Fed cattle market rallies, trade $1-2 higher

Markets
Jul 7, 2009
by WLJ

Fed cattle market rallies, trade $1-2 higher

Fed cattle trade last week was expected to be on the upswing after the market fundamentals took a turn for the better and prices rallied on tighter showlists of market-ready cattle and an improvement in the June contract ahead of expiration. The June live cattle contract went off the board last Tuesday at $82.52, while the August contract traded above the $85 level. That technical action was expected to help get business started a little early ahead of the holiday weekend at prices perhaps $1-2 higher than the previous week at $83 or better in the southern Plains and $81-82 live and $130-132 dressed in the northern regions and the Corn Belt.

Packers were working to capture the continuing positive margins last week and production numbers were up for the first half of the week. Through last Wednesday, slaughter stood at 390,000 head, up 3,000 from the same period a week earlier and 4,000 head from the same period in 2008. For the week, harvest was projected to hit 640,000 head despite the holiday-shortened week.

Movement of beef products last week was a little on the slow side with just a little fill-in business ahead of the holiday. Most major outlets had secured their holiday needs earlier in June and there was little need to restock until holiday sales levels were assessed. Good weekend sales could pave the way for some additional buying after clearance levels are determined, which in turn could help move boxed beef prices higher in the next couple of weeks. Last Wednesday, Choice boxed beef was under pressure with midday prices trading 85 cents lower at $138.52 while Select product was down 69 cents at $132.45.

Analyst Troy Vetterkind of Vetterkind Cattle Brokerage noted last week that one unknown in the beef markets that could serve to limit price advances was the announcement last week that China had halted imports of U.S. poultry in response to a bill introduced in Congress last week by Rep. Rosa DeLauro, D-CT, which would ban U.S. imports of Chinese poultry due to food safety concerns. Vetterkind said the impact isn’t clear at the present time because the length of the ban is undetermined. However, he pointed out that the U.S. ships some 800,000 metric tons of poultry to China each year and having that product flow stopped could flood the U.S. market with relatively inexpensive competing proteins. This would impact the pork markets first before spilling over to affect beef prices, he explained.

One of the first markets to feel the effects of the poultry ban could be the cow beef markets which have shown surprising resiliency during the early part of the summer despite the flood of dairy culls coming to market. The cow beef cutout stood last Wednesday at $111.12, up $1.54 from the prior day. The 90 percent lean market was also higher, trading at $139.64 while the 50 percent trim price hit $64.70. Last week, cow prices in cash markets gained $2-3 in most regions as a result of the slowing numbers of dairy cattle coming to market under the Cooperatives Working Together buyout. Vetterkind reported that most cows have been processed now and the impact on cow prices was minimal despite the numbers harvested. Although he said there may be more pressure to come this year.

"Sources indicate that an announcement on the (second) round of dairy buyout cows is close at hand (likely another 100,000 head)," he said. "However, as we can see from the (first) buyout, it shouldn’t affect the market that much."

The demand for ground beef and lower priced cuts remains strong, although an added burden from lower priced poultry, if the Chinese market remains closed very long, coupled with more dairy slaughter could hamper attempts to support the cow beef prices later this year, making early pregnancy check and culling an idea producers should consider this year to take advantage of the seasonally strong market this summer before normal culling begins later this fall. Analysts said they expected prices to trade near the present levels for the next several weeks unless pasture and range conditions take an unexpected turn for the worse in the near-term. However, they cautioned that a rally to last year’s levels is unlikely given the higher slaughter numbers already experienced and continued numbers of cattle being shipped from dairy operations even without another buyout.

Feeder cattle

Feeder cattle markets were typically light last week with many markets closed due to low numbers ahead of the Fourth of July celebration. The markets which held sales noted that the current upward trend remains intact. Last week’s release of the USDA crop estimate served to ignite additional buying interest as corn prices slumped limit lower last Tuesday. With corn prices in the mid-$3 range, cattle feeders were showing renewed interest in the long-weaned calves and yearlings last week at many sales. Calves without a full battery of value-added health products are starting to see bigger discounts as a result of the heat-related stress in feed yards this time of year. There were reports last week of significant losses in many feedlots in the northern half of the U.S. as heat and humidity took a toll. Feedlots in Iowa reported losses of 40 to 80 head per lot, with reports of as many as 160 head lost in a single feedlot as a result of the heat. With the dismal returns faced by cattle feeders over the past two years, few are willing to take a risk on calves at this point in the year and heavy discounts are being applied when they do, sources reported last week.

The corn market drop last week served to sharply boost feeder cattle contract prices last week on the Chicago Mercantile Exchange (CME) for the first three days of last week. The August CME contract rallied 87 points last Wednesday to trade at $103.70 at midday while September hit $102.17 and October was up 47 points at midday last Wednesday, trading at $102.02. The rally in the feeder cattle markets presented cow/calf operations an opportunity to lock in contracts or list calves on the summer video auctions at attractive prices last week. Vetterkind said he expected there may be additional upside opportunity in the contract trade to the $105-106 area in the near term, while near-term support remains in place in the $101-102 area, basis the August contract.

In cash markets last week, as noted, most runs were seasonally light, while many markets were closed for the week. However, there were a few good runs to be found in the central and southern Plains markets where the trend was mostly $2-3 higher. In Oklahoma City, OK, last week, feeder cattle were steady to $2 higher. There was very good demand noted for feeder cattle as second grade cattle were selling with very little discount to number one grade offerings. Steer and heifer calves sold steady to $2 higher on a light test.

In West Plains, MO, last week, steers 450-650 lbs. and weights over 900 lbs. were $2-4 higher; offerings in the 650-900 lb. class were firm to $2 higher. There was a limited test of light steer calves under 450 lbs. which traded fully steady. Heifers under 750 lbs. were $1-3 higher, over 750 lbs. were $3-5 higher. The supply at the sale was called moderate, with several loads of yearling cattle on tap which caused an exceptional high percentage of weights over 600 lbs. at the sale. Demand was called good to very good, with the best interest on weaned calves and yearlings, especially heifers.

Lighter runs of cattle farther west were the rule but prices were generally higher than the previous week. In Prescott, AZ, feeder steers and heifers were fully steady while yearlings also traded steady with the previous week on light numbers. In Salina, UT, feeder steers were $2-3 lower on similar offerings but lower numbers made the trend difficult to call. Feeder heifers were weak to $1 lower than the previous week.

At Shasta, CA, stocker and feeder cattle sold $2 lower than the previous week with single and small lots selling $7-15 back from top offerings. In Famoso, CA, there was good demand for greener quality stocker steers and heifers in the 450-600 lb. range while feeder steers and heifers in the 700-800 lb. class also met good demand and steady prices last week. — WLJ

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