Fed trade reported at prices steady to $1 lower

Markets
Dec 4, 2009
by WLJ

Fed trade reported at prices steady to $1 lower

   Early fed cattle trade last week was steady to $1 lower than the previous week as the boxed beef cutout and live cattle contract trade faltered at midweek. The northern tier traded cattle on Wednesday in a range of $129-131 dressed, with the bulk of the volume at $130-131. In the South, feedlots sold fed cattle at $82 live in Kansas last Thursday and at $83 live in Texas. While trade volume was reportedly light at midday last Thursday, analysts said the early trade was likely enough to set the price for the remainder of the week’s trade.

The pre-holiday demand for beef had been filled by last week, according to Vetterkind Cattle Brokerage analyst Troy Vetterkind, who said that he expects the coming weeks to show a softening in the boxed beef trade as buyers move to the sidelines.

"The beef market is going to be an issue for sellers going forward as it sounds like the buy side is getting their December needs covered. This, along with an expected increase in fed cattle marketings by mid-December and holiday production disruptions, is going to make it hard for the cash fed cattle market to rally unless we see some sort of winter weather pattern develop on the southern/northern Plains," he said. "Lower carcass weights and continued decent export demand will be supportive to the fed cattle market, but not enough so to keep from losing another $2-$3 by mid/late January."

The futures market appeared to agree with that assessment last week, with most of the week’s trade pointing lower. At the close last Thursday, the front-month December contract was 125 points lower at $80.85 while February was down 140 points, closing at $82.87, and April closed 137 points lower at $85.90. At the close last Thursday, only the April 2011 contract was trading above the $80-level. The April 2011 live cattle contract closed at $90. Analysts have noted for months that consumer discretionary spending continues to fall and beef demand has been hammered as a result. Until at least one facet of the industry, either export or domestic markets, shows clear signs of improvement, sustained advances in the cutout will be difficult to achieve, analysts continue to note.

The boxed beef trade was also on the defensive last Thursday, with midday prices falling $1.55 on the Choice product which was trading at $138.04 while Select was down 96 cents at $132.42 on light to moderate trade volume. Vetterkind noted that the end meats, particularly the round complex, is posing a problem for packers and it’s taking significant discounts to move product.

"However, probably the biggest hindrance to cutout values was the lower tone to the middle meat complex with bone-in/boneless ribeyes and short/strip loins all experiencing sharp losses in trading yesterday (Dec. 2)," he reported.

Vetterkind said that although demand has softened slightly in recent days in the ground beef markets, the cow beef cutout and trim markets are being supported by falling availability and the falling U.S. dollar which continues to make it less expensive for cow packers to bid up prices for domestic cows than it is for them to buy imports of foreign product. However, that was the exception to the soft market picture in the beef markets, Vetterkind said.

"As spot domestic beef demand begins to wane and fed cattle production increases in the weeks ahead, the path of least resistance for cutout values is going to be lower and I think we need to look for a break in boxed beef values going forward," he said.

Feeder cattle

The soft fed cattle markets have yet to take much of a toll on feeder cattle prices in recent days as the tight supply of yearlings has kept prices afloat both on the Chicago Mercantile Exchange and in most auction markets. Last week in the contract trade, feeder cattle contracts closed only slightly lower despite the sharp sell-off in the live cattle pit. Lower corn prices have been helping feeder cattle trade as the harvest grinds toward completion in most states. There is still some standing corn out in the country, particularly in the northern states, but farmers have been making steady progress over the past few weeks. That has led to a drop in corn prices which, last Thursday, traded down 6 points, closing at $3.85 per bushel. Vetterkind said the positive news for the feeder cattle trade might not last much longer though. He said that if fed cattle markets continue to struggle, it would pave the way for lower feeder cattle prices, although the losses won’t be as severe as they could be in the fed cattle markets.

"Despite the 15 cent drop in deferred corn futures, the $1 drop in deferred month live cattle and $2 rally in front month feeders has taken approximately $20 per head out of deferred fed cattle profitability," said Vetterkind. He said that the recent rally in feeder cattle contracts would be difficult to maintain as a result of those projections. He said he expects to see another round of selling take $1-2 off of live cattle contracts in the near-term which will result in lower feeder cattle trade as well, indicating that marketing of remaining feeder cattle in the near-term might be a good option for producers.

In Oklahoma City, OK, last week, feeder steers and steer calves sold steady to $2 higher. Feeder heifers and heifer calves sold steady to $1 lower on a light test. Demand was called very good for light weight calves and long weaned or true yearling cattle. Limited numbers of feeder cattle and three weeks of auctions left in this year, including this week, is reportedly helping to fuel the demand for feeders.

In Joplin, MO, last week, feeder steers and steer calves sold $2-4 higher. Feeder heifers and heifer calves were called $3-5 higher compared to a light test from the previous sale, with several sets of reputation and value-added calves on offer.

Meanwhile, farther west in Torrington, WY, feeder steers and heifers last week were reportedly $2 lower in a limited test. In La Junta, CO, steer calves were called $2-3 higher with some instances of as much as $5 higher. The exception was 500-600 lb. steers which were called steady. Heifer calves under 400 lbs. were reportedly steady, while 400 to 600 lb. heifers were called $2-4 higher; those lots over 600 lbs. sold steady. Yearling feeder steers and heifers were seasonally scarce. In Prescott, AZ, steer and heifer calves sold steady last week while yearling offerings were called $1-3 lower. — WLJ

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