, however, given animal feeding performance and heavier average placement weights, average dressed weights will remain generally at or above the prior year for the balance of 2009," analysts noted. "Current LMIC forecasts suggest calendar year steer and heifer dressed weights in 2009 will eclipse the prior records set in 2008 by 1 to 2 percent."

The increase in production is expected by many to offset the tighter supplies of fed cattle this year. For the first four months of 2009, on feed numbers have lagged behind last year, however, beef production remains close to last year’s levels. For example, during March, beef production increased 2 percent from March 2008 to 2.14 billion pounds.

Feeder cattle

The feeder cattle markets last week were mostly lower as concerns over demand and a slide in the contract markets pressured calf prices. However, lower receipts and worries about calf losses in the northern states earlier this spring moderated losses somewhat.

The spring storms which hammered much of the West in March and the first half of April got a good deal of attention last week as some preliminary numbers were tallied. Producers in North Dakota reported losing nearly 90,000 calves this spring as a result of the harsh weather. Montana operations reported losses in a range or 50,000-60,000 head. With weather continuing to follow same, the typical cold spring pattern losses in the northern states are likely to continue to build until the weather begins to improve in earnest.

Analysts had already predicted tight supplies of feeder cattle being available in the fall of 2009 as a result of significant cuts in cowherd size over the past few years. Vetterkind noted last Thursday that these calf losses will serve to further tighten supplies later this year and may help to boost prices above earlier expectations as buyers fight for available supplies. Already last week, there were signs that the news was being factored into contract prices, he noted.

"Feeder cattle had an active trade on the electronic platform (last Wednesday) with what looked to be active fund buying, especially in the August contract. August feeder cattle open interest went up 179 contracts during (the) session," he said. "Seasonally tightening feeder cattle numbers and calf losses in the West because of winter weather should begin to become a factor in feeder cattle pricing and I would still view breaks in back month feeders as a buying opportunity, looking for $105-$110 at some point in time this summer."

Meanwhile, in cash markets last week, the price action was mostly $1-3 lower in much of the country. For example, in Oklahoma City, OK, last week, prices for feeder steers were called steady to $1 lower, with the most decline reported on the 800-900 weight cattle on offer. Feeder heifers sold $1-3 lower. Demand for feeder cattle was called moderate to good, while stocker cattle and calves were lightly tested and sold steady with very good demand.

In La Junta, CO, feeder steers sold steady to $1 higher last week. Feeder heifers under 600 lbs. were $3 lower, while those over 600 lbs. were steady to $1 higher. Yearling feeder steers were called $2 higher and yearling feeder heifers were scarce.

Farther north in Hub City, SD, last week, feeder steers and heifers sold steady to $2 lower, although demand was called good with many buyers on hand for the day’s sale. Receipts were lower than the prior week and the same week in 2008. — WLJ

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