Strong feeder cattle markets on the West Coast

Jul 2, 2010
by WLJ

Ahead of the Fourth of July holiday, fed cattle sales started trading early last week at prices mostly steady to $1 higher than the previous week at $91 live in the South and $146 dressed in the northern tier. The trade was based, at least in small part, on a jump in the grain markets last week as USDA’s plantings report surprised the market with a drop in expected corn harvest due to a decline in acreage. The shift helped rally grain and fed cattle markets higher last week despite the lackluster movement of boxed beef and sideways pricing of product.

The slaughter volume last week was respectable, with the industry looking for a harvest of 665,000 head. However, at those levels, a backlog of cattle could begin to grow as the industry approaches the late summer marketing period, which may result in difficulty advancing prices unless something shifts in the demand for beef in the marketplace. Livestock Marketing Information Center analyst Erica Rosa noted last week that the market picture at the present time is rather murky, with several external factors needing to be resolved before it will clear. She said that perhaps the biggest downside risk is outside markets and consumer confidence, both of which have been constrained for the first half of the year. Last week, growing concern about the possibility of a double-dip recession pushed equity markets sharply lower, which slightly hampered action in the fed cattle markets as live contract trade moved lower.

Rosa said there are other wild cards which will also play a role over the second-half of 2010, however, she discounted the impact that the corn markets will play unless more weather concerns develop through the growing season.

"I don’t think the corn market is a good indicator of where cattle markets are headed right now," said Rosa. "Yes, USDA reduced their crop projections, but people are overlooking the role that yield is going to play, and even with the reduction in acres, USDA is still projecting the second largest crop on record. So, for now, I think the grain market concerns are overstated."

She said one of the unknowns which could change that is the pending decision from the Environmental Protection Agency, which is widely expected to approve 15 percent ethanol blends for automobile gasoline later this year. That increase in demand for ethanol could play a roll in driving corn prices higher before the end of the year.

"If corn goes over $4, then I think that is going to change the picture and people’s plans," Rosa said. "But for right now, there are just too many unknowns."

For the month of July, beef prices in general are expected to lag as consumer demand begins to soften seasonally and many market analysts last week noted that once the market got past the demand for holiday features, boxed beef cutout prices were expected to decline. Vetterkind Cattle Brokerage analyst Troy Vetterkind said that he expected Choice boxed beef prices to fall below the $150 mark after the holiday. Last Thursday at midday, the Choice boxed beef composite price was down 20 cents from the previous day at $155.36 while Select added 17 cents to trade at $146.84. Movement was light, with 148 loads trading hands.

The bright spot in the market, the export trade, showed improvement last week with Rosa noting that the weekly data from USDA showed an uptick from the prior week with 13,300 metric tons of beef being sold to overseas buyers. Exports may be a significant key to keeping sales and prices strong into the second half of 2010, particularly if the U.S. economy does, in fact, slip into a double-dip recession.

However, even the cow beef markets, which have been highly supportive of cull cow prices, have started to come under pressure in recent weeks. Throughout the economic downturn, consumer demand for ground beef has kept a floor under cow prices. In the past month, however, cow beef and trim markets have slipped back from recent highs despite the drop in cow availability. The prices for 90 percent lean and 50 percent trim have dropped since the first of June, with the 90 percent lean declining nearly $3 to $162.44 last Thursday while the 50 percent trim fell from $87.81 at the start of June to $75.91. The cow beef cutout last Thursday stood at $129.28.

Feeder cattle

Feeder cattle markets are seasonally light in nearly all areas and the industry’s focus has shifted to the video cattle markets where producers are selling fall cattle and calves for fall delivery at very good prices. The exception is on the West Coast where grass cattle and fall calves are coming to market. Jake Parnell, general manager of Cattlemen’s Livestock Market in Galt, CA, said they have been seeing big drafts of cattle in recent weeks and calves have been coming to market off pasture at weights which are significantly heavier than in previous years as a result of the good spring grazing conditions across the state. Demand for the cattle at Galt has been very good and prices strong for offerings.

Rosa said that feeder cattle prices may see some swing in prices due to the volatility in the grain markets. She said she expects that the impact of the grain markets will take a much bigger toll on feeder cattle than it will on fed cattle prices, particularly if cattle feeders see consumer demand softening going into the fall marketing season. However, she said that concerns about grain prices shouldn’t have much of a lasting impact on feeder cattle markets due to ample supply of feedstuffs.

"In the southern Plains, there is a lot of wheat available and I think we will see an increase in the amount of wheat being fed versus corn and that could be the case again next year, particularly if corn prices go over $4," Rosa said. "There are also reports of a good first cutting of hay with good carryover in most areas, so hay prices should remain stable this year. It appears that feed supplies shouldn’t be much of a factor this year in most areas."

In Oklahoma City, OK, last week, feeder steers and heifers over 700 lbs. sold steady. Feeder cattle and calves under 700 lbs. were called steady to $2 higher. Demand was reportedly moderate for feeder cattle and improved as the sale progressed, with good demand reported for calves. Farther northwest in Yankton, SD, last week, no trend was available due to light numbers, but a steady undertone was reported with good demand for the offering, particularly the few load lots available.

Meanwhile in La Junta, CO, last Tuesday, the market was called steady for lightweight steer and heifer calves. Steers sold in a range of $120-133 while heifers moved between $105 and $119. Heavier classes of steers and heifers were also steady, with steers in a range of $115-128.50 while heifers brought $102-115. In the southwest at the market in Prescott, AZ, a light run of calves was called steady with the prior week while yearlings sold $2-3 higher.

In Cottonwood, CA, the market last week was called $1-5 higher on stockers and heifers, with feeder steers in the 550-600 lb. class selling in a range of $106-116.50 while heavier 750-800 lb. offerings sold from $97 to $104.75. Heifers in the 550-600 lb. class sold from $96 to 108.50 while heavier offerings in the 750-800 lb. range brought $94-96.25. Last week in Famoso, CA, stocker and feeder cattle sold $2-3 higher on a big run of cattle. Buyer demand for green cattle suitable for grazing was called excellent, particularly on the lighter classes. Feeder cattle demand was called "about as good as it gets," with prices $3 higher than the previous week. Feeder steers in the 600-700 lb. range sold from $95 to $109 while heavier 725-800 lb. steers brought $90-106.50. — WLJ