Fed cattle trade falls $1-2

Oct 9, 2009
by WLJ

Fed cattle trade falls $1-2

The fed cattle market softened a little more last week as early trade was hampered by heavy carcass weights, deliveries of heavy cattle against the October live cattle contract, and continued erosion in boxed beef prices. Early trade in the northern Plains and Colorado came in $1-2 lower on the live cattle at $80-81 in Nebraska and at $79 in the Corn Belt. Dressed sales in Nebraska and Iowa were $2-3 lower from $125-126. The handful of sales of cattle in the south on Wednesday came at $81.50, with clean-up trade on Thursday at $82 in Texas, down $1-1.50 from the prior week. Dressed sales in Kansas were down $2.50 at $128.50 last Wednesday.

Heavy carcasses, particularly in the Corn Belt, are allowing packers to keep production steady with fewer numbers, which is eating into the position of cattle feeders working to move the fed markets higher. With lackluster demand and downward price action for beef, there is little incentive for packers to wade into the market and buy bigger numbers of cattle. Until the supply of heavy animals is cleaned up, the market is likely to continue to trade under downward pressure for the next couple of weeks.

The boxed beef markets last week were lower on Wednesday with Choice trading down $1.09 at $133.50 while the Select was off 49 cents at $128.91. Production was trimmed back from the previous week with the industry looking for a total harvest of 630,000 head, approximately 3,000-4,000 head fewer than the prior week’s harvest, which should help to stabilize the cutout values.

However, looking forward, there is reason to believe the market may be close to bumping into the bottom. Seasonally, market-ready fed cattle numbers should be tightening up and retail and wholesale buyers are showing some interest in the more valuable rib primals ahead of the holiday buying season. In addition, the boxed beef cutout prices are nearing the level of support which has been a solid bottom for the market since early in 2006. All of those factors should help to put some support under prices.

Livestock Marketing Information Center Director Jim Robb said last week that the corn market should also stabilize in the next few weeks as crop reports begin to get a handle on the corn production for the year. He explained that although weather was taking a toll on some of the late-maturing crop, that corn will still be coming to market, although last week, the market appeared to be trading as if it might not.

"The reality is that corn isn’t likely to sit in the field until 2010. They are going to get it harvested as soon as things dry out a little. There are a lot of reports of light test weights right now and that’s going to be good news for cattle producers," Robb explained. "There is going to be corn that isn’t going to make it to the export market, and it might be too light for the poultry producers, and all of that’s going to make for some pretty attractively priced feedstuffs. It’s going to be sold at a big discount by farmers because most of them won’t keep it because they don’t have animals around anymore to feed it to."

Robb said that the losses by the cattle feeding sector on closeouts in the past quarter were losses that many hadn’t figured on ahead of time, which was hampering the feeder cattle markets, but looking ahead, he said he doesn’t see the kinds of market shocks in the fourth quarter that we had last year and as a result, prices could be close to putting in a bottom in the next few weeks.

"Are things going to be as bad as they were last year? Probably not. But, are things in a pretty precarious situation for the next three to four weeks? Absolutely," said Robb. "Right now, everyone’s just standing back from the market."

Feeder cattle

For now, that lack of action on the part of buyers is hampering any attempts to improve feeder cattle prices. Robb noted that feeder cattle buyers are on the sidelines right now in the southern Plains until the wheat grass grazing picture clears up. Likewise, sellers are looking at the low prices and waiting until things improve. Robb noted that could start to occur as the market gets a better handle on the direction of the corn market.

"I have guys calling asking whether they should sell calves now or wait two or three weeks and I’m telling them that two to three weeks may not be enough time," he said. "It will turn around, but it might take some time. Once the sun comes out and we have a chance to get a handle on how much corn has been damaged, things should start to improve, but the cash market’s going to have to lead the way for the futures market and the fed cattle market is going to have to lead the way for feeder cattle."

In the meantime, Robb said the risk is really to the producers looking to sell cattle immediately, particularly those with heavy steer calves or heifers. He suggested that producers market the heavy end of the steer crop and perhaps consider retaining ownership of the remainder of their calves into the feed yard.

"You have to put a very sharp pencil to it because the market’s not going to give anything to hedge against right now, but last year, the guys that bought calves at $90 and sold fed cattle early in the summer into a $90 market really did pretty well," said Robb. "That’s the kind of situation we could be looking at this year."

He said that right now a lot of feed yards are looking to lock in feedstuff costs for producers looking to feed their cattle through the winter, retaining heifers which are selling well back, and the light end of the steer calves could be in a position to profit when they are finished next year. He said some producers who know how their cattle will perform in the feedlot are already looking at the retained ownership option for their cattle this year.

"It will take a really sharp pencil though. We don’t want to second-guess this market," said Robb.

The cash market last week was showing the signs of those types of price pressures. Most auction markets were reporting prices $2-4 lower than the prior week on calf offerings with yearlings trading $2-3 lower. In the south, wet weather helped to improve the chances for a good wheat grazing season, although it was still too early to attract many buyers into the market and prices at Oklahoma City, OK, were $2-4 lower on feeder cattle and calves over 500 lbs., with some instances of $5 lower. Lighter calves under 500 lbs., suitable for early wheat grazing, were steady to $3 lower with moderate demand noted for all classes of cattle.

In what was reportedly a tough sale day at Joplin, MO, last week, steer calves and yearlings traded $2-3 lower. Heifer calves and yearlings sold $3-5 lower. Fleshy, unweaned calves were heavily discounted at the sale with buyers working hard to manage risk by selecting cattle with the best chance to perform in the feedlot.

To the west in Hub City, SD, last week, feeder steers and heifers were $1-3 lower despite several load lots offered during the sale. Meanwhile, in Bassett, NE, on a light test of comparable offerings, heavy 800-950 lb. steers were $4-5 lower than the prior sale two weeks earlier while 850 to 900 lb. heifers traded $2.50 lower on moderate to good demand despite limited numbers of buyers on the seats.

In La Junta, CO, last week, steer calves under 550 lbs. sold steady while those over 550 lbs. were $3-5 lower with the full decline on those in the 650-700 lb. class. Heifer calves sold $2-3 lower while light numbers of yearling feeder heifers were $2-3 lower.

On the West Coast in Famoso, CA, stocker and feeder cattle were $2 higher, bucking the trend in most of the rest of the country. There was excellent demand noted for greener cattle suitable for grass with 450-500 lb. steers and heifers seeing the best action. Feeder steers and heifers in the 700-800 lb. category were also in high demand at last week’s sale. — WLJ