Market-ready fed cattle supplies start to tighten
Fed cattle trade was working toward resolving the last of the supply issues last week as feedlots reportedly moved good numbers of heavy cattle, particularly in parts of the Corn Belt where they had been stacking up in some feedlots. Trade last Wednesday on dressed cattle was in the $130-131 range for the region. Elsewhere, trade was slower to develop, with little action evident on live cattle in the southern Plains where bids were still several dollars apart last Thursday. Trade was expected in a range of $84-85 when it finally broke loose.
Through the last half of the third quarter, fed cattle supplies should tighten considerably as feedlots have done a good job marketing cattle despite lackluster demand from consumers, retailers and the hotel and restaurant segments through much of the summer. Although demand has shown a slight uptick, according to consumer surveys conducted by the beef checkoff through the summer, there remains much work to be done if the industry is to benefit significantly from the expected tight numbers of cattle through the end of the year. If demand from both foreign and domestic buyers doesn’t show an increase, any price advance is likely to be limited. Last week, the live cattle contract trade showed that the market might have a tough time breaking the $90 mark this winter without help from the weather. The October and December live cattle futures traded at $87.13 and $86.95, respectively, after selling off earlier in the week as a result of broad market weakness. The futures market, although oversold, was showing there may be a limit to the expected upside advance through the end of the year without some outside support. Last Thursday, boxed beef prices were mixed at midday with the Choice product gaining 12 cents to trade at $142.89 while Select was off 53 cents at $134.82. Movement was moderate with 150 loads of fabricated product and 61 loads of trim and grind trading hands.
One bright sign for beef was the news that pork producers were going to gain some help in the form of a $30 million pork purchase by USDA. Depressed pork prices have presented a challenge in the current economic climate as consumers make their purchases on absolute bottom-line price. Despite the good beef price features at many retailers, consumers continue to trade down for their protein needs and beef has suffered as a result. USDA’s purchase last week could help bolster pork prices, at least temporarily, adding support for beef to move slightly higher.
Packers were working to fill last-minute orders for the Labor Day holiday last week and harvest levels were strong as a result. For the week through last Thursday, packers had harvested an estimated 504,000 head compared to 500,000 for the same period last week. The increase in production and feedlots’ ability to market some heavy cattle last week should serve to reduce carcass weights in the weeks ahead, assuming cattle are marketed aggressively. Live weights for the week ending Aug. 29 showed a small drop, averaging 1,293, up 5 pounds from the previous week. Dressed weights were three pounds higher than the previous week at 788 pounds. The result was an increase in production of 2.9 million pounds, week to week, despite an increase in slaughter level of just 1,000 head. That added carcass weight limits packers' need to buy additional cattle and subsequently limits upside fed cattle prices. For every additional pound in average carcass weight, 1,000 fewer cattle are needed for production. As a result, the tighter supply and expected reduction in carcass weights as the industry moves into the end of the year should help support higher beef prices.
Last week, the cow beef markets were under pressure as the latest Cooperatives Working Together (CWT) buyout progressed with the retirement of 90,000 head of dairy cattle. The buyout, which is expected to be complete by October, coupled with a seasonal increase in beef cow slaughter into fall is expected to pressure the cow markets, according to North Dakota State University agricultural economist Tim Petry.
"The typical seasonal price pattern for cows shows a sharp decline in October and November when heavy beef cow culling occurs," Petry explained.
Last week, the cow beef cutout price stood at $103.56, a decline of almost $3 from the previous week. The 90 percent lean product was more than $4 lower than the previous week at $127.63 and the 50 percent trim was down nearly $6 from a week earlier at $56.62.
Despite the retirement of almost 200,000 head through the CWT buyout and the liquidation of a number of dairies nationwide this summer, milk prices have shown little sign of recovery yet, which could lead to an additional CWT buyout before the end of the year, potentially adding more pressure, Petry said.
"In addition, the western Canadian provinces are experiencing abnormally dry conditions. If that dry pattern continues, Canadian cow imports, which so far are near last year’s levels, could increase," he said. "And consumer demand is showing little signs of improvement as the economic recession lingers."
The result could be a difficult cull cow market for beef producers this fall. Those taking advantage of alternative marketing of cull cows could see significant price advantages. The early selling of cull cows, or overwintering with inexpensive feed to produce spring white-fats, could be viable options for producers looking for their best price alternatives rather than shipping culls into a down market this fall.
Weakness in the grain markets as a result of a bump in corn crop expectations last week added a little strength to feeder cattle prices, although the market was narrowly mixed in most areas. There remains a great deal of uncertainty in the strength of the U.S. economic recovery and some of that uncertainty is translating into volatility in commodity markets. In the case of feeder cattle, contracts traded mostly lower last week, including a sharp drop last Tuesday and Wednesday as the broader equity market pulled prices sharply lower across the board. However, despite the lower undertone to the market, there were bright spots, Petry noted last week.
"Yearling prices increased in Montana and Nebraska with good feedlot demand as the corn crop looks very good in the western Corn Belt. But Oklahoma prices were weaker," he reported. "Calf prices were lower in Montana and Oklahoma, but saw a $4.84 recovery in Nebraska after the previous week’s $5.36 decline. Calf prices ranged from $106.50 to $122.50 at Nebraska auctions where buyers sorted for quality."
Elsewhere, markets were also mixed last week with buyers discounting short-weaned calves due to concerns about potential health issues. On the West Coast, calves remain mostly in short supply as ample grass has allowed producers to keep their cattle on grass longer than in recent years. As a result, sales last week were mostly light and many markets reported no trend due to the low volume. However, in Cottonwood, CA, the market was reportedly $3-8 higher for cattle under 700 lbs. and quality at the sale was reportedly stronger with more weaned calves on offer. Yearling cattle sold $1 higher. At Madera, CA, last week,the stocker/feeder market was called steady with the previous week on the better cattle. Plain and single cattle were called $8-12 behind the choice cattle.
In Blackfoot, ID, last week, feeder cattle were called steady to $1 lower on a light offering, while in Vale, OR, the feeder cattle market was lightly tested with lightweight steers down $1-3 from the previous week while yearlings were steady to $1 higher.
At the market in Clovis, NM, feeder steers sold steady except 500-600 lb. cattle which were $6-8 lower. Heifers were called $5-7 lower on active trade and good demand. Farther north in Torrington, WY, last week, steers and heifers were called mostly steady on comparable lots with some instances of $1 lower on heavy weights over 950 lbs. Demand at the sale was called good. — WLJ