Fall calves sell well on early video

Markets
Jun 5, 2009
by WLJ

Fall calves sell well on early video

Cattle traded early last week with prices sliding $3-4 lower than the previous week at $82 live on limited numbers in the south, while in the north, cattle feeders shipped cattle at $130-131. An erosion in the feeder and live cattle contract trade on the Chicago Mercantile Exchange (CME) early in the week, lower than expected Memorial Day clearance levels, rising corn prices and the cratering of the pork markets were all cited as contributing factors in the early week trade.

However, the fundamentals of the beef market remain fairly strong and analysts expect prices to show some improvement going into the next few weeks ahead of Father’s Day and the Fourth of July holidays, said Livestock Marketing Information Center analyst Erica Rosa. She said the absolute prices faced by consumers at the retail level are likely playing a role in demand, which is keeping a lid on sales of beef. She explained that although beef features have been very good in many areas of the country, the prices of competing meats are likely slowing sales as consumers continue to trade down for lower priced pork and poultry products. A similar trend taking place in the restaurant trade is also hurting sales of beef middle meats.

"Hog producers are really hurting right now, they are facing the same kinds of conditions that the beef industry has been experiencing for quite awhile. In fact, for the first time last week, pork packers’ gross margins dropped into negative territory for the first time ever," said Rosa. "Normally, we see a spring rally in hog prices in the spring, but we didn’t get it this year and that’s really hurt producers. At this point, I don’t think we will see that rally develop and now, they are also fighting rising soybean prices because the crop is tighter than was previously expected."

The problems in the pork industry are serving to help keep a lid on beef prices for the time being, according to Rosa. Until pork prices rebound, she believes that consumers will continue to show a preference for lower priced cuts of pork. She said that although poultry prices have started to rise this year, they remain inexpensive in comparison to beef.

Last week, beef cutout prices fell again to levels more than $14 below the same week last year for Choice product which traded last Thursday at $141.23, down 96 cents from the prior day. Select was down 69 cents from the previous day at $135, more than $18 below the same date last year. Surprisingly, despite the drop in prices, packers have yet to cut back significantly on production, with the trade expecting a slaughter of 670,000 head last week, approximately 50,000 more than the same period in 2008. Until packers begin to trim production, or until demand improves at the retail and restaurant levels, prices may stabilize, however, increases might be difficult to come by.

"In relative terms, retail beef prices are inexpensive, but compared to pork and poultry prices, they remain high, and absolute price is what consumers are paying attention to right now," Rosa explained.

She said that pork producers have instituted a buyout program to help encourage sow retirement in order to reduce the overall numbers of sows in production. Sow slaughter this year has shown little sign of increase, despite the difficult operating conditions. In order to encourage some herd reduction, a producer’s cooperative will pool funds to supplement sale prices of sows and encourage voluntary reduction in numbers later this year. As that program goes into effect, pork prices may begin to recover. Rising prices in competing meats could help bolster sales of beef.

One other factor may also begin to help beef sales. The falling U.S. dollar has recently started to attract attention in foreign markets. Over the past several months, the U.S. dollar had been gaining strength, relative to foreign currency, pushing some foreign buyers, already hurt by the global recession, out of the market for U.S. beef. Those foreign buyers were responsible for much of the market’s strength last year as consumers started to pull back on their purchasing. The re-emergence of foreign demand as prices become more attractive could serve to help bolster prices in the second half of 2009. If consumer demand shows any signs of increase later this year as some market analysts suggest, beef prices could finish out the year in good shape.

Feeder cattle

The erosion in the fed cattle trade and rising corn prices served to hammer the feeder cattle contract markets last Tuesday, with contracts trading limit-lower on the day. The result served to take feeder cattle contract prices below the $100-level. Last Thursday, the midday prices for the August contract were down 15 points at $95.97 while September was steady with the prior day at $96.40 and October was down 32 points at $96.52.

Vetterkind Cattle Brokerage analyst Troy Vetterkind said there are a number traders trying to exit feeder cattle contracts on the CME at the present time, which is preventing any kind of rally attempt the market may stage. He suggested that for deferred months, given expected tight supplies, traders may be better suited to hold tight until prices improve. Last week, he said he believed the market was oversold and starting to trade at a discount to cash prices.

"I would say that we could see some short covering (last Thursday and Friday) in the feeder cattle futures because of this. I am not interested in selling feeder cattle on such a break, and from a supply standpoint, I am not very enthused in selling feeder cattle at all," said Vetterkind. "I think the feeder futures could find some support at $95-$95.50 for the balance of the week. This would probably be a short term buy at these price levels and would look to exit those long positions on a rally back to the $99-$100 area."

The selling on CME resulted in feeder cattle buyers at last week’s Superior Video Auction pulling back on their bids during the sale on Tuesday, but market reports noted that many big buyers were back in the market the following day after the sell off in the contract markets. Prices during the sale were reportedly strong for the most part, with the fall calves selling well. Nearby delivery of yearlings was in slightly less demand among buyers, however, prices were reportedly fairly strong across the board on all offered lots. Southcentral U.S. lots sold well with some representative offerings of 376 head of 525 lb. calves for July delivery selling in a range of $115-120 while a lot of 94 head of 550 lb. calves for October-November delivery brought $110. Heavier weights also sold well with 1,038 head of steers in the 750-785 lb. class for current delivery bringing $95.44. For the northcentral states, offering mostly fall delivery, prices were even better. A sampling of 636 head of 500-540 lb. steers for October delivery sold for an average of $112.06 while 1,130 head of 620-640 lb. steers for October-November delivery brought $101-110.

Rosa said that the volatility in summer grain markets might serve to limit enthusiasm among buyers when forward contracting begins for fall deliveries until the market is able to determine a price range for new crop corn. She said speculation about problems in the corn crop is early and overdone in some cases. She noted that concerns about a short crop in the past have been unfounded and thinks that this year is likely to play out similar to last year.

"Grain markets right now are playing off outside markets more than fundamentals. The oil markets and an expanded mandate for ethanol are the biggest factors driving corn prices higher at this point. I think it has very little to do with the actual progress of the crop," she said. "I still expect this year’s corn crop to trade in the $3.50-4 range."

Elsewhere last week, in cash markets, feeder cattle prices were mostly $3-4 lower, although there were some pockets of strength found in areas. In Oklahoma City, OK, last week, feeder cattle and calves sold steady to $2 lower after being steady to $3 lower early in the sale.. Demand was called moderate to good. Meanwhile, in Joplin, MO, last week, compared to the last sale two weeks prior, yearling feeder steers over 700 lbs. and heifers over 600 lbs. sold $1-3 lower; six weight steers traded fully steady. Stocker cattle and calves sold steady to $3 higher with the most advance on four weight steers and the least on five weight heifers.

Farther northwest in Hub City, SD, feeder steers last week were $2-5 lower. Feeder heifers were steady to $3 lower. The sale reported many load lots of backgrounded steers and heifers were offered and there was moderate demand on feeding type cattle, while demand for grass cattle remained good. In Burley, ID, last week, all classes of feeder cattle sold steady, with steers in the 500-600 lb. range selling between $108 to $118.50 while 600-700 lb. steers brought $100-113.50. Heifers sold $5-15 back. — WLJ

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