Fed cattle prices jump $1-2

Oct 23, 2009
by WLJ

Fed cattle prices jump $1-2

Fed cattle trade was in progress early last week with northern Plains and Corn Belt feedlots seizing the opportunity to move cattle at prices $1-2 higher than the previous week. Dressed trade was done on Wednesday at $131-132 while live trade in the north occurred at $84-85. There was limited trade in the south Plains on Wednesday at $84.50 while more active trade developed on Thursday morning at $85 live basis in Kansas with full trade expected in a range of $85-85.50 in the southern tier.

A strong rally in the futures markets and boxed beef trade last week helped to spur the jump in fed cattle trade. The spot month October contract closed at the $86.60 level on Wednesday before giving up some ground at midday last Thursday to settle at $86. Deferred months gained ground during the session with December closing 10 points higher at $87.17 while February added 12 points to end at $87.55 and April also closed 12 points higher at $89.50, paving the way for cattle feeders to perhaps lock in some profits next spring. Those who locked in corn prices near the $3 level prior to the rally in recent days were even better positioned to take advantage of the rally in beef prices. Analysts last week noted that there is a short window of perhaps two to four weeks to take advantage of the opportunity before prices are likely to begin trending lower again. Virginia Tech commodity marketing agent Mike Roberts noted that corn prices were likely to remain steady to firm last week with many commodity hedge funds showing interest in the market. Other analysts noted last week that commodity prices have been slower to rally compared to equity markets and may be underpriced at the present time. Whether or not they are underpriced remains to be seen, but if hedge funds believe that to be true, they are likely to push the market higher. The number of bull positions in the corn market alone has risen sharply in the past two weeks, an indicator that they may be driving some of the upward price movement. If weather continues to hamper harvest, ultimately leading to declines in yield, it could serve as plenty of reason to drive corn prices rapidly higher going into the final weeks of harvest.

There was some good activity in the boxed beef trade last week with wholesale buyers starting to book rib and loin purchases for holiday featuring. That activity helped to push Choice boxed beef prices up 42 cents to $137.30 while Select gained 18 cents to trade at $133.43 last Thursday during morning trade on light to moderate volume.

Retailers are facing a good deal of uncertainty about the economic situation as it pertains to customers so they are taking a somewhat cautious approach to pre-booking their holiday needs, however, market-ready fed cattle supplies are tight going into the fourth quarter and buyers also don’t want to be caught short-handed if consumers come to the table with better than expected demand. The situation has helped fuel the recent rally in prices and could continue to support prices toward the mid-$140 level for Choice product into the middle of November before supplies begin to increase and demand begins to turn toward Thanksgiving needs.

Winter weather could exacerbate the problems with supply for the next few weeks and possibly longer. Feeding conditions in the southern Plains have been affected by wetter-than-normal conditions the past couple of weeks and a winter storm last week hit feedlots throughout the West and well into the Corn Belt. If those conditions continue, it will take a toll on cattle feeding efficiency, although it could also help drive prices higher than expected during the fourth quarter if weather really takes hold.

Beef production was showing signs of picking up with the market anticipating a harvest of 630,000 head for the full week. Through Thursday, packers had slaughtered 502,000 head, which would have been 4,000 more than the same period a week prior but still 5,000 fewer than the same period in 2008. The good demand for immediate shipment as well as the need to procure product for future delivery had packers scrambling in the market to ensure they had enough cattle to meet demand last week and was a likely reason for the unusual early week trade at higher money last Wednesday in the north.

Feeder cattle

Feeder cattle markets last week were mostly steady in the early portion of the week, particularly in the southern Plains’ markets where the moisture has been favorable for wheat pasture grazing. That translated into mostly steady to slightly higher prices for calves in the region. However, as Utah State University Agricultural Economics Professor Dillon Feuz pointed out, prices remain well below expected levels this fall, which is hampering profitability in the cow/calf sector.

He said one factor has been weather, including an early freeze in the north and wet harvest weather throughout the Corn Belt, which is delaying harvest and will impact corn yields. He said the result has been a 50-cent increase in corn prices and downward pressure on calf prices which has been far greater than in previous years. The other factor, he said, is the worsening situation in the feeding sector.

"While it appeared back in the spring that feedlots were poised to finally start making a little money feeding cattle, that hope disappeared through the summer and early fall. The accompanying chart shows the estimated returns to feeding cattle in Nebraska based on buying and selling cattle on the average cash market," Feuz said. "In other words, no price protection is assumed. As can be seen, with the exception of four weeks in the last two years, close-outs have been negative. I really thought, and I am sure feedlots thought, that they had bought feeder cattle cheap enough to be making money at this point in time. But the price of fed cattle has also declined from expectations."

He said that rather than selling in the upper $80s this fall, the market has been steady in the low to now mid $80 level.

"That difference in expected versus actual price would be enough to have most feedlots making money rather than losing money on close-outs," Feuz explained. "These feedlot losses are not trivial and have taken a toll on the industry. Dr. (Darrell) Mark wrote a couple of weeks ago of feedlots in some areas being out of business. Certainly, those who remain in business have limited ability to bid up feeder cattle prices. While cow/calf producers never want to sell their calves too cheap to feedlots, they may actually want to this year or there may be no feedlots left to buy their calves next year."

In Oklahoma City, OK, last week, the aforementioned positive trending cash market was evident on a very large run of cattle. Feeder steers sold $1-3 higher while limited numbers of feeder heifers were called $1-2 higher on good demand. Steer and heifer calves sold steady with good demand. In Joplin, MO, the story was similar last Monday with steer calves selling at steady money while heifers were $1-3 higher. Yearlings were called steady to $2 higher on moderate supply and demand.

Farther west in Ericson, NE, on a light test, calves, steers and heifers were trending steady. Yearlings were also lightly tested at the sale. However, demand was moderate to good with moderate trade noted. Meanwhile, in Torrington, WY, last week, feeder steers in the 700-825 pound range were called $2 higher with heavier weight steers selling steady. Feeder heifers in the 600-700 pound class were called steady while 800-900 pound heifers were trading $1-2 higher and 300-550 pound heifers were $2-5 higher.

In Blackfoot, ID, last week, feeder cattle prices were called steady on light numbers while at Prescott, AZ, choice steer and heifer calves were sold fully steady with the previous week. Lightly tested yearling cattle sold $2 lower.

At Cottonwood, CA, last week, feeder and stocker cattle were reportedly selling mostly steady on the better kinds although lightweight heifers were reportedly $2-5 lower than the previous week. — WLJ