Late week market expected steady to $1 higher

Markets
Mar 12, 2010
by WLJ

For the second consecutive week, fed cattle trade was slow to get started, with most of the volume expected to be put off until Friday as packers and feedlots faced off over prices. Last Thursday, bids and offers were still $3-4 apart in most areas, with expectations that fed cattle would trade mostly steady to $1 higher than the previous week at $92-93 live basis in the south and at $143-145 dressed basis in the north barring any significant downturn in the futures market before trade developed.

Packers have been cautious in their buying after the run in fed cattle prices since the first of the year. Boxed beef prices have also been rising, however, both appear to be at a near-term top. Boxed beef prices last week traded mostly sideways with Thursday midday trade at $149.08 on the Choice product, down 41 cents from the previous day, while Select was down 44 cents at $148.76 on very light trade volume. Packers were managing their production speed closely in an effort to maintain beef values above breakeven prices. Slaughter for the week was expected to come in at 625,000 head. The strategy appeared to be working for packers as HedgersEdge.com estimated packer margins in the black at $16.90 per head last Thursday.

With the start of grilling season still more than a month away in most areas of the country, there was lackluster demand for the middle meats that help to support carcass values last week and retail buying was weak across most of the middle primals. End meats and grinding product were reportedly trading steady, however, there weren’t many catalysts to help push boxed beef prices to the next level and help to stage additional run-ups in fed cattle prices in the near future. The result is expected to be mostly sideways to perhaps slightly lower pricing over the next few weeks until the first wave of buying for grilling season begins, analysts noted last week.

Whether or not domestic consumers will step to the plate and allow beef prices to move higher into the summer remains to be seen. Last week, USDA, in its monthly supply and demand estimate, revised per capita beef disappearance levels lower yet again. The newly revised figures showed disappearance falling 2.3 percent for 2010. That drop reduces the total per capita disappearance by 8.6 percent from 2007 levels. Fortunately for the industry, USDA is also predicting that available beef supplies in the U.S. will fall 1.2 percent from 2009 levels, equivalent to a production drop of 25.75 million pounds.

University of Missouri ag economists Glenn Grimes and Ron Plain noted last week that USDA also predicted a rise in prices, due in part to the expectation that beef supplies and production of other proteins such as pork will continue to shrink, which will be supportive of beef prices.

"USDA’s latest long-term forecast is for steady improvement in cattle prices. At their annual outlook forum, USDA predicted higher fed cattle prices each year for the next nine years with prices for slaughter steers averaging slightly above $100/cwt. live in 2019," Grimes and Plain explained. "They expect the cattle inventory to bottom in 2011 and then expand very slowly. Cost of gain should not be a big problem if USDA’s corn price forecast is right. They expect annual corn prices to stay between $3.50 and $4 for the next decade."

However, the pair noted that despite the optimistic projection from USDA, there is plenty of reason for producers to remain cautious.

"By their nature, long run forecasts predict less volatility than will actually occur. It is hard to predict surprises, but they will occur," they said.

Projected export sales of U.S. beef were left unchanged at 2.04 billion pounds which, if realized, would equate to an increase of 9 percent from last year, adding support to prices. Beef import expectations were adjusted lower by 75 million pounds, with analysts noting that additional reductions could be expected in the future. The weak state of the U.S. dollar has made foreign purchases of beef more expensive, adding to the demand for cull cows in the domestic market and forcing some processors to look to fed cattle end meats to fill out demand for ground beef products this year; both factors have been supportive of fed cattle prices thus far in 2010. As a result, USDA did adjust its 2010 target price higher for beef as a result of the currently tight supply. The annual price forecast for cattle was increased by $1 to $2 per cwt. on a live weight basis. Hog prices were adjusted upward by $1 from the previous months’ projections.

Feeder cattle

The improving spring weather continues to be supportive of stocker and feeder cattle prices in nearly all markets. Last week, most U.S. markets reported prices which were $1-2 higher for classes of cattle suitable for grazing as buyers stock up. There has been ample moisture in many grazing areas to ensure a good start to the grazing season and in places where grass is emerging from winter dormancy, there are reports of good numbers of cattle being turned out for grazing, particularly in California and the far south Plains areas. As spring moves north, this trend is expected to continue supporting stocker cattle prices.

Fed cattle markets are having a direct effect on feeder cattle demand and with markets trading mostly steady over the past two weeks, many buyers are reportedly taking a "wait and see" approach to buying replacement cattle. However, prices were trending mostly steady on feeder cattle last week. So long as fed cattle markets remain stable, feeder cattle prices are expected to follow suit. The bearishness in the grain markets after last week’s World Agricultural Supply and Demand Estimate (WASDE) report also helped add some stability to feeder cattle prices. The WASDE report showed that world grain stocks are beginning to rebuild after a drought in South America last year which put pressure on corn prices and subsequently improved feeder prospects. USDA predicted that grain exports and domestic usage will continue to fall this year after a near-record crop, leaving ending stocks at a level of 1.8 billion bushels, more than enough to assure market watchers that ample corn will be available to meet demand.

The result of the market news last week was an uptick in cash prices last week. In El Reno, OK, on a big run of cattle last Wednesday, feeder steers sold steady to $1 higher while feeder heifers were called steady. Steer calves were reportedly steady to $2 higher than the previous week while heifer calves sold steady to $3 higher on good demand for all classes on offer. Meanwhile, in Joplin, MO, feeder steers and heifers traded steady to $1 lower. Supply was said to be very heavy, however, market demand readily absorbed the second straight week of big numbers.

Farther north and west, where winter still maintains a grip on pasture lands, prices were slightly weaker, but buyers were still active in nearly all markets, just at steady to slightly lower money than prior weeks. For example, in Hub City, SD, feeder steers over 550 lbs. were unevenly steady to $2 higher while feeder heifers were called $1-2 lower on good demand. In La Junta, CO, last week, steer calves sold $3-5 higher with some instances of as much as $8-10 higher. Heifer calves were sold $2-4 higher while yearling feeder steers were $1-2 higher except for a couple loads of thin 700 lb. steers selling $5 higher. Yearling feeder heifers were called steady to $1 higher with very good demand noted across all classes on offer.

Last week in Prescott, AZ, choice steer and heifer calves were called $4-8 higher than the previous week while the average kinds were $2-4 lower. Meanwhile, farther west in Galt, CA, feeder and stocker cattle prices were reportedly steady on all classes. To the north in Vale, OR, prices were higher on all offerings of cattle with extremely good demand noted on most classes. — WLJ

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