Fed cattle prices drop

Markets
May 28, 2010
by WLJ

Fed cattle trade ahead of the Memorial Day holiday last week traded early in a range of $147-150 dressed basis in the Corn Belt, with most volume on the lower end of that spectrum. Kansas dressed trade was reported at $93-94 and Colorado feedlots traded cattle on Tuesday at $94 live. Texas cattle feeders were expected to trade at $94 last week although trade remained at a standstill at midday last Thursday. Prices last week reflected a drop of as much as $3.50 on the live cattle and $6-7 on dressed animals.

Packers were still seeing good margins, in excess of $50 per head last week, which helped to keep production levels elevated, with reports of packers planning a large kill for last Saturday to make up for the holiday on Monday. Production for the week through Thursday was estimated at 517,000 head, 3,000 fewer than the prior week, which was a positive sign given that movement into retail channels last week was moderate with little last minute buying to fill holiday needs being the main feature until holiday weekend sales are assessed.

Until retailers are able to get a handle on holiday sales, the export markets will be the main feature moving beef prices. Weekly shipments overseas have been building since March and have been a primary driver in beef prices since that time, according to Livestock Marketing Information Center (LMIC) Director Jim Robb, who said shipments to Russia and Asia have been a key to strong shipment data in recent weeks.

He said the strong preliminary weekly sales data being reported by USDA has caused LMIC analysts to raise their forecast for 2010 export levels recently. For the week ending May 22, USDA reported shipments of 13,100 metric tons, the highest level since the week ending Oct. 22.

"Just going by the preliminary weekly data published by USDA, we could be on track for our best year in terms of export sales since the discovery of BSE [bovine spongiform encephalopathy]," said Robb. Although he cautioned that the weekly data is subject to revision, he said the U.S. is benefitting from a variety of factors, including an increase in market share in Asia where U.S. beef is outcompeting Australian product. In addition, sharp improvements in the South American economy, particularly in Brazil, are cutting export sales to Europe, and particularly to Russia, which has forced buyers there into the U.S. market.

"Shipments to Russia are 10 times where they were a year ago, and these are mostly whole muscle cuts being shipped; it doesn’t have the value of middle meats, but it’s not livers either," Robb said, noting that last week’s shipments hit 1,250 metric tons. "The sales to Russia have been mostly chucks and rounds, and if you look at the pricing in those items, it is clear that the Russians have added some support to the end meats."

However, he cautioned that Russia’s market participation may not last.

"Historically, Russians are either in the beef market or they are out of it," said Robb. "Now, some of this buying might be because they’re not buying poultry from the U.S. right now, but we always take what the Russians do as a temporary factor."

Nonetheless, Robb said the buying by foreign markets has been a big factor in the strong and stable market enjoyed by the industry thus far in 2010, which otherwise would have been subjected to the fickle whims of U.S. consumers who remain price conscious at the retail meat level.

"Without the export profile which has been building since March, I think we would have had a hard time reaching the $1 level in the fed cattle markets this year," he said.

Going forward, Robb said he expects exports to continue to play a significant role in the U.S. marketplace, particularly as problems in Europe and elsewhere begin to calm down.

"As soon as Europe calms down, we could start to see some impact on the U.S. dollar, which is being kept where it’s at because of a flight to safety," said Robb, noting that it is likely that the dollar will start to appreciate against foreign currencies as the world economic picture becomes more clear later this year. That rise in the U.S. dollar value may cut into U.S. competitiveness against foreign beef, however, Robb noted that U.S. producers are gaining market share against our competitors, so the impact of a stronger dollar may be more muted than in the past and other currencies among competing countries, some of which are well on their way to economic recovery, will also appreciate, keeping U.S. beef competitive.

Feeder cattle

Feeder cattle sales in many parts of the country last week were trading lower on the heels of the sharply lower early week fed cattle trade. Auction markets reported light receipts of cattle ahead of the holiday, which also cut into sales. Prices on the Chicago Mercantile Exchange last week traded mostly lower with the pressure of outside markets taking a toll on contract prices. Deferred months took the biggest hits, with October 2010 contracts falling more than $2 from the previous week. Prices were on the rise at midday last Thursday as equity markets staged a rebound; the October contract moved 25 points higher to hit $108.30. November was 20 points higher at midday, rising to $107.97.

According to Robb, preliminary trade data and anecdotal information from feedlots across the U.S. pointed to sharply higher expectations for May placements, although he said estimate data hasn’t been released for the month. "We are already seeing some attention being focused on May placements, although it is important to remember that these numbers will be compared to extremely low placement numbers during May last year," said Robb.

He said those numbers are likely delayed placements as a result of the good grass conditions on the West Coast and in wheat grass country where some cattle have been left to graze out the crop.

"California, Oregon and Washington have had a really good grass season this spring, particularly California, and there are still a lot of feeder cattle out on pasture there," said Robb. "In California, it could be another month before we see those cattle start to come to market. At least another month."

He also noted that feeder cattle prices in the U.S. have been pulling in good numbers of imports from Canada and Mexico and export numbers have bounced back from low levels over the past couple of months, adding cattle to a tight supply situation in the U.S.

Last week in Oklahoma City, OK, feeder steers sold $1-3 lower while feeder heifers were $1-2 lower. Steer and heifer calves were called $1-4 lower at the sale, with moderate demand for all classes of cattle on offer.

Farther west in La Junta, CO, light steer calves sold steady with the prior week from $125-131 while heavier weights were called $2 higher from $118-139. Heifer calves were steady from $110 to $131 while heavier weights were steady, selling between $110 and $119.

To the north in Blackfoot, ID, last week, feeder cattle were called $1 lower with steers in the 500-600 lb. category in a range of $112-129 while heifermates sold $5-8 back. Heavier 700-800 lb. steer offerings sold between $92 and $109 while heifers in the same class sold from $89 to $102.

Meanwhile in Cottonwood, CA, the market was called $2-5 lower last week as outside market tone took a toll on the feeder cattle trade. Feeder steers in the 500-550 lb. class brought $110-130.50 while heavier 700-750 lb. steers sold in a range of $92-102.50. Heifers in the 500-550 lb. category sold from $90-108 and heavier 700-750 lb. offerings brought $86.50 to $91.25. — WLJ

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