Fed prices gain strength

Aug 14, 2009
by WLJ

Fed prices gain strength

Cash trade was very quiet at midday last Thursday with just a handful of dressed cattle trading through the first half of the week in the north at mostly steady money. There were bids of $132 on dressed cattle in Nebraska and the Corn Belt last Thursday, up $1-2 from the prior week’s trade, which was helping to support live cattle expectations in the southern tier where trade was expected to develop at $82-83, up $1 from the previous week.

Boxed beef prices were moving slightly higher last week as orders begin to come in for pre-Labor Day holiday features. There was some strength in rib and loin primals at midweek last week, which was helping to support the better cash expectations among cattle feeders as the cutout prices firmed. Last Thursday, Choice was trading down 44 cents at $140.75, while Select was up 42 cents at $134.76. Many market analysts noted that the holiday buying spree should help to support beef and cattle prices over the next couple of weeks. There was some hope last week among retailers that the worst of the economic crunch was in the past and that consumer spending would begin to heal, paving the way for better pricing action in the second half of the year.

Consumer spending dipped slightly in July, however, most economists had factored the slide into their expectations and retailers reported monthly results that were mostly in-line with expectations last week, indicating that perhaps the bottom was in the market and that brighter days lay ahead in terms of retail expenditures which would be supportive of beef prices. The tighter supply of fed cattle has some packer buyers willing to pay higher prices, however, the uncertainty on the demand side has kept prices in check, despite lower numbers.

Last week, University of Missouri economists Glenn Grimes and Ron Plain downplayed the impact that lower supply would have on beef prices, saying that it has a limited impact on how it can affect prices in today’s production cycle.

"There has been substantial press about the July 1 cattle inventory probably being the smallest since 1959 and the calf crop in 2009 being the smallest since 1950. Beef and veal production in 2008 at 26.7 billion pounds was the third largest of record and only 2.2 percent below the record high annual production of beef and veal," the pair noted. They said that the modern feeding industry has become far more efficient in producing more pounds of beef per animal with a larger percentage of the annual calf crop being fed to more than 1,000 pounds. That in turn has led to record levels of beef being produced per animal.

"These are interesting statistics, but being the smallest calf crop in 50 years is not very important when we are getting about 2.4 times as much beef and veal produced per calf than in the early ’50s," Grimes and Plain reported. They said the current forecast published by the Agricultural and Applied Economics Association forecasts beef production in 2010 to be down from 2009 but by only 1.3 percent.

However, the report notes that beef demand is expected to be enough stronger in 2010 than 2009 to result in choice slaughter steers averaging $90 per cwt., up about 6.5 percent from 2009. Likewise, the report predicted feeder steers weighing 750-800 pounds at Oklahoma City averaging $103.55 per cwt., up about 5 percent from 2009. However, the pair said they expect those estimates may be overdone.

"In our opinion, these estimates are likely to be a little higher than we will have for cattle prices in 2010," said Grimes and Plain.

Cow markets last week were under pressure with the number of beef and dairy cattle heading to slaughter inching higher. The bulk of the numbers being harvested are beef cattle, however, dairy culls being removed from production as a result of the latest herd retirement buyout are also expected to begin adding to the mix before the end of the month, which would add even more downward pressure to cull cow pricing and the cow beef cutout. Last Thursday, the cow beef cutout stood at $105.26, down $3 from the previous week. The 90 percent lean product was more than $5 lower than the prior week, trading at $131.16, while the 50 percent trim product was off nearly $3 from the previous Thursday at $69.91. The decline had cow markets trading mostly $1-3 lower last week.

Feeder cattle

Feeder cattle prices in most auction markets last week were moving $1-3 higher as the market prepares for a lighter than normal calf crop. The slow trickle of calves and yearlings moving to market has increased the bidding action on available lots in many areas. Several regions of the country still report having green grass, which has cow/calf producers hanging on to cattle longer than they have in recent years. It has also increased buying interest in those areas as producers with extra grass compete with buyers to secure whatever calves they can to take advantage of the grass condition before it fades.

Mississippi State University Extension economists John Anderson and John Riley said last week that the futures market has also been supportive to feeder cattle prices despite its unusually narrow trading range this summer.

"In the past few weeks, the range of contract prices has tightened even more. On July 24th, the range of feeder cattle futures closing prices over the next 12 months was only 85 cents," they said last week. "Although this date was the most dramatic, the trend has been the same all summer and continues to be that way today. This implies that the market has placed a premium on the November 2009 through May 2010 contracts when compared to their seasonal average price."

The pair noted that the price window started to tighten at the same time corn prices started their free-fall earlier this year, adding to the premium in the deferred contracts. The continuing drop in feedlot placements adds to that incentive to drive prices higher in the months ahead, they said.

Anderson and Riley noted that cash prices in their portion of the country followed a normal seasonal pattern through June of this year. Since that time, however, they have been mostly flat—similar to the pattern seen in most of the country—when they are normally moving higher.

"Looking back, even during the abnormality that was 2008, southeast steer prices maintained a fairly consistent pattern," they said. "Taking into account the premium currently in place for future months, the seasonal break that takes place in late September/early October will likely be less dramatic as we move into the fall run of feeder cattle in the southeast."

In El Reno, OK, last Wednesday, feeder cattle sold $1-3 higher with the most advance on feeder heifers. Steer and heifer calves reportedly sold $2-4 higher with very good demand for all classes of cattle on offer as a result of rain over many parts of the state in the several days leading up to the sale. There were a number of new crop, high quality calves at the sale which also added to buying interest last week.

The sale in West Plains, MO, turned in mixed results last week with steers in the 550-750 lb. class selling steady to $2 higher, with other weights, especially those under 550 lbs. and over 750 lbs., called steady to $2 lower. Heifers in the 500-650 lb. range sold $2-4 higher, with weights under 500 lbs. and those over 650 lbs. selling steady with moderate supply and good demand at the sale, despite quality called less attractive than in previous weeks.

In Hub City, SD, last week, there was good to very good demand reported for all classes of steers under 1,000 lbs., particularly those suited to go back to grass, as the state has experienced a very good growing seaon this year, leaving producers with plenty of forage available for late summer and fall grazing. Feeder heifer numbers were too light to offer a trend, an indication that some producers may be holding back females to grow their herds after back-to-back solid forage growing seasons in the state.

Farther west, most markets continue to report light numbers of spring calves, with good grazing conditions allowing producers to keep calves back until later in the fall. In the few markets where numbers allow for a comparison, calves and feeders are finding mostly good demand and climbing prices. For example, in Prescott, AZ, last week, Choice steers and heifer calves sold $2-4 higher and yearlings were called steady. In Cottonwood, CA, last week, stocker cattle sold $3-6 higher while yearlings were called $1-3 higher. And in Famoso, CA, there was good demand noted for the greener 450-600 lb. stocker cattle. Feeder steers and heifers in the 700-800 lb. class were also selling with good demand and prices called steady with the previous week. — WLJ