Fed trade comes in steady

Livestock Markets
Nov 6, 2009
by WLJ

Fed trade comes in steady

Fed cattle trade last week started off at mostly steady money in the northern tier and Corn Belt regions. Wednesday trade in Nebraska came at $134 dressed and $87 live and Iowa trade was reported at $133 dressed. The few cattle traded in the southern Plains were also steady with Colorado feedlots selling cattle at $87 live while Texas traded light numbers at $88 live.

Market analyst Troy Vetterkind of Vetterkind Cattle Brokerage said he expected the bulk of the trade to come in steady with the previous week at $87-88 live and $133-134 dressed. He said there was some concern among packers that the boxed beef market was reaching a near-term top ahead of the Thanksgiving holiday just as fed cattle supplies are reaching their tightest point.

"I would say that if we can get steady money this week, we are likely going to see a lower market next week as packers work harder at cutting kills to prop up operating margins," said Vetterkind.

He said that the focus of wholesale buyers would soon shift to more traditional November holiday features such as turkey and ham which would keep a lid on fed cattle and boxed beef prices. He said packers are already planning to reduce production levels during the week ahead which would add pressure to live prices as packers harvest fewer cattle in an attempt to hold cutout prices steady.

Through midweek, last week, production was estimated at 366,000 head, which was 8,000 fewer cattle than the same period a week prior. However, boxed beef prices were just steady despite the reduction with the Choice trading at $141.32, down 53 cents from the prior week on Thursday at midday while Select was up 52 cents at $136.32 on light to moderate trade volume with just 155 loads trading hands.

Despite the steady early cash trade last week, futures markets had a solid rally at midweek, which Vetterkind said was likely to be short-lived as contracts were sold on any rally attempts.

"I think the reason for the rally was live cattle were carrying too big of a discount to last week’s cash and it looks like we have a pretty good shot of trading cattle steady this week. With that said though, I still think the futures are going to struggle to hold much of a rally as my ideas are that the cash fed cattle and beef markets are going to start to move lower next week," he said. "December live cattle will have tough resistance between $87-$88 as will February live cattle at $87.50-$88.50."

Meanwhile, in the cow beef markets last week, prices managed to make some gains despite the heavy production levels as consumers continue to show a preference for lower priced cuts of beef and ground beef products. The cow beef cutout was steady with the previous week’s levels at $102.45 while the 90 percent lean gained $1 to reach $127.27 last Thursday. The 50 percent trim traded down slightly from the prior week at $60.76. However, prices remain sharply lower than the same period last year when producers were enjoying strong domestic demand and low inventory of cull cows. During the same week in 2008, cow beef cutout prices were $12 higher while the 90 percent lean was trading at $142.24 and the 50 percent trim sold for $83.59, nearly $23 above last week’s price.

However, there is some good news in cow prices, which, for live animals, remain remarkably strong in the face of such a price slide for beef. Much of that support can be attributed to the same weakness in the U.S. dollar which is helping to support fed cattle prices through increased overseas trade. That weakness is also supporting cow beef prices domestically. Traditionally, a good deal of ground product is imported from South America, Australia and New Zealand at prices lower than are available in the U.S. for production of ground beef and other products. However, the weak U.S. dollar makes imports of grass-fed beef trim from overseas less appealing to grinders here. Instead, they have been turning to domestic supplies over the past year in an effort to control costs for the economically sensitive products. As a result, producers of ground beef are helping to support cow beef prices in the U.S. which would otherwise be facing very tough market conditions as a result of the increase in supply this year due to heavy numbers of both forced and voluntary dairy herd retirements this year.

Feeder cattle

Feeder cattle prices were enjoying a small upward rally last week, following the price action in the fed cattle markets. As a result of good prices being paid in the fed markets, cattle feeders were feeling a little more optimistic, prompting them to bid cash feeder cattle prices higher in most markets last week. Vetterkind cautioned, though, that those gains may be short-lived if the fed market slips in the weeks ahead as he expects it to. As a result, cow/calf producers who have calves left to move this fall may be well-served to ship them quickly.

Another significant factor that bears watching is the volatility in the corn market as this fall’s harvest drags on longer than normal, adding potential for crop losses. USDA’s upcoming crop report could be a significant catalyst for feeder cattle prices. If USDA adjusts projected yields downward and cuts total production, the effect could put some downward pressure on feeder prices in the near-term. Most market analysts are still projecting a corn harvest in excess of 13 billion bushels, making it the second-largest crop on record. Additionally, there is likely to be a good deal of corn available this winter which is suitable for nothing other than cattle feed, which would be a benefit to cattle feeders and could help to support calf prices into the winter.

Last week, one Kansas cattle feeder noted that there is another feed source which has been overlooked by much of the industry and is likely to be used as an alternative feed in some Plains states.

"There is a lot of sorghum still out there and the crop has been looking pretty good in most of Kansas. The corn story is getting a lot of attention right now and that’s going to keep a lid on feeder cattle prices until we get a handle on how bad the harvest really is," he said. "In the meantime, there’s a lot of sorghum out there and that’s something we’re looking into and I know a lot of other guys are, too."

USDA reported last week that although the progress of sorghum harvest remains behind the normal pace, the crop is still in good condition. In the 11 largest sorghum producing states, the crop is 45 percent harvested, down from a five-year average of 68 percent harvested. However, the crop is rated 47 percent good to excellent. Within those 11 states, Colorado reported the crop condition as 78 percent good to excellent while Nebraska sorghum is rated 71 percent good to excellent and Kansas’ crop was called 69 percent good to excellent paving the way for cattle feeders to capitalize on the grain resource to reduce feeding costs this winter.

In the auction market trade last week, feeder cattle were trading for better money in most regions. In the West, at Madras, OR, a good run of stocker and feeder cattle sold sharply higher than the previous week with 400-500 lb. steers selling in a range of $117-126 while 500-600 lb. steers sold between $100 and $112. Those in the 700-800 lb. class brought $83-87; heifermates were called $4-10 back.

Meanwhile, in Torrington, WY, last week, a large run of feeder steers and heifers were also higher with light steer calves selling $2-3 higher while the yearling steers were called $2-3 lower. Feeder heifers were $1-3 higher on the lighter weights while yearling heifers were called steady to $2 lower than the previous week’s sale.

In the southern Plains, the recent moisture has been very good for the development of wheat pastures and calf prices have rallied in the region as a result. Last week at Oklahoma City, OK, feeder steers and heifers were called steady to $1 higher than the prior week. Steer and heifer calves were reportedly $1-3 higher on good demand. — WLJ