Fed cattle market trades steady

Markets
Mar 5, 2010
by WLJ

Fed cattle market trades steady

—Feeder cattle prices continue to rise with a top seen between $110 and $115.

Fed cattle trade was put off until Friday last week as packers appeared reluctant to pay asking prices for showlist animals, particularly in the southern tier where cattle were priced at $94-95. The call for the week, ahead of any significant trade last Thursday, was steady to perhaps slightly lower than the prior week’s action. Trade in the North was expected at $143-144 dressed basis, while southern Plains trade was expected at $91.50 to $92 live basis, steady to 50 cents lower than the previous week.

With packers pulling from the early-March supply of contract cattle while reducing production schedules, there was little urgency in their need to procure cash cattle in most instances last week. Harvest levels through last Thursday were running 17,000 head behind the previous week as packers worked to support the beef cutout at profitable levels. For the week through Thursday, harvest was estimated at 488,000 head, however, that remained above the tally of just 478,000 head for the same period last year. Those harvest cuts, combined with carcass weights which continue to be sharply lower than a year earlier, are helping to support fed cattle prices.

Cutout prices showed signs of topping last week, trading mostly sideways on very light volume. At midday last Thursday, the Choice product was down 30 cents at $150.12 while Select was off 32 cents at $148.65. However, trade volume was very light, with just 131 loads trading hands during the morning session. The sharp increase in beef prices over the past month has pushed many buyers to the sidelines or sent them searching for competing proteins for better deals for featuring. The consumer spending habits haven’t improved significantly, according to retail reports and, as a result, the gains are likely not sustainable in the long-term.

Analysts last week were calling for prices to turn lower in the near future barring any additional significant weather-related market impacts. However, the seasonal improvement in demand could begin to show up in southern regions over the next several weeks as weather improves toward spring, muting major declines in prices.

The trouble, economists noted recently, is that demand for beef in the domestic market continues to fall, serving to limit price gains. University of Missouri agricultural economists Glenn Grimes and Ron Plain pointed out that domestic demand for beef continues to fall in the face of economic problems and more favorably-priced competing meats. Grimes and Plain said that during 2009, retail beef demand fell 2.6 percent from 2008 levels.

"The bad news is that domestic retail demand for Choice beef was weaker in the fourth quarter of 2009 than during the first quarter," they said. "The average price of a pound of Choice beef at retail in January was $4.189, down 9.6 cents from December and down 13.4 cents compared to January 2009."

Similarly, the Livestock Marketing Information Center (LMIC) reported last week that during 2009, per-capita supplies of protein in the U.S. fell for only the third time in the past 30 years. That decline is largely the result of a decrease in poultry production, however, beef and pork supplies also dropped last year by lesser amounts.

"In 2009, U.S. total red meat and poultry consumption was the smallest since 1997. The long-term trend in the U.S. has been for per-person beef consumption to decline and for broiler consumption to increase," LMIC analysts stated. "For calendar year 2009, U.S. estimated per person consumption of red meat and poultry was 210.5 lbs. on a retail weight basis, compared to 216.1 lbs. in 2008, and was about 11 lbs. below 2007. The largest year-to-year declines in per capita total red meat and poultry consumption occurred during the first half of 2009 (down 3 to 5 percent), with only modest yearly declines during the latter part of the year (about 1 percent smaller).

During 2009, according to LMIC data, per capita beef consumption fell 1.5 lbs. from the prior year, while pork consumption increased by 0.6 lbs. per capita.

"Looking ahead, additional modest declines in U.S. total red meat and poultry supply may happen again in 2010. But in contrast to 2009, the year-to-year declines in 2010 will be dominated by red meat (mostly beef) changes as chicken output is forecast to rebound. U.S. exports of red meat and poultry are forecast to post modest year-to-year gains in 2010 with imports (red meat) expected to be only slightly larger than last year," analysts said. "Therefore, per capita consumption of red meat and poultry, on a retail weight basis, is expected to decline again in 2010, with current forecasts at just over 208 lbs. per person. If realized, that level of per capita consumption will be the smallest since 1993. And beef consumption would be below 60 lbs. per person (retail weight) for the first time since 1958."

Unless a recipe for improving beef demand in the U.S. is found soon, prices may not be able to stage significant rebounds despite the continuing decline in the domestic beef herd.

Feeder cattle

"Closing April feeders above the $105.50 area on a weekly closing basis would open the door for a test of $110," Vetterkind Cattle Brokerage analyst Troy Vetterkind reported last week. "I don’t know if front month April or May can do this right now, however, August/September/October feeder cattle are likely going to eventually trade up to the $110-$115 area for a summer high."

He said that the market’s focus is on the tightening supplies of cattle going into the second half of 2010 and early 2011.

"The fund community is fully committed to the long side of the meat complex as this is where they feel the next story is going to be in the commodity complex. While, fundamentally, we could see the market slow down in the front end of the board for spring/summer, it would be my guess that we are going to see a similar situation to what we saw in 2008, before the crash, where we saw huge premiums develop in deferred month cattle futures," said Vetterkind.

In the cash markets last week, prices were steady to higher again with trade in the southern Plains showing continued improvement. In El Reno, OK, last week, feeder steers sold $1-4 higher while feeder heifers were called steady to $2 higher. Steer calves sold steady to $2 higher and heifer calves were reportedly steady on good demand. Meanwhile, in West Plains, MO, last week, steers were selling steady to $2 higher and heifers in the 400-700 lb. class were steady to $2 lower, with instances of as much as $2-4 lower on the 4-6 weight heifers on moderate supply and moderate to good demand.

Farther west in Burwell, NE, last week, steer offerings trended steady to $4 higher and heifers traded steady to $3 higher with the exception of those in the 450 to 500 lb. range which were called $4 lower than the previous sale despite good demand and active trade. And in La Junta, CO, last Tuesday, steer calves under 600 lbs. sold steady to $2 higher while those over 600 lbs. were steady to $1 higher. Heifer calves under 500 lbs. brought prices $2-4 higher and those in the 500 to 600 lb. class sold steady. Heifers over 600 lbs. were $1-2 higher. Yearling feeder steers and heifers were called steady.

On the West Coast in Vale, OR, last week, the market was called steady on all classes, with some instances of $2-4 higher than the previous week. Steers in the 400-500 lb. class sold between $115-130 while heifers in the same range were $10-12 back. Five to six weight steers sold between $106 and $118, with heifermates $8-10 back. Meanwhile in Cottonwood, CA, the market was called steady and good with 500-550 lb. steers bringing a range of $115-124.50 and 650-700 lb. steers sold between $97 and $109. Heifers in the 550-600 lb. category sold from $100 to $107.50.

At the market in Famoso, CA, stocker and feeder steers and heifers were in high demand with the most interest on the stockers in the 450-700 lb. class, which sold fully steady with the prior week. Feeder cattle in the 700-800 lb. range saw the most activity with prices called $2 higher than the previous week’s sale. — WLJ


Feeder cattle trade in recent weeks has been getting a boost from the return of hedge fund money being poured into the contract markets on the Chicago Mercantile Exchange. The rise in contract prices to levels at or above the $105 mark for the April contract has some analysts predicting the summer highs could continue to improve.
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