Fed cattle trade comes in steady to $1 lower

Markets
Aug 7, 2009
by WLJ

Fed cattle trade comes in steady to $1 lower

Light fed cattle trade was underway in parts of the Corn Belt where cattle were selling at $128-129 dressed last Thursday on light volume. Feedlots in Nebraska moved cattle at $129-130 while 1,000 head were sold in Kansas and Texas on Wednesday at $81 live. Although volume was still too light to call the trend for the week, it looked to come in steady to $1 lower than the previous week in most areas.

A sharp drop in the Choice cutout last Wednesday, combined with some weakness in the commodity markets and a drop in packer margins, made bargaining difficult last week in nearly all classes of cattle, including fed cattle. There was some good news in the lower beef cutout prices. The price drop spurred some significant buying activity among the wholesale sector which was expected to help prop up prices somewhat, preventing additional steep declines last week. The Choice cutout at midday last Thursday stood at $140.75, slightly higher than the previous day’s close, while Select was off 57 cents, trading at $134.39. Slaughter volume for the week was expected to reach about 635,000 head, numbers which remain lackluster as beef demand drags on current production needs.

An additional factor weighing on beef prices is the relatively inexpensive competing proteins on the market. Last Wednesday, Russia and China delisted several pork and poultry plants without warning or explanation, which will result in a significant increase of the two products on the U.S. market causing further price pressures for the three proteins. Consumers are paying close attention to the absolute price of their purchases and inexpensive pork and poultry are difficult competitors for beef at the present time in the battle for consumer dollars, limiting any potential price advance for beef in the near-term. That prospect could begin to weigh on deferred month live cattle futures where there are premiums available at the present time. Stacking up cattle to target those premiums could eliminate any potential benefit seen as a result of the current perception that there will be a shortage of available market-ready cattle come fall. There may not be enough consumer demand to absorb those cattle, so unless they are properly hedged, the advantages of pushing supplies back may be limited.

Cull cow prices and, subsequently, the cow beef complex were also under pressure last week after Cooperatives Working Together (CWT) announced the results of the latest buyout offer. According to CWT, the second round of retirements this year will send 87,000 head of dairy cattle to processors starting by the end of the month as operations are inspected. That will increase the supply of available cull cows going into the market during the fall beef cow marketing season, keeping a lid on prices despite the relatively strong demand for cow beef products. Last week, the cow beef cutout slipped slightly to $109.30 on Thursday morning with the 90 percent lean trading at $137.75, down slightly from a week earlier, while the 50 percent trim was mostly steady with the prior Thursday’s level at $73.10.

Though dairy cattle have not yet started moving to the market as a part of CWT’s herd retirement scheme, they are still being sold in large numbers by dairy operations which are struggling with negative margins in most areas of the country. This disorderly selling process was expected to be limited by CWT’s offer, however, as a result of several factors, the bidding process has been avoided by many in the second round of 2009 and the buyout did not reach its previously projected retirement level of 100,000 head. As it is, the dairy industry is sending nearly 50,000 head per week to slaughter, with the largest numbers in the traditional dairy areas in the upper Midwest and on the West Coast. Slaughter for the week ending July 25 in those two areas is reaching 16,300 head and 14,300 head respectively.

Feeder cattle

Rising grain prices and the activity in fed cattle markets last week limited the market potential of feeder cattle last week with several markets reporting prices $1-2 lower than the previous week as numbers begin to pick up in some states. There are growing numbers of yearling feeder cattle being moved off pastures in the southern tier states such as Texas and Oklahoma and in the West. Reports are these cattle are coming in very near, or in some cases, above contracted weights as a result of the good pasture and range conditions this year.

In places where those cattle are bing shipped to auction, they are finding auction market prices softer than recent weeks as grain prices rise and grass continues to dry out as summer wears on, according to Virginia Tech Commodity Marketing Agent Mike Roberts.

"This is reducing demand for replacement feeders despite empty pens everywhere showing tight cattle supplies. The U.S. calf crop is expected to reach lows in 2010 not seen in 59 years," he said. "It is a very good idea to sell feeders on the heavy side if you have grass as feeder buyers will want to buy as little grain as possible."

In El Reno, OK, last week, feeder steers sold steady to $2 lower with the most decline on cattle over 800 lbs. Feeder heifers sold $1-2 lower, with the few on offer over 800 lbs. called steady. Demand was reportedly very good for feeder cattle despite the volatility in futures markets during the week. Calves were reportedly lightly tested although demand was reportedly very good for those on offer despite the hot weather in that portion of the country, with steer calves selling steady and heifer calves called $3-6 higher.

In Joplin, MO, last week, steer calves were called steady to $2 higher and heifer calves sold $1-3 lower. Yearling steers and heifers sold steady to $2 lower. Demand and supply at the sale were reportedly moderate.

At the sale in Hub City, SD, last Wednesday, feeder steers were selling steady to $3 lower. Feeder heifers were called $1-3 lower with moderate to good demand reported. Meanwhile, in La Junta, CO, last week, steer calves sold $2-3 higher with light weights in a range of $105-114. Heavier calves brought a range of $108-115. Heifer calves were called steady in a range of $90-102. — WLJ

 

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