Fed, feeder markets show signs of turning higher

Markets
Oct 16, 2009
by WLJ

Fed, feeder markets show signs of turning higher

Fed cattle markets regained a little of the ground lost recently last week with early trade called at least steady to mostly higher in all areas. Early trade came at $82 in the south with dressed trade in the Corn Belt and Nebraska at $124-126. There were some discounts occurring on the remaining heavy cattle in the north, but elsewhere, cattle feeders were holding out for better prices last week, particularly in the southern Plains where inventory levels remain manageable.

A bounce higher by the contract markets last Wednesday along with some improvement in boxed beef values last week also helped stop the downward price spiral of past weeks. Last Thursday, the boxed beef trade was mixed with the Choice product trading 37 cents lower at $135.23 while the Select was up 76 cents at $132.01. Those prices were $2-3 better than a week earlier as some buyers returned to the market for both spot purchases and some forward contracting, according to Vetterkind Cattle Brokerage analyst Troy Vetterkind. He said there had been some interest in middle meats last week which was adding significant support to prices.

"Seasonally, we should see further improvement in beef demand and fed cattle supplies should get a little tighter moving forward," said Vetterkind. "All of this should be conducive for at least a $2-$3 rally in cash fat cattle values into the middle of November."

That was welcome news for cattle producers last week who have been suffering through several weeks of downward price action in the cash markets. The contract trade last Wednesday was very positive for the markets as the closing prices were higher, reversing the negative market bias which began in July. That reversal could also help pave the way for better cash trade if demand continues to show signs of improvement, analysts noted. However, there was also a note of caution from Vetterkind, who noted that much of last Wednesday’s push higher was a result of exuberance which carried over from the equity markets to boost nearly all commodity classes higher during the day’s trade. Much of that support evaporated the following day, however, contract prices in the live cattle pit were mostly higher across the board ahead of cash trade and last Friday’s cattle on feed report. October live cattle contracts were 60 points higher at midday at $83.85 while December traded 15 points higher at $85.72 and January gained 22 points to trade at $86.12.

Vetterkind noted that there remains some risk in the December contract for traders who are long ahead of the "Goldman roll" starting three weeks from last Friday.

"There is also an exceptionally strong seasonal tendency for December live cattle to lose to February live cattle from now until the end of November," he noted, cautioning traders to the potential downside in the contract for the near term. He also cautioned that weakness in the corn trade, which was down 6 cents last Thursday at $3.76 per bushel, would also create some negative pressure for deferred month contracts going forward.

Corn prices last week may have hampered live cattle contracts as the weather concerns, coupled with an increase in the expectations for record yields, created a bearish tone to the market. Freezing weather across the northern tier of the country and much of the Corn Belt appears to have had little effect on the crop, which was nearing maturity. It may have created some lighter fill for kernels in some areas where the crop was late-planted, however, analysts noted that would simply increase the supply available to cattle feeders for the coming year. Instead of moving higher, corn prices appear to have reached a near-term high ahead of the completion of harvest and could move lower until the final numbers are tallied, some analysts said last week.

The Cattle on Feed Report, due out last Friday, was also creating a mix of pressure for the market last week. The consensus estimate for on feed numbers was 100.3 percent of the total reached last year on Oct. 1. However, placements are expected to be 5.5 percent higher than a year earlier which could add pressure to some of the back months, depending on how the placement weights are tallied. An increase of lighter weight cattle would allow more leeway in marketing next year, allowing cattle feeders to spread marketings over a longer period of time without stacking cattle up in feed yards if demand doesn’t improve. A bias toward heavier placements would limit marketing options and present some pressure for first quarter 2010 fed cattle market prices as cattle feeders would have fewer options for marketing those cattle if significant demand improvement doesn’t take place. Marketings during the month of September are expected to have dropped 2.2 percent from September 2008, a sign that beef demand continues to lag behind last year’s levels.

Feeder cattle

The same weakness in the grain markets which created pressure for fed cattle prices helped spur feeder cattle contracts, which have been hammered in recent weeks, to higher levels last Wednesday and Thursday. Feeder cattle contracts have also been facing a major downtrend since July but looked to perhaps be working toward reversing that trend last week. Last Thursday, feeder cattle contracts closed 42 points higher at $94.15 while November was up 55 points at the close at $94.70 and January was 65 points higher at $95.62.

Despite the better trade in the feeder cattle contracts, cash trade last week was still slightly choppy with a mostly negative tone. In Joplin, MO, yearling steers and steer calves were called steady, while heifers were $1-4 lower. Demand and supply was reportedly moderate to light as a result of recent heavy rains in the region which had limited travel. However, that rain will be favorable for wheat pasture grazing operations and that sentiment was evident during the sale as the best demand was for light calves suitable for wheat pasture, particularly those which had been preconditioned.

The situation was similar in Oklahoma City, OK, where calves suitable for winter wheat were in high demand. At the sale, feeder steers and heifers sold steady while steer and heifer calves were steady to $2 higher on good demand noted for all classes of cattle. In Dodge City, KS, steers in the 700-925 lb. class were called $2-4 higher while heifers over 700 lbs. were not well tested, although a steady undertone was reported. On a light test, 350-700 lb. steers sold steady to $3 higher and 300-700 lb. heifers were steady to $2 higher.

In Billings, MT, last week, steer and heifer calves sold mostly $2-6 higher, except 500-550 lb. steer calves which sold mostly steady. Feeder steers were lightly tested, with no trend available. Feeder heifers sold steady to $3 higher.

Meanwhile, on the West Coast in Famoso, CA, feeder cattle were $2 lower last week on good demand, particularly on those cattle in the 700-800 lb. class. Stocker cattle were called steady with the previous week with excellent demand on the steers and heifers in the 450-550 lb. range. In Cottonwood, CA, the moisture last week helped spur the market for lightweight cattle $2-5 higher while yearlings were called $1-3 lower as a result of the difficulties facing cattle feeders. — WLJ

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