Seasonal decline expected soon

May 15, 2010
by WLJ

Last week’s cash fed cattle trade came in steady to $1 higher than the previous week at $100 live basis in the southern Plains and at $99-100 in Kansas. Dressed trade in the northern tier came in a range of $159 to mostly $162-163, as much as $3 higher than the prior week as packers worked to fill pre-Memorial Day holiday orders. Trade volume through last Wednesday was sufficient to set the trend for the week and prices appeared set to begin a seasonal decline after the week’s business was complete.

Boxed beef prices also showed signs of topping last week, with Choice trading nearly $1 lower than the previous day at $170.08 during the morning session last Thursday while Select slipped 36 cents to hit $166.59 on very light trade volume. Until retailers have an opportunity to assess holiday beef sales, the market has likely reached its top and downside risk is likely to pressure the market lower for a few weeks, analysts said last week.

At current slaughter levels, production is expected to exceed demand, meaning that beef prices are set to decline unless market dynamics change and beef begins to move into other channels. Last week, with positive packer margins, production was expected to exceed 670,000 head. Part of the reason for the increased production is increased demand, but the bigger portion can be attributed to the lower cattle weights this year as a result of the difficult winter feeding period, from which cattle have yet to completely recover. Last week, average live weights were reported at 1,249 lbs., down 16 lbs. from the same week last year and carcass weights were also 16 lbs. lower at an average of 752 lbs. last week. The difference has been enough to keep the need for cattle purchases high this year, allowing feedlots to maintain their very "current" inventory status.

As packers look for new channels for product to maintain sales and margins, the export markets may step into the gap and take some pressure off of domestic sales. First quarter export numbers reported last week showed that the first three months of 2010 were solid, with strong gains reported in several key markets. According to the U.S. Meat Export Federation (USMEF), beef muscle cuts got off to a particularly strong start in 2010, increasing 22 percent in volume to 156,947 metric tons for the quarter. The increase in value was even higher, up 24 percent to $678 million. Total beef exports accounted for 10.6 percent of overall production in March compared to 9.4 percent in March 2009. Export value per steer and heifer slaughtered equated to $127.40, compared to $110.67 last year.

Those gains are very impressive considering the big drop in sales to Mexico, the largest buyer of U.S. beef. Much of the decline came in sales of variety meats south of the border, which were down 44 percent in volume and more than 60 percent in value. Sales of muscle cuts were down just 7 percent in volume and 10 percent in value. Despite this decline, Mexico remained the largest destination for U.S. beef/beef variety meat at 58,156 metric tons valued at $184.7 million. The Canadian market remained in second position, with sales of beef and beef variety meat reaching 32,045 metric tons valued at $139.4 million. This is an increase of 14 percent in volume and 19 percent in value over 2009. Japan was the number three value market at $95.3 million—up by 33 percent over the first quarter of last year. In terms of volume, Japan is up 37 percent to 18,487 metric tons, according to USMEF.

"As a beef producer, I can’t help but be extremely excited about these global results," said USMEF Chairman Jim Peterson, a rancher from Buffalo, MT. "We’re confident that U.S. beef will rebound in Mexico when economic conditions improve. And when that happens, U.S. beef is well-positioned for a remarkable performance in 2010."

Feeder cattle

Last week’s calf and feeder markets were mostly higher. Current price levels in auction markets across the country have been strong for much of the spring and are likely to continue for the next few weeks as buyers work to fulfill their summer needs for grazing or feeding programs, so producers with cattle to sell will continue to find good prices as a result of the dwindling supply and strong demand.

With much of the easily available supply of cattle for summer grazing already exhausted, the focus will soon shift to fall deliveries. For most of the past several years, cow/calf producers selling on the early summer video auctions have enjoyed the best prices of the year and analysts have been urging producers to consider forward marketing to lock in some price protection. Market volatility this summer could be extreme, and with current grain prices trending lower, the early 2010 sales could once again see some excellent price action for producers selling high-quality offerings of calves for fall delivery.

Last week in Hub City, SD, there weren’t enough lightweight offerings for a good market comparison, but a steady undertone was reported. Heavy feeder steers from 800-1,000 lbs. sold steady to $2 higher. Feeder heifers 700-950 lbs. sold $2 to $4 higher. Demand was called very good with a larger than normal amount of buyers on hand. Meanwhile in La Junta, CO, last week, prices were called $3-5 lower on the lightweight steers, from $125-135, while heavier weights were also $3-5 lower, from $118-135. Heifer calves sold $2-4 lower, from $110-122, and heavyweight heifers brought steady money from $110-125. In Torrington, WY, steers calves sold $3 higher last week with some instances of $5 higher noted. Heifers were $5-7 higher than the prior week with good demand noted.

On the West Coast in Famoso, CA, feeder and stocker cattle prices were mostly steady with the previous week with good demand noted on green 500-700 lb. offerings suitable for grazing, as there remains abundant grass in the state for grazing programs. — WLJ