Drop value adds boost to fed price

Markets
Aug 28, 2009
by WLJ

Drop value adds

boost to fed price

Fed cattle trade started off with light volume last Wednesday at $130-$132 dressed in the Corn Belt along with some $131-132 dressed and $83 live trade in Nebraska. Analysts predicted that last week’s trade would move $1 higher than the prior week in most areas after support firmed in the contract markets and boxed beef showed some resiliency. Trade in the south was expected to come in at least steady at $83, with some predicting trade which could inch up to $84 in some instances, as lower numbers of market-ready cattle were reported last week on feed yard showlists.

The packing industry was working last week to fulfill orders for the Labor Day weekend holiday which was adding some support to the market as they upped production levels. Harvest through Thursday last week was estimated at a healthy 509,000 head, up 3,000 from the week before and even with the same period in 2008. The increased level of production should help clear out any cattle which have been stacked up in feedlots and pave the way for better pricing into the end of the year. Marketings of fed cattle have been consistently slower than last year, which is partially a function of smaller numbers. However, the demand for beef remains soft among consumers, particularly in the hotel and restaurant segments where the industry typically gains much value due to the consumption of high-value middle meats. There was some sign last week that buyers were once again stepping back into the market with analyst Troy Vetterkind, of Vetterkind Cattle Brokerage reporting that buyers who had been working hand-to-mouth were showing interest in advance purchases of beef to meet their needs for September and October features. Recent surveys have shown that consumer confidence is again on the rise, so this interest among buyers could be working toward capitalizing on a perceived willingness among consumers to spend on beef purchases after a long period of trading down for lower-priced proteins.

Vetterkind said that last week’s seasonal improvement to beef sales was likely to continue for at least the next two weeks as buyers secure their Labor Day needs, leaving the spot market for purchases tight. Likewise, cow beef markets were benefitting from holiday demand last week as consumers stock up for holiday hamburger grilling. Adding to support in the cow beef markets was continued difficulty among grinders in sourcing foreign product due to unfavorable exchange rates. Last Thursday, the cow beef cutout stood at $106.03, up more than $1 from the prior day, despite heavy slaughter of dairy cattle. The 90 percent lean was trading higher as well at $130.65 while the 50 percent trim was commanding $62.54, down $5 from the previous Thursday.

"Demand for chuck and round meat should remain firm until the middle of September, where we could see procurement of said items back off a little. This could stall boxed beef prices for a minute, however at that same time we will see beef buyers begin to enter the market for middle meats ahead of the end-of-year holiday season and fed cattle slaughters will likely be at their tightest for the year," Vetterkind noted. "This should help to push boxed beef prices up to the $150 level (on Choice product.)"

Another positive for the industry, albeit a somewhat less significant sign, is the bounce in hide and offal prices since the start of the year. Fourth quarter 2008 hide and offal prices were in the mid- to high- $5 per hundredweight (cwt.) range. However, the increase in demand for the product among foreign buyers has helped that market steadily increase over the past eight months. The added fact that car manufacturers have restarted or increased production in the wake of the government’s stimulus plan for the auto industry has bolstered prices even farther as hide demand increases. Sources had said that there was virtually no demand among foreign tanneries for hides earlier this year as auto and shoe industry buyers were on the sidelines. The result was a sharp drop in the market for hides. During the first week in January, the hide and offal value for steers was calculated by USDA at $6.38 per cwt. Last Thursday, that price was up more than $3 per cwt. to $9.43 per cwt., a difference of $57.16 per head in increased value per head, a significant increase from earlier this year.

Feeder cattle

In the central and southern states last week, the fall runs of cattle were beginning to make their way to market and buyers were becoming more selective in their purchases as numbers allowed them to be picky. The high cost of replacements compared to current feeding margins is making feedlot losses intolerable and loud, fleshy calves were reportedly being discounted heavily by buyers last week. Fluctuating temperatures, with cooler than normal conditions being reported in some feeding areas, were already causing health issues with younger cattle last week. Northern states are already noting cool evening temperatures, which are making newly received calves sick according to some reports. This fall, sellers can expect to see calves fresh off the cow discounted more heavily than normal as a result of the red ink in the feeding sector. Even with tight supplies of feeder cattle expected, the industry is counting pre-conditioning as a condition of sale. Buyers with pre-conditioned calves are regularly finding ready demand for their cattle, regardless of whether it is at an auction market, video sale or private treaty. Fresh-weaned calves are going to find buyers more hesitant to take a risk this fall. Any risk taken is likely to result in a substantial discount, as was evident in many southern Plains markets last week. For example, in West Plains, MO, last week, steer calves over 450 lbs. sold $2-4 lower. There was reportedly a light test of the market on cattle under 450 lbs., which sold $4-8 lower with buyers being extremely selective on quality and heavy discounts offered on loud lots. Steer yearlings over 700 lbs. were called steady to $3 lower, with most sales fully $2 lower. Heifer calves sold $2-4 lower, except for the more-sought-after 400-550 lb. heifers which sold about steady. Yearling heifers were mostly $2 lower. Supply and demand at the sale were called moderate with big numbers of western yearlings coming off grass.

In the southern Plains, farmers are preparing to plant wheat in September and wheat grazing calculations are being prepared in advance of feeder cattle purchases. Oklahoma State University, extension livestock marketing specialist Derrell Peel, estimated in mid-August that there may be some good opportunity available for producers grazing winter wheat this year in the southern Plains. His calculations for 450 lb. steers grazing owned wheat could return more than $60 per head. Calculations for heavier 550 lb. steers were slightly lower at $54.30 per head returned under similar grazing criteria although he cautioned that producers should consider their own individual operations carefully before jumping into the market.

"Last year’s fall cattle price collapse is not expected to happen again this year and prices next spring are more likely to hold steady with some potential to increase if the economy shows solid improvement in the next few months," Peel said. "However, there is still considerable risk due to feed markets, the economy and international trade."

Stocker cattle prices in Oklahoma City, OK, were mostly $1 lower last week despite moderate to good demand among buyers. There has been some good precipitation in the area over the past two weeks. Pastures remain green and the prospects for winter wheat appear good at the present time.

Meanwhile, in La Junta, CO, last week feeder cattle were lightly tested, with light steer calves selling $2 higher between $105 and $118 while heavy steer calves were also $2 higher at $100-108.50. Lightweight heifers were steady at $92.50-103, while heavier heifer calves were steady to $2 higher at $90-95. — WLJ

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