Fed trade turns lower

Markets
May 8, 2009
by WLJ

Fed trade turns lower

A sagging boxed beef cutout and lackluster demand helped to pull cash cattle prices lower last week. Trade was started on Wednesday with some light volume in Texas and Colorado at $85, but much of the trade looked to be done by Thursday afternoon after Texas and Kansas feeders traded cattle at $84 live basis. Nebraska and Corn Belt trade came in at $134 dressed early last Thursday.

Some analysts said last week that the seasonal top may be in the fed cattle market unless demand improved unexpectedly to help boost cutout values. The volume of market ready fed cattle remains in check and carcass weights have started to decline rapidly now that feedlots are through marketing yearling cattle and are starting into the calf-feds. However, consumers continue to select based on price rather than value, putting beef at an overall disadvantage to competing proteins, particularly pork. Although pork prices have suffered as a result of the H1N1 flu, the price continues to lure buyers away from the beef case.

That decline in demand, coupled with a production slow-down among packers as they struggle to boost wholesale beef prices, could serve to suppress beef prices this summer to the mid-$70-level. Analysts cautioned feedlots to keep up the marketing pace in an effort to minimize mid-summer price slumps.

Boxed beef prices appear to have started to show some seasonal weakness, falling to $145.52 at mid-day last Thursday. Select was off 55 cents at $142.77. Movement was fair with 229 loads trading hands along with 45 trim and grind loads. Cow beef values continued to hold up last week despite concerns about the volume of cull cows coming to market as dairy operations continue to struggle. The cow beef cutout stood at $115.70 last Thursday, down just $12 from the same date last year. Meanwhile, the 90 percent lean product traded at $148.51, down $13 from 2008 levels. The 50 percent trim continues to perform well, selling last Thursday at $85.09, a price which is more than $7 higher than the same date in 2008 despite cow slaughter rates running close to 5 percent above the prior year’s level.

According to University of Missouri economists Glenn Grimes and Ron Plain, the increase in cow slaughter is entirely a result of a spike in dairy cows coming to market. For the four-week period ending April 11, beef cow slaughter was down 5.9 percent compared to 12 months earlier, but the pair said the jury was still out as to whether the decline in U.S. beef cow numbers would end this year. "Does this slowing of cow slaughter mean producers have stopped the decline in the cow herd? It depends on how many heifers are being added to the cow herd, but the odds are probably high that the decline in the cow herd, especially beef cow herd, has slowed," they said. "We probably need to reduce the cow herd more to get production in line with demand."

Despite the lower tone of the cash markets last week, live cattle contracts managed to close mostly higher last Thursday. The biggest gains came on the upfront months with June and August adding 27 points each to close at $82.10 and $82.65 respectively. October closed the day 20 points higher at $87.10.

Feeder cattle

Feeder cattle prices were mostly steady to higher last week at auction markets across the country. Despite the generally positive tone in the market, the general consensus is that grazing, particularly in the southern Plains, may not pan out unless more moisture is generated in the region to help grass into the summer months. Early spring rains helped to green things up and get grass started, however, it won’t be enough to sustain growth without additional rainfall in coming weeks.

The Climate Prediction Center’s long-range forecast models show some chance of moisture in much of the southern tier for the next 90 days, however, that speculation may not be enough to help sustain grass-weight calf markets much longer some market analysts predicted last week. Although buyer interest and prices remain strong, there is some expectation that could begin to wane in over the next few weeks without significant rainfall they noted.

On the contract side of the trade last week at the Chicago Mercantile Exchange, feeder contracts managed to make some gains, following the fed side higher last Thursday. May contract prices were up 65 points at $98.35 while August and September gained 7 points each to finish at $99.07 and $99.22 respectively. October contracts closed 5 points higher at $99.47.

In cash markets last week, in West Plains, MO, steers and heifers sold steady to $2 higher, except 600-650 lb. steers and 500-550 weight heifers were steady to $2 lower than the prior week’s rally. Supply was called moderate and demand, moderate to good.

Meanwhile, at Oklahoma City, OK, feeder cattle sold steady to $2 lower, closing mostly steady on heifers. Calves were not well tested during the sale, but the few available lots sold steady to weak. Demand was called moderate.

At Loup City, NE, last week, compared to the market two weeks earlier, prices were called mostly steady on a narrow test comparable offerings of steers. Heifers traded fully steady to $4 higher with some instances of $5-6 higher. Demand and trade activity was moderate to very good.

At the auction in Three Rivers, TX, last week, feeder steers sold firm to $5 higher, while feeder heifers were called steady to $4 higher and in La Junta, CO, last week, feeder steers were $1-3 higher except for 600 to 700 lb. steers sold $5 higher. Heifer calves under 600 lbs. were steady to $1 higher and those over 600 lbs. were $3 higher. Yearling feeder steers and heifers were reportedly scarce. Demand was called good, especially for thin-fleshed calves to go to grass. — WLJ

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