Demand still sliding

Markets
Jul 17, 2009
by WLJ

Demand still sliding

Fed cattle trade was at a standstill last Thursday with feedlots and packers still priced several dollars apart. Feedlots were asking mostly $84-85 for their showlists and holding firm as a result of the improving August live cattle contract which stood at $85.50 near the close of last Thursday’s session. Packers, on the other hand, were seeing losing cutout prices, despite reduced production, as reason enough to bid lower for cattle on offer. Analysts called the market weaker to steady and predicted trade would hold off until sometime Friday before it developed fully.

Previous week trade in the south was at $82 live with dressed trade in Kansas at $129.50. Northern tier dressed cattle sold at $129. Nebraska feedlots sold live cattle at $81.50-82, while Colorado feed yards sold cattle at $82.50. Corn Belt fed cattle sold between $80.50 and $82 live and $129-130 dressed.

Production last week was expected to reach just 640,000 head, a drop of about 40,000 head per week from last year’s levels. By midweek, harvest was running 7,000 head behind the previous week’s level. However, the reduction did little to boost boxed beef prices with Choice product trading at $136.85, down $1.23 from the previous day, while Select slipped 55 cents to trade at $131.15.

The decline in price and soft demand for beef at the wholesale and retail levels continues to prevent packers from being able to improve movement. Until demand starts to show signs of improvement, it may be difficult to boost prices significantly. Last week, HedgersEdge.com predicted that second quarter beef demand numbers would show further signs of erosion. Analysts expect second quarter demand for Choice and Select product will slip 3.14 percent from the second quarter of 2008. Likewise, total beef demand, including hotel and restaurant, retail and export segments has fallen 10.43 percent from the same quarter last year. HedgersEdge.com analysts noted last week that the double digit weakness in the hotel and restaurant industry segment can be clearly seen in the total demand numbers.

"We see no improvement in away-from-home expenditures," they said, a sign that segment isn’t likely to rebound in the near-term.

Export demand may also continue to be soft for the foreseeable future, with overseas trading partners still reeling from the global economic downturn. Recently, the U.S. Meat Export Federation (USMEF) said it is likely the U.S. won’t hit the expected increase in beef exports. USMEF had been expecting a 7 percent increase in beef exports during 2009, however, the slow-down has made attaining that goal unlikely.

"We saw record increases in market share last year for both pork and beef, but with recession in place now, it will be more difficult to get to that 7 percent growth," Mark Jagels, executive committee member of USMEF, said. As recently as the first quarter, USMEF had predicted that U.S. beef exports could reach 1 million metric tons, particularly as consumers in Japan and South Korea traded down to lower-priced U.S. product, which was helped by the drop in the value of the U.S. dollar earlier this year, making the product more affordable overseas. Additionally, there was some hope that Japan would begin accepting U.S. product derived from older animals, however, there has been little progress on that front and Japanese elections are coming in September, a sign that it could be many more months before U.S. beef export restrictions are relaxed, particularly if the current majority party is ousted from power. Last week, export shipments to Japan reached 1,800 metric tons and the country has fallen from its former spot as the largest foreign buyer of U.S. beef, a spot now occupied by Mexico, which prefers lower-priced product. Shipments of beef to Mexico last week reached 3,200 metric tons.

In the cow beef markets last week, prices were under pressure as a result of the increase in cow slaughter numbers, however solid demand kept prices mostly steady with the previous week. The cow beef cutout last Thursday stood at 112.36, with cull cow prices mostly in the $42-52 range. The 90 percent lean product traded at $142.18 while the 50 percent trim reached $71.07. Unfortunately, the slaughter numbers may continue to increase, pressuring this market lower in the near-term as Cooperatives Working Together (CWT) has announced another, more rapid, time line for their next dairy buyout. CWT has set July 24 as the deadline for the next round of contracts. The deadline means that another 100,000 head or more dairy cattle could quickly be headed to processors as the industry works to combat over-production, causing further declines in cull cow prices.

Feeder cattle

The attention in the feeder cattle markets was once again focused on the video sales last week as Western Video Market held their big sale in Reno, NV, with more than 170,000 head on offer. Prices for yearling cattle were strong during the first two days of the sale with heavy 850-890 lb. cattle for nearby delivery selling in a range of $97.25-102.75 for cattle in the south-central U.S. The same class of yearlings from north-central states sold in a range of $95.25 to $102.75, while basis cut prices for West Coast cattle in the 850-885 lb. class down to $92.50-98. Calf prices during the sale were good, however, calves for nearby delivery were lower due to concerns among buyers over heat stress as many cattle feeding areas are currently dealing with triple digit temperatures. Calves for later delivery, particularly those with added value in the form of backgrounding or verification programs, were consistently in demand and prices were very good. North-central state calves in the 475-485 lb. range for October-November delivery sold in a range of $107-120 while those in the 510-530 lb. class with the same delivery brought $106.50 to $115.75. West Coast calves in the 600-630 lb. range for October-November delivery brought $96 to $102.50.

In the country, cash markets were trading mostly $1-3 higher last week on expectations of a bumper crop of corn, pegged by USDA at 12.3 billion bushels, and general weakness in the grain markets. A good run of 7,000 head in El Reno, OK, last Wednesday consisting of mostly 600-800 lb. yearling cattle brought a range of $100-106.

In West Plains, MO, steers and heifers over 400 lbs. sold $1-4 higher, with the majority of sales $2-3 higher. Light weight calves under 400 lbs. were not well tested last week, but the few on offer faced double digit declines from the previous week. Supply was called moderate and demand good to very good.

In Chino Valley, AZ, last week, feeder steers and heifers were $5-8 higher on a light test while good yearling steers were also $5-8 higher than the previous week and feeder heifers were steady. Meanwhile, at Cottonwood, CA, calves 650 lbs. and lighter were steady to $3 lower, as summer grass becomes harder to come by while yearlings were steady to $2 higher. — WLJ

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