Supply of market-ready cattle stacking up

Jul 31, 2009
by WLJ

Supply of market-ready cattle stacking up

There was some early light trade in the southern Plains last Thursday down $1 from the previous week at $82, although volume was light and not enough to call a trend. Some light Corn Belt trade was also $1 lower at $131 dressed. Analysts noted last week that the relatively light southern Plains trade volume the past few weeks was catching up with feeders and decreasing leverage. The midweek drop in Chicago Mercantile Exchange (CME) contract trade was also adding pressure to prices last week after live cattle closed nearly $1 lower on most contracts. Conditions in the northern Plains were slightly more conducive to a higher market, according to Vetterkind Cattle Brokerage analyst Troy Vetterkind, although he noted there were some reports of southern cattle being trucked to alleviate tight supplies at short-bought packing plants in the north. He noted that would serve to limit any significant gains in the market last week.

"We are either going to need to see futures come back from yesterday’s (July 29) sell-off or get these backed up cattle in the panhandle sold before we are going to be able to realize any further rally potential in the cattle market," Vetterkind said. "And, I don’t think one can happen without the other. The southern trade looks like it isn’t going to be any better than $82 right now. The northern trade could manage to hold steady, but more than likely it will be 50 cents to $1 lower at $82-83 live and $130-132 dressed."

There was some improvement in drop prices as offal markets improved and boxed beef prices traded mostly steady to slightly lower last week, adding to packer margins. The drop value was up to $8.15 per cwt. at midweek, an increase of more than a $1 from two weeks earlier. Choice product last Thursday was trading down 30 cents at $142.39 while Select was up 2 cents at $137.02 on light trade. On the positive side of the equation, packers were able to maintain cutout prices without reducing production levels; in fact, production last week was much improved. For the week through last Thursday, production stood at 505,000 head, up 9,000 from the same period a week earlier and 3,000 head more than the same period in 2008.

One of the primary drivers of the beef market last year, the export market, continues to hold its own, although it is starting to show signs of stress. If exports don’t pick up soon, it could further hamper efforts to improve cutout values as domestic consumers continue to reign in spending for beef. Beef sales overseas had been relatively robust during the first quarter of 2009, however, over the past two months, sales have been falling, according to weekly USDA data.

According to the most recent report, issued last week, U.S. exports of fresh or frozen beef for the week ending July 16 were 8,400 metric tons lower than the same period in 2008. That’s a decline of 23 percent from last year. Shipments to South Korea have been particularly disappointing after an initial boom after the market opened last fall, according to CME analysts Steve Meyer and Len Steiner.

"But after a three-month surge, averaging about 3,000 metric tons per week, beef shipments to that market have declined and for the week ending July 16, were just 500 metric tons," they noted last week. "That U.S. beef exports remained generally flat despite a notably lower U.S. dollar in the second quarter also is disappointing. Mexico remains the largest market for U.S. beef and shipments for the week ending July 16 were just 2,800 metric tons, some 43 percent lower than a year ago. In the last six weeks, beef exports to Mexico have been on average 28 percent lower than a year ago."

The global recession continues to take a toll on foreign beef buyers. It was noted last week that exports to Russia are also being affected by the downturn. Although volume is up from year ago levels, prices are down as buyers there move away from the higher-valued middle meats in favor of lower priced cuts of beef as consumers there continue to trade down.

Feeder cattle

The summer run of video sales continued last week with a strong showing for the Superior Video Auction sale in Winnemucca, NV, July 27-31, with more than 143,000 head on offer. Prices were strong once again, with good demand across the board for all weight classes. Cattle from the Intermountain west found good buying interest with 500-540 lb. steers bringing a range of $104-116 with heifers in the same class selling $9-11 back. Heavy weight cattle also sold well with Intermountain region steers in the 800-840 lb. class selling from $94-$103.50 while steers in the 900-940 lb. range sold between $93.25 and $103. Mid-weight steers from 500-535 lbs. in the southern Plains brought a range of $96-121.75 while 550-590 lb. steers sold between $87.75 and $115 with the best interest on preconditioned calves for later fall delivery. Lighter weight cattle for nearby delivery received some discounts from buyers as weather remains a concern for feedlots receiving cattle.

Likewise, auction markets last week saw some slide in prices being offered by buyers, particularly in areas of the country where it remains hot and humid. Health concerns remain foremost on buyers’ mind and fleshy cattle are selling at significant discounts. Volume in some central and southern Plains markets is starting to pick up as cattle are moved off grass as it dries up, particularly in portions of central and south Texas where drought conditions are the worst. Conditions are also beginning to send cattle to market in portions of the Oklahoma Panhandle and in parts of the West where temperatures soared last week, particularly in Washington and Oregon.

Last week, El Reno, OK, which hosted a run of 6,000 head, sold feeder steers and heifers $1-2 lower with some instances of $3 lower on steers over 900 lbs. Demand was called good for feeder cattle. Steer calves sold steady to $2 higher on good demand. The limited numbers of heifer calves sold $1-3 lower on moderate demand. The area received some good precipitation at midweek, last week, which reportedly helped improve the general mood of buyers and tempered the price downturn somewhat.

In Joplin, MO, steer calves sold steady while heifer calves sold steady to $2 lower. Yearling steers under 750 lbs. were called steady to $1 higher while steers over 750 lbs. and yearling heifers were steady to $1 lower on moderate supply and demand.

In South Dakota last week, where yearling cattle are starting to come to market off grass, there is little in the way of trend for lightweight cattle, although demand was reportedly good. Yearling cattle trended $2-3 higher on cattle over 800 lbs. on very good demand.

In Junction City, OR, last week, a light run of feeder cattle sold steady while in Davenport, WA, a similarly light run of feeder cattle were also called steady. A light run of feeder cattle at the market in Prescott, AZ, was called $2-4 lower than the previous week while yearling cattle sold fully steady.

At the market in Cottonwood, CA, last week, stocker and feeder cattle sold $2-5 higher on increased numbers from recent weeks. Quality was also reportedly better than in the recent past. Small lots and singles sold $7-12 back from top offerings.

Elsewhere in the Intermountain and western portions of the U.S., feeder cattle numbers remain light with a few direct sales reported. Buyer inquiry is also reportedly seasonally light for the time being. — WLJ