Weather impact helps push fed trade higher

Dec 24, 2009
by WLJ

Weather impact helps push fed trade higher

In an effort to wrap up trade ahead of the long holiday weekend and an approaching winter storm, fed cattle trade started on Tuesday last week with live cattle in the southern tier selling mostly $1 higher at $82 live in Kansas and $83 in Texas. Dressed trade in the northern Plains and Corn Belt traded mostly $3 higher than the previous week at $130-132.

Despite the better trade in the cash cattle markets, there was little movement in the beef markets as consumers turned their attention and their dollars elsewhere last week. The trade volume for most of last week was reportedly moderate at best, and prices moved mostly sideways. Last Wednesday, Choice boxed beef was unchanged at midday at $138.59 while Select slipped back 38 cents to trade at $130.85.

A significant winter storm was moving out of the southwest and conditions were expected to affect movement of cattle late in the week, so packers were working to procure enough supplies to meet their needs into the following week, particularly at plants where packers have been working in a hand-to-mouth fashion. Harvest numbers last week ahead of the holiday were comparatively good, with week-to-date kills through Wednesday estimated at 373,000, which was 8,000 head more than the same period the previous week and well above the same period in 2008 when packers harvested 291,000 head. However, that trend appeared likely to cool off later in the week with many beef packers, whose margins slipped into the red last week, preparing to be dark for the second half of the week for the holiday.

Market analyst Troy Vetterkind of Vetterkind Cattle Brokerage noted that the winter weather hitting the major feeding regions, accompanied by much colder temperatures, would quickly start to take a toll on cattle performance and, in turn, on prices, particularly if a second storm predicted for the week between Christmas and New Year’s materializes as forecast.

"For right now, I would look for a steady fed cattle trade next week," he noted.

In the beef markets, Vetterkind said he expects that the demand for ground beef will keep cow prices firm into the opening weeks of 2010, however, fed beef primals and boxed beef prices are expected to trade steady to lower until after the first of the year.

"We could see cutout values drift $2-$3 lower by Jan. 1," Vetterkind said.

Those price drops come despite signs of improvement in the export markets and an overall drop in the quantity of all proteins in cold storage. According to last week’s USDA Cold Storage report, the beef stocks in cold storage as of the end of November were down more than 10 percent from a year earlier at 430.76 million pounds. Competing proteins also recorded significant drops from year earlier levels with pork notching a 7.5 percent decline and poultry stocks plummeting to 893.16 million pounds, a 24 percent decline from the same date last year.

"We saw big draw downs in total protein supplies last month which can be attributed to production cutbacks in pork and poultry supplies and better export business in the entire meat complex," Vetterkind said.

That news bodes well for the start of 2010. With lower overall supplies of protein in cold storage and the economies of the U.S.’ trading partners beginning to show signs of economic recovery, protein markets across the board could be set for a sharp improvement in the first half of 2010.

The improvement in the cash trade last week lent support to the futures market which has rallied sharply off the lows set in early December. Last Wednesday, the up-front December contract was trading 95 points higher at $82.90 while February gained 50 points to reach $85.17. April added 57 points to trade at $88.50 and June gained 67 points to hit $86.12.

Feeder cattle

Most major feeder cattle markets were dark last week ahead of Christmas and few trends were available due to the light trade in most auction markets. In areas where sales were held, a mostly steady undertone was noted for the week. Similar to the action in the fed cattle markets, feeder cattle prices have rallied sharply from their lows in the contract trade and last week, the action in the feeder pits was mostly higher on Wednesday. The January 2010 contract was 82 points higher at midday, trading at $95.25, while the March contracts were up 50 points to hit $94.75 and April gained 35 points to trade at $96.15.

In the few auction market sales reported last week, prices were mostly higher. For example, in Sedalia, MO, last week, steers and heifers sold $1-4 higher on a light test. Supply was called light and demand was reportedly moderate to good.

In McCook, NE, steers and heifers weighing less than 600 lbs. trended steady to $5 higher. Steers and heifers over 600 lbs. traded steady to $3 lower. A light run of cattle in La Junta, CO, sold mostly steady last week on the similar offerings.

In the Northwest at Davenport, WA, last week, the light offering was not adequate for a market trend, but a steady undertone was noted on slow to moderate trade and light to moderate demand. Meanwhile, farther south in Madera, CA, stocker and feeder cattle were called steady with the previous week on a moderate test of the market.

The feeder cattle markets over the past two weeks have been showing some resiliency despite corn prices which remain stubbornly over the $4 mark despite the second largest crop on record nearing the end of a drawn-out harvest. As of last week, only 5 percent of the crop was still in the field and farmers were expected to continue chipping away at the remaining total as weather allows in areas where harvest isn’t complete. The abundance of feed-quality corn expected this year has been slow to come to market in many cases, and there has been some evidence that many growers will opt to feed cattle themselves rather than sell the grain at reduced prices. That has helped to boost calf prices in the northern tier over the past few weeks, with prices across the region mostly $4 higher than the start of the month.

Cash feeder cattle sales in the southern tier have been benefitting over the past month by good wheat pasture conditions in the region. Prices for wheat grass calves have moved $3 higher in much of the region. Because of the demand from stockers and farmer feeders, the calf market has remained strong despite the dip in futures prices experienced early in the month. It has also translated to strong prices noted on the video sales held during December. — WLJ