Fed trade steady to weak

Jun 26, 2009
by WLJ

Fed trade steady to weak

Fed cattle markets started out softer last week with Corn Belt cattle feeders throwing in the towel on Wednesday after a break in live cattle futures. The early trade was light at $128-131 dressed with live trade at $80-81 in the region. There was some light trade in the southern tier at $81 although numbers were too light to call the trend for the week. Trade was expected in a range of $81-82 live in the South when fully developed.

Summer weather also reportedly played a role in last week’s early trade as hot and humid conditions in the Corn Belt began to take a toll on feedlot performance. Analysts said last week that rather than risk the weather stress, feeders were unloading cattle to regional packers in Nebraska at steady money. It looked to be difficult for feedlots to boost prices much in the wake of weakness in the boxed beef cutout and lackluster action in the contract trade. Vetterkind Cattle Brokerage analyst Troy Vetterkind said last week that any rallies in the market were likely to be viewed as selling opportunities by traders rather than a sign that a rebound was coming. The result, he said, is further sideways to lower trade in the weeks ahead.

Vetterkind said that similar action was likely in the beef markets now that retailers have secured their needs going into the holiday next week. Until clearance levels are fully analyzed, he said he expected sideways to lower trending boxed beef prices which will add pressure to cattle trade. Only grind markets appear to have much strength, which he noted is adding to the appeal and price of the cow beef cutout and the 50 and 90 percent lean market. Last Thursday, the midday Choice cutout stood at $139.96 while Select was at $133.13, both virtually unchanged from the previous day on light trade.

Slaughter volume continues to be strong and packers are enjoying positive beef margins, with HedgersEdge.com estimating per-head profits of $15.45 last week. For the week through last Thursday, slaughter volume stood at 516,000 head, even with the previous week and 7,000 more than the same period in 2008. For the week, the industry was expecting total harvest to reach 665,000 head.

One area of the market which is adding some support to the trade is the international trade which continues to be relatively strong despite expectations that it might slide in the face of the global recession. The April export numbers prove that export markets remain better than expected. For the month, beef and veal exports were up 1 percent from April 2008. For the first four months of the year, beef and veal exports were up 5 percent from 2008, according to USDA’s export data. Although the two largest buyers are importing less U.S. beef, other nations are stepping into the market to pick up some of the slack. Exports to Mexico were down 19.2 percent while shipments to Canada were down 14.5 percent for the first four months of 2009. Meanwhile, exports to Japan were up 19.2 percent, sales to South Korea were up 344.4 percent and exports to Vietnam were up 74.4 percent. Sales to other countries were up 5.6 percent from last year.

Beef and veal imports for January-April were up 15 percent from a year earlier, while net beef imports, as a percent of production for January-April, at 5.4 percent were up from 4.1 percent a year ago. According to University of Missouri economists Glenn Grimes and Ron Plain, trade has added about 1.3 percent more to the domestic beef supply in these four months of 2009 from 2008.

They noted last week that beef and veal export value for January-April amounted to $69.19 per animal slaughtered, a boost that is benefitting beef producers in the form of higher fed cattle prices. Grimes and Plain estimate the direct benefit of international trade is adding an additional $6.49 per head over last year’s prices.

Beef and veal exports plus beef variety meats value for the first four months of 2009 were $87.18 per animal slaughtered. This figure has lagged for much of the past year as the demand for hides has dipped worldwide. Likewise other variety meats have also seen a drop in demand in the international market as consumers in emerging markets where the product is traditionally shipped suffer from a lagging economy.

Feeder cattle

Feeder cattle prices got a boost last week, mostly as a result of very light trade volume in auction markets. Pasture and range conditions across much of the U.S. have extended the interest in lightweight feeder cattle and some feedlots are even shipping cattle to grass to lessen costs as a result of the availability. The June 1 Cattle on Feed report showed unusually high disappearance levels of 101,000 head during May, 26 percent above a year earlier. That is a direct result of the availability of grass in many areas analysts said last week.

In addition to the light availability, the corn market also added buying interest to feeder cattle last week. The latest USDA corn crop condition survey for the week ending June 22 showed that 70 percent of the crop was rated in good or excellent condition. Last year, during the same week, only 59 percent of the corn crop was rated as good/excellent. The five-year-average rating is 67 percent good to excellent. Despite concerns about the growing season getting off to a slow start and the impact on yields later this year, there appears little reason for concern. For the time being, prices remain in a downtrend and analysts were suggesting the seasonal slump in prices should soon present a good opportunity to lock in corn prices.

Last week in cash auction markets, feeder cattle prices were generally $1-2 higher in most markets, although many reported runs too light for a comparison with previous weeks. In Oklahoma City, OK, last week, feeder steers and heifers were called steady to $3 higher. Steer and heifer calves were reportedly not well tested with the few sales trading steady. Demand was called good for feeder cattle. Meanwhile, in Joplin, MO, last week steers and heifers under 600 lbs. sold steady while those over 600 lbs. were called steady to $2 higher. Demand at the sale was called moderate to good, while supply was moderate.

Farther west, at the sale in Blackfoot, ID, the feeder cattle market was called steady on light offerings with 500-600 lb. feeders bringing a range of $100-115 while those in the 600-700 lb. class sold between $95-111.

At Cottonwood, CA, last week a light run of feeder cattle under 650 lbs. sold steady with the previous week while yearlings were steady to $1 higher. Steers 900 lbs. and up were called $2-3 higher, selling in a range of $82-89.25. — WLJ