Fed trade steady, seasonal top may be in

Markets
Feb 26, 2010
by WLJ

Fed trade steady, top may be in

The recent advances in fed cattle prices seem to have pushed the market to its seasonal top last week with the trade mostly steady at $91-92 and analysts predicting that the market would turn lower over the next couple of weeks without additional help from the weather. Fed cattle trade started out early last week with cattle trading in the southern Plains on Wednesday, although volume was light. Dressed trade in the north wrapped up on Wednesday with good trade volume noted in Iowa and Nebraska and prices reported at $144-145 dressed.

The weather has provided a significant boost for fed cattle markets during the first two months of the year. Cold weather and snow across a wide swath of cattle feeding country have limited feedlot gains and cut into beef production, allowing prices to make good gains off the winter lows. The lost gains in feedlots will be difficult to make up in the near-term and carcass weights should remain below prior year levels into the middle of the year when those cattle are finally cleared from inventory. The result will be continued low levels of beef production, consistent with current demand levels. If production begins to creep higher, it would quickly reverse those gains, sending prices lower, analysts have noted. Beef demand among consumers has not shown any signs of improvement despite the economy posting better numbers for the last quarter of the year. Until main street consumers begin to feel more confident about their financial situation, big, consistent improvements in beef prices will be difficult to maintain.

That same action was found in the boxed beef markets last week where product values appeared to be leveling off after a pretty solid rally the previous two weeks, reported Vetterkind Cattle Brokerage analyst Troy Vetterkind. He said that he now expects boxed beef price to start a backward slide in the next week or two.

"We are starting to see some buyer resistance at current price levels and as a result, trading volumes have slowed and prices have moved into more of a sideways trading pattern," he reported. "There is talk amongst many of the major buyers of boxed beef that end meats hold downside risk at current price levels."

The end meats have been responsible for a good portion of the recent improvement in the markets as middle meats struggle in the face of poor demand from the hotel and restaurant sectors.

"I am going to look for beef values to stall at current price levels and look for a lower trending market next week," noted Vetterkind.

Beef sales abroad also appear to be slowing down, with USDA reporting a dip in sales for the week of Feb. 12. Sales declined 18 percent from the prior week with a 30 percent decline from the four-week average level. Net sales to Mexico were reported at just 4,000 metric tons, while Canada, the next largest buyer, recorded purchases of 1,600 metric tons.

This slowdown comes after a full year decline last year. USDA’s Foreign Agriculture Service (FAS) noted two weeks ago that during 2009, U.S. shipments of beef and variety meats to Mexico fell 26.3 percent from 2008 levels as the economic downturn took a toll on sales south of the border. Canada was similarly affected; sales to the U.S.’ second-largest buyer of beef fell 7.7 percent. There were, however, some bright spots in the report with sales to Asian buyers showing significant increases. Most notably, sales to Hong Kong soared 144.8 percent last year, likewise, sales to Japan jumped 23.4 percent during 2009. However, Asian buyers were unable to offset the declines in trade with the top-tier buyers of U.S. beef, with FAS noting that beef and beef variety meat exports for 2009 fell 8.8 percent from 2008 levels.

It goes without saying that foreign trade needs to be a serious focus for the industry during 2010. With the Obama administration clearly focused on the domestic agenda, it will be left to industry players to drive U.S. beef sales to our overseas trading partners.

Feeder cattle

With fed cattle markets reaching what may be a seasonal high, feeder cattle prices should also begin trading sideways to lower, Vetterkind said last week. He said he expected to see contract trade turn lower soon, with prices moving back to the $100-101 level on the April and May contracts.

However, the feeder and stocker cattle markets are also likely to see some weather-related support going forward. Spring is on the horizon in many parts of the southern tier and buyers looking for grass cattle have already emerged in several markets, most notably in California, as well as in Texas and Oklahoma where ample moisture as set the stage for good grass growth as the weather warms, a situation far different from what producers in those areas have seen in the past few years. That improved sentiment may help to offset concerns about fed cattle prices, pushing feeder cattle prices to better levels into the spring. The tight supply of feeder and stocker cattle will also help to push prices higher.

However, in the near-term, those wet conditions are taking a toll on producers in the region who are now faced with a muddy, wet spring calving season which will also serve as a lid on price gains. Oklahoma State University Extension Livestock Marketing Specialist Derrell Peel noted last week that producers in the south have been faced with a longer winter feeding period than normal and are now facing short feed supplies, with another six to eight weeks before green-up, which may temper enthusiasm for buying feeder cattle somewhat. In the meantime, he suggested that those producers who are short of hay evaluate all potential feed resources to find the most cost-effective source of feed.

"Hay may not necessarily be the best answer," said Peel.

Going forward, Peel noted that the weather is going to translate into performance issues in terms of conception rates and calf performance early in their development. Peel suggested that some producers who have been particularly affected consider adjusting their breeding seasons to allow cows to regain some body condition ahead of breeding.

"Stocker cattle have also been affected by the harsh winter. The impacts depend more on the particular location. In some regions, stocker cattle have been subject to the same wet, sloppy conditions with stalled out wheat pasture and have not gained well," he noted. "Many were placed on pasture later than usual and thus are lighter than expected at this time. Farther west in Oklahoma and in the Oklahoma and Texas panhandles, it has been cold but drier and cattle have gained well, albeit with significantly increased hay feeding."

He said that some of those cattle are going to be shipped off of wheat pastures very soon, which will have an impact on market prices in the south as run volume begins to increase. However, he also noted that some marketings may be slightly delayed because of the ample moisture.

"Cattle grazing out wheat will have excellent forage conditions as soon the weather warms a bit and the wheat begins growing rapidly," said Peel.

Last week in El Reno, OK, feeder cattle prices showed some of that market pressure noted by analysts. Feeder steers sold $1-2 lower while heifermates sold steady. Steer calves were called $4-7 higher and heifer calves were reportedly $3-5 higher on moderate demand

Farther north in Hub City, SD, last week, feeder steers sold $1-3 higher and feeder heifers sold steady to $1 higher than the previous week with good demand for all cattle on offer.

In La Junta, CO, steer calves sold steady to $3 higher, with the best advance coming on the 600-650 lb. steers. Heifer calves under 600 lbs. sold steady except for a half-load of fancy 430 lb. calves which sold $3 higher. Heifers over 600 lbs. were called steady to $2 higher with the advance coming on 600-650 lb. offerings. Yearling feeder steers sold steady to $2 lower while yearling feeder heifers were steady.

Farther west in Prescott, AZ, Choice light steer calves sold $3-5 lower last week while heifers in the same class were called steady. Heavy steer and heifer calves were called $2-4 higher as were yearlings. Meanwhile at Famoso, CA, stocker steers were called $2 higher, with the best action on 450-700 lb. green steers suitable for grazing. Feeder steers and heifers were called $3 higher than the prior week’s sale with the best demand on the 700-800 lb. offerings. — WLJ

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