Fed prices trend higher

Dec 18, 2009
by WLJ

Fed prices trend higher

Fed cattle trade developed $1-2 higher on limited trade early last week with cattle feeders in Kansas selling at $80-81 live basis. Feedlots in the Corn Belt sold dressed cattle at $126 in Iowa and in a range of $126-128 in Nebraska, weaker than analysts had predicted at the start of the week’s business. Going into the holiday week, packers’ cattle needs were light and trade volume was expected to be low. On the other hand, analysts noted that the light harvest levels should be supportive of boxed beef prices into the end of the year.

Last week, production levels were sharply higher than the prior week which saw the cutout and futures market put in what many analysts predict will be the low for the next several weeks at $78-79 live basis. Vetterkind Cattle Brokerage analyst Troy Vetterkind said he expects that the cash fed cattle markets are likely to trade in a "V-shaped" pattern between the established bottom at $78-79 and $84-85 live basis on the upper end between now and mid-January before trending back down to retest the low in mid-February, with the cash trade leading the market and the futures trade playing catch-up for the next four to eight weeks.

He explained that there isn’t likely to be a significant increase in beef demand in the near-term as we head into the end of the year, and there is a substantial increase in the availability of market-ready fed cattle coming into the supply chain as a result of the aggressive feedlot placements during the June to October time frame, which will serve to limit advances. However, he noted that there is expected to be a significant amount of fund investment in the futures markets which will provide some support on the contract trade.

The demand side of the equation, on the other hand, isn’t expected to show any significant sign of improvement, which will add to the downward side of the price equation for fed cattle trade. On the upside, though, a shortage of cull cow availability has helped to boost prices into a range of $40-48 live basis in most markets across the country. Likewise, the cow beef cutout and trim trade has been strong for the past several weeks with the 50 percent trim product gaining more than $5 in the past week.

The demand for ground beef and cow beef products from all sectors has coincided with a drop in imports of foreign beef and a sharp decline in cull cow slaughter. Both factors have helped cow beef prices make significant gains over the past several weeks, strength that should continue well into 2010. Going forward, there could also be some spill-over support which translates to better steer and heifer prices as some cuts, particularly rounds and some chuck cuts, are priced at a level that will make them attractive for grinding product Vetterkind said.

Livestock Marketing Information Center (LMIC) analysts also noted the decline in recent cow availability last week despite a recent year-over-year up-tick in slaughter levels. However, they also pointed to another trend which indicates that cow slaughter numbers during 2009 will lead to another year-over-year decline in overall beef cow numbers.

"Nationwide, forage conditions were better this year than in 2008, but cow/calf operations have struggled in terms of profitability just like in 2008," LMIC analysts said. "As of mid-November (latest actual slaughter data), Federally Inspected (FI) total cow slaughter on a weekly average basis was about 1 percent higher than the same period in 2008 and about 15 percent higher than the 2003-2007 average. Beef cow slaughter from late October through mid-November averaged about 3 percent higher than last year. On a weekly basis, FI beef cow slaughter through mid-November was 7 percent smaller than last year or on a year-to-date basis, down just over 225,000 head."

They noted that the decline in 2008 was slightly more than 760,000 head.

"Also, the number of heifers entering the beef cowherd in 2009 is currently projected to be below levels of recent years. So the U.S. beef cowherd will decline again in 2009 even with fewer beef cows slaughtered. But as of Dec. 1, 2010, the U.S. cowherd may shrink by a little smaller number than last year," they reported. "During the last two years, U.S. cow/calf operation profitability has struggled, faced with rather high production costs and low calf and cull cow prices. Without improved returns, there will be little incentive for U.S. cow/calf operations to increase their cowherds. That situation will probably improve some in 2010 and 2011. Still, in the beef industry, breeding herd growth is a multi-year process."

Feeder cattle

The feeder cattle market responded favorably last week to the positive news on the fed cattle side of the trade, moving higher in the process. Most auction markets are starting to see numbers of cattle on offer dwindle as we move closer to the end of the year. However, in the markets where good runs of cattle were noted last week, prices were generally $2-4 higher. The volatility in the grain markets is also lessening as corn producers near the end of harvest in all but the most northern growing states, which is also helping to stabilize feeder cattle prices. The uncertainty over the corn picture has kept many cattle feeders on the sidelines as they hope to secure lower-priced feedstuffs before committing to feeder cattle purchases, particularly in the northern feeding states. Now some of those buyers are coming back into the markets, which has been helping to stabilize the trade as well. Vetterkind noted last week that the recent bottom in the feeder cattle contract markets is likely to hold and prices should start to show significant increases into the spring, with the same "V" shaped recovery found in the fed cattle market likely to make an appearance in feeders as well.

Last week in cash market trade at El Reno, OK, steer calves were called steady while heifer calves reportedly sold $3-4 higher than the previous week. Feeder steers sold steady to $1 higher while feeder heifers were $2-3 higher on good demand for feeders and calves. Earlier in the week at Oklahoma City, OK, feeder steers and heifers sold steady while steer calves were called steady to $1 lower then the previous week’s sale. Heifer calves were steady to $2 lower on moderate to good demand for feeders. Heavy feeder demand was called moderate due to the low numbers of available offerings over 800 lbs.

Meanwhile in Bassett, NE, last week, steers trended steady with the exception of 600-700 lb. offerings which traded $2 higher. Comparable offerings of heifers were called steady higher on low numbers. Demand was moderate to good and trade was active. In Torrington, WY, last week, steer calves weighing under 650 lbs. sold steady to $2-4 higher with 400-450 lb. calves selling as much as $6 higher. Heifer calves were called steady to $1-2 higher, except 450-550 lb. heifer calves, which were under pressure with instances of $3-4. A light offering of yearlings was noted at the sale, with most of the numbers being mostly late gathers. Demand was called moderate to good.

In Miles City, MT, last week, steer and heifer calves mostly sold steady to $2 higher with no test on yearling cattle due to light receipts, however, good demand was noted for all classes. And on the West Coast, in Famoso, CA, last week, stocker cattle on offer sold steady with the previous week with excellent demand noted as grazing prospects for the winter have been good thus far. Feeder cattle were reportedly selling steady on good demand. — WLJ