Beef, cattle markets top 2007 levels
Trade was an early affair last week as feedlots gained the upper hand to trade showlists at prices steady to $1 higher than the previous week at $99 to $100 live basis in most regions. In the north, trade was conducted at mostly $160 dressed. Despite turmoil in the outside markets, cattle prices were generally expected to remain steady for the week ahead as firm boxed beef prices, better movement into retail channels, and good packer margins continue to set the tone for trade ahead of the summer grilling holidays starting with Memorial Day. In fact, last week, analysts were predicting that the winning streak could continue—with only limited early season interruption—until after Fourth of July buying is complete.
Last Thursday, boxed beef prices remained firm with midday trade in Choice product gaining 23 cents to reach $170.84 while Select added 86 cents to hit $168.04 with 155 loads of fabricated and trim product moving during the morning. Futures markets were pricing in the better cash trade and boxed beef sales last week, with contracts following cash higher. The upfront June contract was off 15 points from the prior day over pressure from outside markets, however, it still managed to close at a respectable $96.55 while August was down 42 points to finish at $94.82 and October lost 32 points, closing at $96.22.
Production schedules among packers have been increasing over recent weeks as packers benefit from good margins. The industry was expecting a 641,000-head production week, an increase of 5,000 from the prior week but still below the 650,000 head processed the same week last year. HedgersEdge.com estimated last Thursday that packers were making a profit of $63 per head. That level of profit has been consistent for quite awhile with rising or steady pricing noted on nearly all primals. Last week, Choice boxed beef values actually stood nearly $10 above pre-financial crisis levels of May 2007. Likewise, cash fed cattle prices were approximately $3 above the market three years prior. With the return of foreign buyers to the U.S. market, offal values have also added to profit margins. Last week, drop values were reported at $10.86, which is 79 cents higher than May 2007 prices. All of these increases have helped cow/calf producers, feeders and packers return to profitability, the implication being that herd growth in the U.S. is likely not far behind.
The supply situation in the fed cattle markets has been a very positive influence in the markets for the past couple of months and the May 1 cattle on feed numbers are expected to continue showing support for current price levels when they come out later this month. HedgersEdge.com last Thursday predicted that the May 1 cattle on feed report would show cattle on feed numbers will be 3.3 percent below the previous May. Placements during April are expected to be 3.4 percent ahead of last year while marketings for the month are expected to rise 0.7 percent from April 2009, despite one less slaughter day in April 2010, according to HedgersEdge.com.
The increase in marketings over the previous few months have been indicative of an improving consumer sentiment thus far in 2010. Price increases still haven’t been passed along to consumers in many cases, but that’s expected to change soon as both restaurants and retailers begin to work at recouping losses accrued over the past two years. Whether consumers will be willing to pay more for beef, or pork and chicken for that matter, remains to be seen. Export markets have been coming back online and recent export reports from USDA have shown a sharp increase in overseas sales which has helped to bolster cutout prices during the spring. So, between U.S. consumers returning to the market and foreign buyers ramping up purchases, it has put all sectors of the beef industry back in the black for the first five months of the year. However, analysts remain wary of the outside market volatility which was hammering equity markets last week. Sharp declines in the stock market could scare consumers back into the trenches and cut their willingness to continue with their improving retail outlook which, in turn, could cut into beef market gains this summer, analysts noted last week.
Feeder cattle prices last week were steady to higher in most instances after fed cattle traded early in the week at better money. Pasture and range conditions in the U.S. are off to a very good start this year, with few instances of dry conditions noted in any region. USDA’s first pasture and range condition report, for the week ending May 2, showed this year’s grazing season is off to the one of the best starts in the past 15 years, according to Chicago Mercantile Exchange analysts Len Steiner and Steve Meyer.
The USDA report for week ending May 2 showed that 63 percent of pastures and ranges in the 48 states were considered to be in good or excellent condition. "Keep in mind this is a weighted average based on reported acres, not a simple average," the pair noted. "Moisture conditions in the Midwest and northern and southern Plains are in good shape and that has contributed to the good pasture conditions. The most recent reading of the Palmer drought index points to very positive longer term drought conditions for much of the pastureland in the country."
The implication, according to Steiner and Meyer, is that the improvement in grazing conditions is likely to have a significant impact on beef cow slaughter this summer, with more producers holding onto their cows if they have ample forage available. This would pave the way for higher cow prices, growth in the calf crop and, eventually, herd expansion.
"Pasture conditions in states with a large beef cow inventory are well ahead of last year’s levels. Last year, only 29 percent of Texas pastures and ranges were considered to be in good/excellent condition while 40 percent were rated as poor or very poor," they said. "This year, 57 percent of pastures in Texas were rated in good/excellent condition while just 9 percent were rated as poor or very poor. Similarly in Oklahoma, 60 percent of pastures and ranges as of May 2, 2010, are in good/excellent condition compared to 38 percent a year ago. These two states accounted for almost a quarter of the overall beef cow inventory in the U.S. on Jan. 1."
Although Steiner and Meyer cautioned that it is still too early to make predictions for future cowherd trends, they said things are looking good for a turn around in cattle cycle.
"It seems to us that it is only a matter of time when a combination of a much better profit outlook and very positive short term feed supplies finally put an end to the ongoing liquidation of the U.S. beef cow herd," they reported.
Regardless of the trend in beef cow numbers, the moisture has been a boon for cow/calf producers and stocker operations this spring. Calf and yearling prices have been very good, in some cases better than pre-financial crisis levels. Reports from across the country indicate that pasture and rangeland is being well stocked with calves. This trend continued to support market prices last week. At the Western Video Market auction last week, consignors were finding good prices and strong demand for California and Nevada calves and yearlings. Perhaps the best prices in recent history for feeder cattle was reported last week at the WVM sale when a consignment of 850 lb. Certified organic steers from Gonzales, CA commanded a price of $152.25. Other consignments also found excellent demand and prices, last Thursday, for example, a consignment of 300 head of 670 lb. steers from northern California for June delivery brought a price of $118.50 while 255 head of 610 lb. heifermates commanded $112. A consignment of 210 head of 750 lb. steers for May/June delivery brought $106 and 130 head of reputation 775 lb. steers from central California for June delivery sold at $107.25, while 700 lb. heifermates brought $106.10. A consignment of 440 steers, with a base weight of 785 lbs., for late-June or early-July delivery sold for $105.25 while 685 lb. heifermates sold 50 cents back.
Auction market prices were also strong last week with Oklahoma City West reporting prices for feeder steers were $2-4 higher last Thursday. Feeder heifers were called steady to $2 higher. Steer calves and stockers sold $3-5 higher and heifer calves and stockers sold steady on a light test over the past two weeks. Demand at the sale was called good.
Farther west in La Junta, CO, light steer calves sold steady between $125 and $149 while heavier weights were called $2 lower at $125-140. Lightweight heifer calves were steady between $115-123 and heavyweight heifers dropped $2-4, commanding $115-123. Meanwhile in Torrington, WY, feeder steers over 600 lbs. were called $1 higher last week while those over 600 lbs. sold $2-3 lower.
In the Southwest at Prescott, AZ, steer and heifer yearlings sold steady with the previous week’s action and in Oregon at the market at Vale, grass calves were called steady with the prior week on a light run with 400-500 lb. steers selling from $121-133 while 500-600 lb. steers brought $116-131. Yearling steers from 700-800 lbs. sold from $101 to $114, with heifers in the same class between $91 and $99. — WLJ