Fed cattle prices pass $90

Feb 19, 2010
by WLJ

Feeder cattle prices post impressive gains in nearly all markets.

Fed cattle markets in the North surged higher last week with some early fed trade in Nebraska at $145 dressed. Although it was too light to call the trend for the week, analysts were predicting that fed cattle trade in the southern tier would come in the $90-91 range with most of the northern business done between $144 and $145. The improvement in the cutout, largely due to declining production, helped the feedlots’ hand last week and packers appeared willing to pay more for cattle as a result. However, it looked like most of the business, particularly in the southern Plains, would be on hold until after the cattle on feed report was issued by USDA on Friday.

The USDA report was expected to show a very positive situation for the industry, particularly the marketing number, which analysts estimated last week would come in steady with the prior January despite one less marketing day this year. Going forward though, it may be difficult for feedlots to continue that marketing pace if packers continue to trim production levels as they have in the most recent week or two.

The cut in production has been the result of packers trying hard to protect their profit margins, which were estimated last week at $7.35 per head by HedgersEdge.com. There was talk last week of some packers cutting operating hours and kill levels were not expected to top 615,000 head for the week. That drop in production has been offset by a sharp drop in cattle weights due to adverse feeding conditions this winter and was not expected to cut into cash fed cattle prices last week. It may, however, begin to cause a backlog of market-ready fed cattle into spring if it continues for more than a few of weeks.

The demand side of the picture has yet to show much sign of improvement domestically, however, the export markets have improved significantly during the first six weeks of the year, which is adding some support to prices. Although the domestic demand for beef has been slow to improve, prices for all classes of cattle are drastically better than they were at the start of the year. That has been a product of several factors, including the improved offal price, a cut in production, drop in carcass weights, and also an increased demand for ground beef.

Product prices have risen to a level where several end cuts now make sense in grinding formulations. The availability of foreign grass-fed beef products has become an issue for some grinders, according to analyst Troy Vetterkind, who noted that product availability has gotten tight in recent weeks.

"Supplies of boneless beef are tight and ground beef demand at both retail and fast food levels is strong. This had weighted averages on domestic 90 percent boneless beef trading $1 higher at $159 and 50 percent fat cattle trim trading $3.50 higher at $80 (last Wednesday)," said Vetterkind.

He noted that all boneless beef markets moved higher as a result of the strong demand.

"Cow availability in the U.S., as well as Australia and New Zealand, is an issue and will likely remain that way for the foreseeable future," Vetterkind said. "Hamburger demand, both domestically and abroad, is insatiable and this is a train that likely doesn’t turn course any time soon as well. This is going to be very supportive to the boneless beef markets and, in turn, end meats from the choice/select/no-roll kill as processors search for product to fit into their grinding formulations and keep their plants running at optimal levels."

He said he expected the strong boxed beef market to continue for at least the next week or two. Last week, that strength contributed to an increase of more than $5 in the boxed beef cutout values. At midday last Thursday, Choice had gained an additional 30 cents from the previous day’s level to reach $144.76 while Select traded up 78 cents to $143.59.

Feeder cattle

The strength in fed cattle markets has also translated over into feeder cattle sales. A strong start to spring precipitation levels has buyers bidding up feeder cattle prices in nearly every single auction market in the country over the past two weeks. The market has been reported to be uniformly strong for nearly all classes of cattle, with calves suitable for grazing noted to be particularly strong in the West. California graziers are already seeing some good pasture growth and any continuation in the moisture pattern could help propel prices even higher. The report is similar in the southern Plains where wheat pasture cattle should begin making an appearance very soon.

Vetterkind noted that the current strength in the feeder cattle markets is likely to continue in the lighter classes suitable for grass. But, he cautioned that strength may not carry over into the heavier weight classes for much longer, noting that there has been an increase in the number of feeder cattle backed up in the northern Plains this year, a point which was echoed by North Dakota State University last week.

He pointed out that the recently released annual cattle inventory report from USDA showed that increase in cattle outside feedlots in the region in very clear terms.

"Steers over 500 lbs. were up about 6 percent in North Dakota and Wyoming, and up by almost 12 percent in South Dakota compared to a decline of 2 percent in the U.S.," Petry pointed out, also noting a similar trend in heifer numbers outside feed yards. "The increased number of feeder cattle still in the northern Plains was due to the reduced sales volume that occurred throughout the fall marketing season. Mild weather and good forage conditions resulted in many calves being weaned a month later than last year when winter set in early and drought in the western part of the region limited forage availability."

He said ample forage, a large feed barley crop, lots of high moisture corn and low calf prices encouraged a number of producers in the region to background their calves, with some opting to finish them out.

"With corn prices moderating somewhat, good moisture conditions in the northern Plains, and a chance for higher cattle prices when the economy improves, there may be interest in retaining more beef heifers in 2010," Petry said. "Replacement quality heifers are commanding premium prices at many northern Plains cattle auction markets. For example, several lots of replacement heifers sold for the same prices as their steer counterparts last week, and in a few cases, even brought substantial premiums to the steers."

Vetterkind also pointed out that a similar phenomenon also occurred in the South this year, with many producers opting to delay marketings. He expects those cattle will start coming to town in the very near future. He also cautioned that there is a 16 percent increase in the number of wheat pasture cattle in the southern Plains region this year which will add to the supply of heavyweight cattle coming to market in the near-term

"This, along with backed up feeder marketings and the fact that forward feeding margins are starting to wane and show break evens at best is, in my opinion, what will put in a near-term top in the feeder cattle market within a week or two," said Vetterkind.

At the sale in El Reno, OK, last week, as noted by Vetterkind, prices were very good for the lightweight grass-type cattle. Prices were called $6-7 higher on the calves and steady to $2 higher on the feeder cattle. Calves in the 300 lb. class sold between $130 and $140 while four weight steers sold at $120-133 and 500-599 lb. steers sold from $110 to $122. Seven weight steers brought $97-106 while those in the 800 lb. class sold from $92-99.

Farther north in Hub City, SD, last week feeder steers and heifers were called steady to $2 higher on a good selection of high quality offerings. Demand was reportedly very good across all classes on offer.

Meanwhile, in La Junta, CO, last week, prices were uniformly steady to higher across all classes of cattle. Steer calves under 400 lbs. sold steady while those in the 400-500 lb. range were called $1-2 higher and those over 500 lbs. were $3-5 higher. Heifer calves sold $2-3 higher except for those in a range of 550-600 lbs. which brought prices $5-8 higher. Yearling feeder steers from 700 to 800 lbs. sold $3 higher while those over 800 lbs. were called steady to $1 higher. Yearling feeder heifers sold $1 higher. In Torrington, WY, feeder steers sold $2-5 higher last week with some instances of $6-8 higher. The feeder heifers sold $2-5 higher with some instances of as much as $6-9 higher.

On the West Coast, prices remained strong last week. In Galt, CA, feeder steers and heifers were reportedly selling steady to $2 higher across all weight classes while in Cottonwood, CA, stocker steers 700 lbs. and less and heifers under 600 lbs. sold $1-4 higher. Yearlings, which were fewer in number, sold steady to $1 higher.— WLJ