Fed cattle prices continue their rebound

Markets
Jan 8, 2010
by WLJ

Strength also helps feeder cattle markets ahead of winter storm.

Early fed cattle trade last week in the Corn Belt was reported in a range of $134-136 dressed while Kansas dressed trade was at $136. Southern Plains feeders were slower to get started as winter weather swept across the Plains, leaving some with expectations of higher prices. Trade was expected at least steady to perhaps $1 higher in the South at $86 live.

The winter weather that hit the eastern two-thirds of the U.S. last week took a toll on cattle performance with analysts predicting that it would hamper beef production through the first quarter, resulting in lower than expected carcass weights and a sharp decline in output into at least March. Those factors were expected by many to be a positive influence on cash prices for the next several weeks at least. Temperatures, with wind chill, were reportedly as low as -50 degrees in some parts of cattle feeding country last week. Those conditions are likely to cause a sharp drop in carcass weights and extend marketings for several additional weeks on those cattle, analysts noted last week.

Exactly how much of an impact the weather will have on boosting prices will, in fact, be limited by the demand side of the market Chicago Mercantile Exchange, analysts Steve Meyer and Len Steiner pointed out last week. The two said that despite a drop in production during the second half of 2009, prices weren’t able to stage any significant increases.

"We estimate that steer and heifer slaughter in the second half of 2009 was about 2 percent lower than a year ago and some 4 percent lower than the average steer and heifer slaughter for the July-December period in the last five years," they said. "During the same time frame, the Choice beef cutout was, on average, 10 percent lower than the previous year and 4 percent lower than the five-year average. Things were not much better for Select beef cuts as the Select cutout during July-December was, on average, 9.7 percent lower than a year ago and 1.9 percent lower than the five-year average."

They said that continuing high unemployment, which is expected to hamper the U.S. economy through at least the end of 2010, coupled with uncertainty in the housing market are likely to continue to outweigh any positive developments on the supply side of the beef market equation.

Despite the possible downside, Steiner and Meyer reported that one factor which had weighed down beef prices and consumer purchasing is expected to turn around during 2010. Specifically, they cited competing meats as ready to set the stage for a recovery in the year ahead.

"Prices for competing meats are key demand factors as they drive much of the feature activity in

the retail case. Judging from the activity in the CME futures, hog prices are expected to be notably higher in 2010 and chicken prices are also expected to improve. If that is the case, it will tend to support beef prices going forward," they noted.

Some of that strength was already showing last week as boxed beef cutout prices broke out of their sideways trend last Thursday with Choice gaining 95 cents during morning trade to reach $140.40 and Select added 92 cents to hit $135 although trade volume was on the light side. Harvest for the week through Thursday was estimated at 494,000 head, well above the prior week tally of 473,000 head for the same period. It was also sharply higher than the same period in early 2009 when harvest was reported at 481,000 head.

Feeder cattle

The first week of the new year brought good news for feeder cattle markets last week as the strength in the cash and futures markets translated into higher prices for feeder cattle. Most early week cash trade was reported higher and cattle numbers and quality were reportedly good in many markets. Later week sales were interrupted by weather and travel was difficult, cutting into numbers on offer for sales in the central U.S. last Wednesday and Thursday. Buyer interest in feeder cattle was surprisingly strong last week despite the tough feedlot conditions which have taken a toll on the cattle already on feed.

The market is beginning to focus on expectations for another decline when annual cowherd numbers are reported in February. Analysts are predicting a decline in dairy herd numbers due to the difficult market conditions in the sector which led to heavy culling last year. However, beef cow numbers are a little less certain and carry a wider range of expectations. What is not in question though is that beef cow numbers will be down from prior year levels as of Jan. 1. That drop will lead to yet another decrease in the 2010 calf crop and translate to tighter supplies of calves in the fall. The continued decline sets up the industry for a rapid rebound as soon as macroeconomic conditions begin to improve for U.S. consumers.

Last week in Oklahoma City, OK, after a two-week break for the holidays, feeder steers were called steady to $2 higher. Feeder heifers sold $1-3 higher. Steer and heifer calves were reportedly lightly tested and weak as a result of the weather. Demand was called good for the first sale of the year. Meanwhile in La Junta, CO, steer and heifer calves under 600 lbs. sold $3-5 higher with some instances of as much as $8 higher. Cattle over 600 lbs. were called $1-3 higher than the previous sale. Yearling feeder steers were steady to $1 higher and yearling feeder heifers sold $1-2 higher with active trade and good demand noted from the large turnout for the sale.

Farther west in Cottonwood, CA, last week, lighter weight cattle were in light supply and no trend was noted, however, yearling cattle sold $1-2 higher than the previous sale. And in Galt, CA, last Wednesday, feeder steers and heifers under 650 lbs. were called steady to as much as $5 higher than the previous sale. Feeder steers and heifers over 650 lbs. were reportedly steady to $3 higher. — WLJ

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