Fed cattle market turns steady to higher

Markets
May 15, 2009
by WLJ

Fed cattle market turns steady to higher

Fed cattle markets were looking steady to slightly higher last week as buyers came to the table looking to secure cattle to fill Memorial Day production needs. The demand has been on the increase from wholesale buyers to meet the holiday weekend sale needs. As a result, feedlots were holding out in early week action last week, passing lower bids in an effort to move trade into a range expected to be fully steady to perhaps $1 higher in some areas. Early trade last Wednesday and Thursday was called steady at $84 live in Nebraska and the southern Plains while some dressed trade in Nebraska came at $133-135, steady to $1 higher than the prior week, although volume was light.

Firm trade in the boxed beef complex at midweek last week and improving contract trade on the Chicago Mercantile Exchange helped steady what had been a pretty disappointing market for fed cattle the previous week. There have been some tentative signs that the economy has been improving during the first quarter, which has perhaps helped provide a boost for beef purchases by consumers, although much of the data is anecdotal. Trade in the cutout prices continues to be sideways with little support coming from the consumer or wholesale sectors for the time being. Last Thursday at midday, Choice boxed beef traded slightly higher at $146.21 while Select moved 2 cents higher to trade at $142.90 on light volume of fabricated cuts and good action in the trim and grind markets. Slaughter volume was expected for the week to come in at 660,000 head.

So far, lackluster demand has kept a lid on beef prices this year. That could begin to turn around as the weather warms across the northern two-thirds of the nation, spurring demand, particularly for middle meats. How much of a boost that increase will provide remains to be seen and until consumers come back to the market, any improvements in price action in the beef complex are likely to be short-lived.

Another factor playing into the action in the cattle markets last week was the announcement that Cooperatives Working Together had completed the first of three rounds of dairy buyouts this year. The market reacted negatively to the news on fears that it would cut into fed cattle production. However, Vetterkind Cattle Brokerage analyst Troy Vetterkind cautioned against too much reacting too negatively to the dairy cull. He pointed out that the number of cows slaughtered in the U.S. has been growing significantly since 2005, while the 90 percent lean market hasn’t slipped much below $124 since that time and the Choice cutout has also remained strong.

He illustrated his reasoning by pointing out that "300,000 dairy cows that weigh on average 1,300 lbs. and yield on average 45 percent, and of that using a boning yield of 70 percent (which is generous) would put approximately 126 million pounds of extra grinding beef on the market," Vetterkind said. "Keep in mind per the latest USDA supply and demand report, the government has us importing 2.8 billion pounds of beef for 2009 and 2.9 billion pounds of beef for 2010, with 2010 beef production declining 538 million pounds to 26.092 billion pounds. The point being, I would caution getting too bearish a dairy herd retirement program as our demand for grinding beef is such that the market can easily absorb the extra production due to an expected decrease in beef cow slaughter for this year and next."

Feeder cattle

In the feeder cattle markets last week, prices in the cash market were mixed, with markets in the northern regions fairing better than some southern Plains markets despite mostly good early season grass conditions. Prices ranged from $3 lower to $3 higher nationally with steer and heifer calf prices showing the greatest volatility. Heavy rains in portions of the south have hampered movement to some markets, but also improved grass conditions in those areas, some of which had been suffering from drought conditions, particularly in the Southeast. More moisture is in the forecast, meaning that grass conditions could continue to improve in those areas for the time being.

Corn prices also came to the forefront of current market concerns in the past two weeks. Cash prices in much of the country have climbed above the $4 mark since January and signs point to continued rise in prices going into summer, which will add pressure to calf prices as feedlots work to contain costs in light of a tough fed cattle market.

The USDA’s World Agriculture Supply and Demand Estimates (WASDE) prediction places the coming corn crop at 12.1 billion bushels, which combined with the predicted increase in ethanol usage and exports could cause prices to begin climbing sharply again as speculators return to the market, said University of Nebraska-Lincoln agricultural economist Darrell Mark. However, he cautioned buyers to avoid getting caught up in the frenzy, as it is still very early in the growing season and a number of unknowns remain.

"While these estimates for the new crop year aren’t as favorable for livestock producers as many of us might have hoped for, there is still potential for a large crop this year," Mark said. "Remembering back to the March Prospective Plantings report having 7-8 million fewer acres in production as last year, there remains potential for more than 85 million corn acres planted if weather patterns quickly become drier in the eastern Corn Belt."

He said there also remains a good deal of potential for increased yields as a result of the heavy use of hybrids, which could also serve to boost this year’s production as it did last year after flooding and a wet start to the year garnered predictions of a crop shortage.

"So, the recent rally in the corn market based on poor planting conditions and fueled by Tuesday’s WASDE report hopefully will represent a short period of time for cattle feeders to buy corn hand-to-mouth. If or when the forecasts improve for planting in the eastern Corn Belt, and planting could quickly occur, prices could quickly correct," Mark said. "Still, if the weather problems become prolonged and continue well into growing season, corn price will continue to advance. Risk averse corn buyers may want to consider some out-of-the-money call options or other "price ceiling" type of risk management strategies."

In the auction market at Oklahoma City, OK, last week, feeder steers sold steady to $2 higher. Feeder heifers were steady. Stocker cattle and calves were not well tested, but a higher undertone was noted at the sale. Demand was called good for all classes, with quality reported as somewhat improved over the prior week’s run.

At Joplin, MO, compared to the previous week, steers under 650 lbs. and heifers under 600 lbs. sold steady to $2 lower, while heavier weights were called steady to $2 higher. Demand and supply were reportedly moderate.

Meanwhile in Dodge City, KS, last week, a light offering saw steers from 300-700 lbs. selling firm to $2 higher while heifers from 450-650 lbs. were steady to $3 higher. Steers in the 700-950 lb. range were firm to $2 higher and heifers from 650-900 lbs. sold steady to firm.

At the market in Hub City, SD, last week, feeder steers sold unevenly steady while heifers sold $2-3 higher. Demand was called good, with a number of buyers on the seats. Quality of cattle on offer was also reportedly very good, with many preconditioned lots in the run. — WLJ

{rating_box}