Early signs of improvement boost market expectations

Markets
Nov 20, 2009
by WLJ

Early signs of improvement

Fed cattle trade started early last week with some light trade on Tuesday in the Corn Belt and better volume followed on Wednesday when the bulk of the week’s business was completed at prices steady to $1 lower than the previous week. Cattle traded in the Corn Belt at $129-130 dressed while Nebraska feedlots moved cattle in a range of $81-84 and $130 dressed. Texas traders sold cattle at $84 live while Kansas traded at $83 live and $1.32 dressed. Colorado traded light numbers at $84 live.

Boxed beef prices last week saw some signs of improvement and perhaps the early indication of improving demand, according to Livestock Marketing Information Center (LMIC) analyst Erica Rosa, who noted that packers have been able to stabilize cutout prices over the past week while increasing movement and keeping harvest levels mostly steady. Those factors are all positive for cattle producers. One additional positive is the steady decline in carcass weights which is allowing for better movement of cattle out of feedlots.

"Feedlots in most areas are very current with their inventory right now," said Rosa. "They have done a good job in the southern Plains and as a result, they’ve been able to trade at higher prices because the supply of cattle is tight there right now."

In fact, there have been reports in recent weeks of buyers procuring cattle in the North for shipment to plants in the southern tier for harvest, which is supportive to cattle prices in the north as well. With lighter carcass weights, packers shouldn’t be able to reduce kill levels much if they hope to meet the improving demand.

Rosa noted that export levels, particularly with the weak U.S. dollar, have been showing signs of improvement in recent weeks which has been supporting some of the end meats. Retailers have also been gearing up to feature roasts following the Thanksgiving holiday, adding further support. Middle meats will find additional seasonal interest going into December as well, she said. All of those factors have been helping to support boxed beef prices over the past two weeks.

Competing meats have also been helping to steady the market, Rosa noted. She said there are indications that spot buying by retailers has been strong with more than 200 loads of Choice product trading last week, lending support to the cutout price.

"Poultry producers have worked through their heavy supplies and pork producers are also starting the process," she said. "That’s going to be supportive of beef prices going forward."

All of these factors point to better cash cattle prices in the future if they hold into next year. The current state of feedlot marketings is a result of lower placements for the past year-and-a-half and recent improvements in the average daily marketing rate. The cattle on feed report, due out last Friday, was expected to show a dip in marketings for the month due to one less slaughter day, however, Rosa noted that LMIC expected that marketings would be down 2.9 percent as a result of fewer slaughter days.

"However, if you look at average daily marketings, which evens out the differences in slaughter days from month to month, we expect the average daily marketing rate to be 1.2 percent above last year’s level," she said.

Going forward, the placement level is expected to be supportive of the market. Rosa noted that there are still reports of feeder cattle on grass that could change the picture slightly, however, LMIC projects that placements for the month will fall from last year’s levels by 1.6 percent. The group projects on feed numbers to total nearly 1 percent above last year’s Nov. 1 tally.

"We expect placements will drop somewhat because cattle feeders are still looking at corn prices that are too high because quoted prices are based on #1 yellow export, but cattle feeders know there are a lot of quality problems with this year’s crop and there is going to be a lot of feed quality corn available, so they are holding off for awhile before they step into the market. That’s holding feeder cattle prices back a little right now," said Rosa.

She noted that the feeder cattle market is being helped a little by fed cattle prices, but not much.

Feeder cattle

Feeder cattle breakevens in the southern Plains are starting to show signs of improvement, according to LMIC projections, Rosa said. Predicted breakevens are averaging in the low $90s through the end of the year and should drop into the high $80s in early 2010, she said.

"There are a lot of variables out there and there are some cattle feeders who are making money at current prices," she reported. "There are a whole lot more who are losing money, but the situation is improving and by next year, many cattle feeders might be able to make it back into the black."

At the present time, though, she noted that while the situation has improved, cattle feeders are still averaging per-head losses in the $50 range which is having an impact on feeder cattle markets, keeping some buyers on the sidelines.

"Cattle feeders have just been burned too many times in the past couple of years, so I think they are being a little more cautious until they start to see corn prices coming down," said Rosa.

An improvement in feedlot breakevens, particularly one that takes them back toward positive margins, would go a long way to turning the feeder cattle markets around. Supplies of feeder cattle are extremely low at the present time and a pick up in demand could easily spur prices well above current levels to highs seen two years ago. However, until there are signs of real improvement in the markets, price advances could be difficult to sustain long-term.

Last week’s cash feeder cattle markets were called steady to lower before a midweek corn market sell-off lowered grains by about 20 cents across the board. The decline in the grain markets helped midweek cash sales turn around with the larger sales Wednesday and Thursday reporting prices were steady to $2 higher than the week prior. In Oklahoma City last Monday, feeder cattle were called steady to $2 lower on a light test while steer and heifer calves were steady to $2 higher. Meanwhile in El Reno, OK, last Wednesday, feeder steers and heifers were called steady on a light test and moderate to good demand. Steer and heifer calves sold $2-4 higher on good demand. Farther north in Hub City, SD, a good-sized run of yearling feeder steers and heifers sold steady to $2 lower last week. Steer calves were steady to $1 higher. Heifer calves sold unevenly steady with very good demand for calves noted at the sale. In Billings, MT, last week, steer calves under 500 lbs. sold steady to $2 higher while those in the 500-600 lb. class were called steady to $3 lower. Heavier weights were called steady to $2 higher than the previous week. Heifer calves under 400 lbs. sold $1-5 lower on a light test while offerings over 400 lbs. sold mostly steady to $2 higher, with instances $5 higher. Yearling cattle were not well tested and no trend was available.

In the Northwest at Davenport, WA, feeder cattle sold steady to $2 higher with some instances of sales as much as $3-4 higher on the better kinds. Farther south in Vale, OR, lightweight stocker cattle were called steady to $3 higher on calves under 550 lbs., particularly for heifers. Farther south, in Cottonwood, CA, last week, steers under 650 lbs. were called steady to $3 lower while heifers under 650 lbs. sold $3-5 lower. Yearlings were $2-3 lower. — WLJ

 

boost market expectations

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