Export shipments, byproduct values help drive market

Markets
Dec 31, 2009
by WLJ

Fed cattle trade was slow getting started ahead of the New Year holiday last week with very little action in the market at midday last Wednesday. There were some bids in Nebraska at $135-136 dressed basis, a $3-4 increase from the previous week, that were expected to set a similar tone for southern Plains trade in the range of $84-85 live basis, up $3 from the prior week’s level when trade finally unfolded. Some early sales in Kansas were reported at $84 live basis while Texas feeders were holding out for $85. Volume for the week was expected to be good after a light week prior to Christmas as packers prepare to refill the pipeline after holiday sales.

There were a number of good beef features at the retail level last week as stores prepare for an anticipated pick-up in post-holiday demand. Movement of beef during December from retail shelves was said to be good and the aggressive featuring of beef products could help spur demand during January, which in turn could quickly translate to better fed cattle prices into the first month of the year, analysts noted last week.

"This is still a demand driven market, but there are some signs that things are set to improve," said Livestock Marketing Information Center (LMIC) Director Jim Robb. "It’s just marking time right now by trading mostly sideways. But in a market like that, if demand picks up at all, we can sometimes get a nice little pop into January. Right now, there are reports that grocery store movement has been pretty good, so that should help prices a little bit."

He noted that restaurant demand is still weak, with December sales likely falling back a little bit, which has pressured middle meats. However, retail sales, particularly of chuck and round cuts, has helped to support cutout prices for the last quarter of 2009. Last week, the typical light movement of boxed beef volumes caused cutout prices to trade mostly steady to slightly higher with the Choice trading at $139.22, down 20 cents at midday from the prior day’s sales. Select product was down 7 cents at $133.73 after a good early week rally.

Robb noted that an important factor in the fed cattle market’s strength during the last half of the year was a rebound in drop values, which faltered in the wake of the financial crisis at the end of 2008. He explained that without the rebound in hide and offal prices in late 2009, fed cattle prices would have been even lower than they were.

"Byproduct values continue to gain a little ground based on the improvement in export demand," said Robb. "They have gone from $6 per hundredweight (cwt.) on a live weight basis back to $9.50. People still don’t really understand how important that is, but it has been a significant factor in this market."

He said that byproduct values have also been significant in the late year strength of the cull cow markets. According to Robb, cull cow byproduct values are also $2.50 per cwt. higher than they were a year ago, which has been supportive of prices in the cow complex as well, "but, the demand from the meat market for cow beef is really the big driver of cow beef cutout prices," he said.

Robb reported that cull cow prices have managed to work through some heavy supplies of both beef and dairy cattle to regain support in recent weeks. That has allowed the cow beef cutout to regain the $108 level, the highest it has been since the first week in August.

"It’s safe to say that the bottom is in, in cow prices, and I think cull values are set to gain a little ground," said Robb. "We should see the normal seasonal strength in that market this winter."

He noted that producers who opted to feed cull cows in an attempt to hit the spring white fat cow market should be in pretty good shape when the time comes to market those cattle this year.

"I think we’re through the dairy buyouts for the time being. There is still going to be some culling going on in the dairy sector, but I expect that it will be an orderly process and that most of the pullback on the dairy side will come from a drop in heifer replacements rather than through the large buyouts we had in 2009," said Robb.

In addition to helping to buoy the byproduct values, the export markets have also returned to prominence in the fed cattle side of the trade in the second half of 2009 as well.

Robb noted that recent export shipments for the second week of December are up sharply from a year ago when shipments were falling off sharply.

"Weekly trade data for the second week in December shows export shipments are 30 percent ahead of where they were during the same week in 2008 when shipments were falling off a cliff. So, although it compares to very low levels in 2008, that 30 percent increase in exports is no small number," Robb said. "We haven’t seen any erosion in foreign demand and we’re posting some very good numbers on a year-to-year basis."

However, for the year ahead, Robb cautioned that the industry is likely to see only modest growth in export sales. LMIC is calling for a 3-5 percent increase during 2010.

"That growth will be constrained mostly by production in the U.S.," said Robb, who predicts that tight domestic production will limit the amount of beef available for shipment overseas.

"The increase in sales in 2010 should put us on par with 2008 levels," he noted. "That’s not a big increase, but there’s not an enormous amount of room to grow given domestic supplies."

Feeder cattle

Feeder cattle markets were mostly inactive last week, with many markets shuttered until after the first of the year. In the few markets where action was reported, prices were mostly higher with some instances of sharply higher prices noted due to increases in quality and light numbers. In Huron, SD, last week, feeder steers were called steady to $2 lower with feeder heifers up to 600 lbs. called $3-5 higher, and heavier weights were called unevenly steady on good demand.

Prior week sales ahead of the Christmas holiday were also mostly higher with Famoso, CA, reporting excellent demand for stocker cattle, particularly after the recent precipitation which has improved pastures in the area. The greener 450-600 lb. steers were called $5 higher while stocker heifers were reportedly selling $3 higher. Feeder steers and heifers, particularly the better quality offerings, sold mostly $2 higher.

The sale in Salina, UT, the same week sold a light run of cattle mixed, but at mostly steady prices on the feeder steers. Feeder heifers sold mostly $2-3 lower than the prior week’s sale.

Meanwhile, the contract trade last week with little guidance from the cash markets moved mostly higher with only light weakness into the close last Wednesday. The January contract closed 22 points higher at $95.20 while March added 12 points to finish the session at $94.85. April contracts were down two points, finishing at $96.12. Volume was very light for the session. — WLJ

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