Fed trade expected steady to $1 lower

Markets
Jun 12, 2009
by WLJ

Fed trade expected

Fed cattle marketing was off to a slow start last week with most marketings looking to be delayed until late in the week. Packers and feeders were still a ways apart in pricing last Thursday with the trend expected to be steady to lower for the week as the futures market was unable to hold onto any significant gains and the beef cutout showed no signs of improvement. The retail environment has yet to show any pick up and the seasonal decline in demand appears to have started. Last week, Andy Gottschalk at HedgersEdge.com noted that the seasonal decline in demand between June and July is an average of 3.1 percent. He said that the continued high level of continuing unemployment coupled with retail sales for the month of May coming in below expectations gave little reason to believe a rebound in demand was nearby.

By midday last Thursday, some light trade had developed at $81-82 live in the Corn Belt, while dressed trade there came at $128-130. Elsewhere, markets were quiet, with feedlots hoping for a good bounce in the June contract on the Chicago Mercantile Exchange (CME) or a pick up in boxed beef trade to help improve their position in the market. However, that appeared unlikely and trade looked to be in a range of $81-82 at best. That price would be $1 lower than the prior week in the south when trade finally developed, Gottschalk reported.

Boxed beef trade was lower at midday last Thursday with the Choice product, giving up 60 cents to trade at $139.84 while Select was down just 6 cents at $132.67. Gottschalk noted that the trend for boxed beef will remain lower for at least the near-term as a result of the factors weighing on the domestic consumer. Interestingly, those factors also now appear to be spilling into the cow beef markets, which had been maintaining their strength for several months despite a flood of dairy cows being shipped to slaughter. Consumers trading down for less expensive cuts of beef, which increased demand, had lead to a strong market for cull cows for much of the last 12 months, however, those prices are beginning to erode. Cow slaughter numbers have yet to spike ahead of the Cooperatives Working Together (CWT) herd retirement program, but as those cows begin coming to slaughter, prices could begin to weaken farther.

Oklahoma State University marketing specialist Derrell Peel noted that the CWT slaughter will begin in earnest in the next couple of weeks, a fact that producers need to be aware of when planning cow sales.

"While the aggregate numbers suggest that the impact on average should not be too severe, the impact in any given week in any specific location may be quite significant," Peel said. "Producers with plans to market slaughter cows in the next few weeks should carefully monitor local market conditions."

Producers who still have cull cows to sell may want to consider sending those cows to market sooner rather than later before prices slip farther under the burden of increased numbers. Likewise, early culling of open cows may pay off this year as well. Last Thursday, the 90 percent lean had slipped back to $136.22, down $2.50 from the previous week, while the 50 percent trim product was mostly steady with the prior week, trading at $66.96. The cow beef cutout was down just over $1 from the prior week at $109.42, with much of the decline coming during the trade last Thursday. Cow slaughter numbers for the week ending May 31, the latest data available, were 104,500 head. That figure compares with a total of 103,400 for the same period in 2008, just 1,100 head more. However, in that mix, the percentage of dairy cows included has jumped from last year. The slaughter mix for the last week of May 2009 included 48,400 head of dairy cattle, or 46 percent of the kill. For the same week a year earlier, the mix included 38,800 head of dairy cattle, just 37 percent of the total. The numbers indicate not just an increase in the number of dairy cull marketings, but also a sharp drop in the number of beef cows heading to slaughter, a sign that when herd inventory numbers are released next month, the industry could be looking at the first significant beef herd expansion in recent years.

If that trend takes hold, it could hamper attempts to push prices higher. For the past year, cattle on feed inventories have been below prior year tallies. Increase in on feed numbers before an upswing in consumer demand gets underway could further threaten work toward increasing prices. The effect would serve to limit prices and increase cattle feeding losses farther. In the end, it could pressure feeder cattle prices sharply lower, a result which hasn’t yet taken hold in the feeder cattle markets. Compared to current concerns on the fed cattle side of the business, feeder cattle prices have been resilient. For now, estimates of June 1 cattle on feed numbers remain positive, with the Livestock Marketing Information Center (LMIC) predicting the report will show on feed numbers 2.9 percent below June 1, 2008. Placement expectations also remain positive, with LMIC calculating that number will fall 9.4 percent from May 2008, while marketings for the month are expected to come in 9.1 percent below last May.

Feeder cattle

Peel noted that there has been a good deal of volatility recently in feeder cattle numbers at some of the nation’s largest auction markets, particularly those in Oklahoma and elsewhere in the southern Plains. That volatility in run size has led to some unpredictable market conditions for feeder calves in the region.

"So far in 2009, the total feeder cattle auction volume in Oklahoma is up 4.6 percent. Through the end of April, the auction total was up 9.2 percent from the same period last year," Peel said. "However, the current week notwithstanding, feeder cattle sales have been down in recent weeks. In the last six weeks since the beginning of May, the auction volume has been down 7 percent."

He said the recent volatility is a relatively new trend in feeder cattle auctions, although it could be a short-lived phenomenon, based on a variety of factors which have developed since last fall.

"With fewer wheat pasture cattle this year, there was less predictability in feeder marketings in late February/early March and again in mid-May, reflecting normal marketing times for winter grazing and grazeout stockers," he reported. "Nevertheless, the collapse in feeder markets last fall prompted many producers to retain calves in a wide variety of retained ownership programs."

He said that scenario resulted in large volumes of cattle shipped in January and early February and again in late March. Since then, cattle have been shipped out of retained ownership programs all year.

"Feeder numbers should be generally tighter from now until the end of summer grazing programs," Peel said, of expected upcoming feeder cattle marketings. "The lesson is that short run volatility adds another dimension of risk to cattle marketing that must be considered."

In auction markets last week, prices were generally lower, following the lackluster action in the CME contract markets and cash trade. The improving pasture conditions in a number of areas have limited numbers at many markets. However, those improvements in grazing conditions have lead to some pockets of better trade. For example, in Dodge City, KS, last week, a light run of feeder cattle found prices mostly firm to $2 higher on heavy 800-900 lb. steers. Cattle under 800 lbs. were too lightly tested for an adequate trend.

Farther west in Salina, UT, found sharply better prices than the previous sale, with feeder steer prices mostly $5-6 higher, although some instances of $10-12 higher were noted. Feeder heifers were also selling higher, up mostly $5-6 last week with some instances of $10-12 higher. Holstein steers were $1-2 higher during the sale.

Following a strong sale two weeks ago, prices at Shasta Livestock in California were slightly lower on last week’s offering. Prices at last week’s sale were $1-5 lower on feeder steers and heifers on generally light receipts.

In Prescott, AZ, last week, a good run of cattle were sold with steer and heifer calves selling at prices $2-4 higher than the previous week. Yearlings were called $4-6 higher. And farther north in Vale, OR, a light run of grass calves sold $2-5 lower last week, with yearlings seeing a similar decline last week. — WLJ

steady to $1 lower

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