Fed cattle trade started early last week with feedlots trading cattle Wednesday and Thursday at $129-131 dressed and at $82 live in Nebraska and the Corn Belt, mostly steady with the prior week’s trade. Southern trade came at $84.50 in Texas last Thursday and $84 in Kansas, 50 cents to $1 lower than the previous week. Supplies of fed cattle are starting to tighten up in most feeding regions, analysts said last week, which is forcing packers to pay up for inventory. There were a few heavy fed cattle being traded, mostly in the northern areas, but numbers were reportedly light and most should be cleared out after last week’s action where they traded at a discount.
Packers were working to protect boxed beef prices last week by trimming production levels on Wednesday to just 118,000 head, with one major packer reportedly going dark for the day. For the week through Thursday though, harvest numbers were still respectable with 495,000 head slaughtered, up from 391,000 for the holiday-shortened prior week, but down 5,000 from the same period last year. The move did offer some support to boxed prices which were down to $142.14 on Choice product at midday on Thursday while Select slipped back to $134.36, down just 5 cents from the prior day. However, movement was reportedly good, with 208 total loads trading hands during the morning session.
Overall beef demand remains in question, though, and despite lower harvest numbers than a year earlier and tighter fed cattle supplies, higher fed cattle and beef prices might remain elusive. In the previous few years, the export markets have been very supportive of beef prices as consumers abroad sought after highly-regarded U.S. beef, but consumers in Asia and elsewhere have also reigned in spending and appear that they will follow U.S. consumers in their reluctance to return to the beef market with spending dollars.
According to Chicago Mercantile Exchange (CME) analysts Steve Meyer and Len Steiner, the lagging export market coupled with sagging domestic restaurant sales have been highly disappointing for the beef business this year.
"The most disappointing has been the Korean market, which was the focus of much debate last year. Sales to Korea rose sharply in Q3 of last year as beef trade resumed. Since then, however, U.S. beef exports to Korea have slowed down, negatively impacting overall beef exports. Weekly shipments of beef muscle cuts to Korea in August were on average 725 metric tons per week, compared to an average of 3,031 metric tons last year, a 76 percent decline," they noted. "Part of the reason for the slower sales is that last year we saw a big rush of orders as Korean buyers were looking to fill the pipeline. Also, the currency has only recently begun to recover. For much of this year, the Korean won (has been) much stronger vs. the Australian currency (the top supplier of imported beef). A weaker U.S. dollar should be helpful, but we have still some ways to go as the won still is down some 15 percent since July 1, 2008, versus the U.S. dollar."
Although exports to Korea have been slow, they remain up 62.5 percent over a very low July 2008 level of 4.7 million pounds. However, it wasn’t until August 2008 that the Korean government eased export restrictions on U.S. beef, so the data isn’t as good as it first appears for the market. The release of August export data will offer a more precise picture of the Korean market.
The only other foreign buyer of U.S. beef to post year-over-year increases in July was Japan. Meyer and Steiner reported that shipments to Japan have started to show an increase over last year’s levels. Exports to Japan are up 10.8 percent at 33.7 million pounds on a carcass equivalent basis in July from year earlier levels. For the year-to-date, exports to Japan are up 12 percent from the same period in 2008.
Resuming trading relationships with foreign buyers of U.S. beef is critical to gaining traction in beef prices as U.S. consumers appear content to sit on the sidelines until economic conditions improve. The U.S. dollar has fallen in value against other foreign currencies, helping to improve the affordability of U.S. beef in outside markets. A focus on foreign markets and the passage of key free trade agreements by Congress could help to significantly improve U.S. beef prices at a critical time for cattle producers.
Feeder cattle prices last week were hit by volatile corn market swings as concerns about potential yields took hold of commodity markets. The corn crop progress is lagging well behind last year’s levels and weather forecasts last week hinted at an early damaging frost across much of the northern Corn Belt, the result of which had the possibility of cutting into crop expectations which place the harvest near the 12.8 billion bushel level. However, as the week wore on and the chances of such an event diminished, corn prices fell back from their early week run up. Last Thursday, December contract corn on the CME was trading at $3.28 per bushel, an increase of 19 cents from a week prior. The impact took a toll on calf prices at many auctions and in the contract trade. On the CME last Thursday, calf prices were sharply lower, with September falling 137 points to settle at $96.90 while October feeders were down 150 points, closing at $96.95. November contracts closed down 132 points at $97.22.
Auction markets fared better last week than the contract trade, with only a few markets reporting prices lower than recent sales. Most markets were reporting mainly steady prices. In Galt, CA, last week, prices on all classes of feeder cattle were called steady with high quality large lots of 500-600 pound steers bringing a range of $95-105 while 600-700 pound offerings sold between $90 and $99. Heifers in the 500-600 pound class sold from $87-98 while those in the 600-700 pound range sold between $80 and $87. Meanwhile, in Cottonwood, CA, at a special anniversary sale, cattle under 700 pounds brought prices $3-4 higher on top lots while yearlings were called $1-2 higher on good quality cattle. Farther east in Prescott, AZ, steer and heifer calves and yearlings were called steady with the previous week. To the north in Blackfoot, ID, feeder cattle were called $1-2 lower than the prior week’s sale. Steers in the 500-600 pound range sold between $88 and $100. Steers from 600-700 pounds sold in a range of $86 to $96 while heifermates in both classes were called $3-7 back.
In markets farther east at La Junta, CO, feeder cattle last week were called mostly steady across all weight classes while in Dodge City, KS, lighter weights were available in low numbers and the market was not well tested, although a steady undertone was noted. Steers in the 600-800 pound range were also steady, while heavy weight 800-900 pound cattle were called $1 lower than the prior week. In Salina, KS, steers from 350-650 pounds were called steady to $2 lower and 650-750 pound offerings were reportedly steady to $2 higher. Heifers across all classes were called steady.
Farther south in Oklahoma City, OK, rainy weather last week helped improve expectations for this year’s winter wheat grazing prospects just ahead of planting, and feeder cattle buyers bid prices on all classes of cattle $2 higher than the prior week on moderate to good demand for feeder cattle and good demand for calves bound for grazing. Meanwhile, in Joplin, MO, compared to the sale two weeks prior, steer calves under 450 pounds sold steady while those over 450 pounds were called $1-3 lower. Heifer calves were $2-4 lower and yearlings sold steady. Demand was reportedly moderate to light for calves and moderate for yearlings with moderate supply. — WLJ