Video sale posts strong results for consignors

Markets
Jul 16, 2010
by WLJ

Fed cattle traded $1-2 higher at midweek last Wednesday with prices in the southern Plains at $94 live basis in Texas and at $92.50-93.50 in Kansas. Colorado feedlots traded cattle at $94 live and in the northern Plains, cattle sold at $93-94 live and at $150 dressed.

The upward momentum in the fed cattle markets caught many analysts off guard last week as trade in the boxed beef markets has been weak to steady for several weeks and packers have had difficulty moving much more than 350 loads of product in any single day without heavy discounting. The result is an erosion of packer margins which, until last week, had been relatively strong for several months. Last Thursday, according to HedgersEdge.com, packer margins had fallen to $16.30 per head processed. With the increase in cash prices last week, that margin is likely to erode toward negative levels over the next two or three weeks unless packers are able to boost the cutout. As a result, analysts said last week that a reduction in production levels is likely going into the second half of the month.

Analyst Troy Vetterkind of Vetterkind Cattle Brokerage said attitudes remain the same in the beef complex where buyers are taking on inventory only at their price, which is what happened last Wednesday.

"Packers will be looking to raise beef prices next week in an attempt to cover higher live costs, so we will have to see how much resistance they run into from the buy side," he said. "For now, I would continue to look for a sideways to lower beef trade into next week."

Last week, production was expected to hit 660,000 head, which would be nearly 10,000 head more than the same week last year. Some of the strength in cutout prices and production levels is simply the result of the decline in available numbers and shrinking of carcass weights from last year. For the week ending July 10, live cattle weights were 19 pounds lower than the same week last year. Carcass weights were 16 pounds lower, increasing the demand among packers for cattle to make up for the lower production.

Cow numbers have also been declining at a time when the demand for ground beef has been very good among retail buyers.

Vetterkind said last week that this has helped to prop up the boneless beef markets.

"This also had imported beef markets trading at higher money, too," he said, as processors look at foreign suppliers to make up for the shortage in U.S. availability.

Last week, the cow beef cutout stood at $131.37, up $3 from the start of the month while the 90 percent lean product was up $5 over the same time period to hit $166.16. The 50 percent trim product was slightly lower at $76.43.

The trend toward higher cow prices is likely to continue despite the results of the recent dairy buyout which will send an estimated 34,000 cows to slaughter in the later half of summer. The increase in cow slaughter for the short period of time it takes the industry to work through the retirements won’t do much to affect market prices, analysts noted, as it represents less than two day’s volume for packers and demand is strong enough to absorb the extra production.

Beef and dairy producers have been selling cows into the strong market in big numbers thus far in 2010 and the result is expected to be another decline in the U.S. cowherd inventory when USDA reports the midyear numbers. Last week, the Livestock Marketing Information Center projected that the U.S. cow herd has fallen 1.8 percent from year-ago levels, with the beef cow herd dropping 1.6 percent.

That projected decline has become a focus of attention for industry analysts who are growing concerned about the lack of expansion in the U.S. despite high prices for calves. If calf and cull cow prices continue to trend higher, it could spur more liquidation in cow herds as producers looking to exit the business take advantage of high prices and retire herds, particularly if expansion plans and new entrants to the business don’t increase their growth. The result could be a decline in competitiveness as packers and feedlots pull from a narrowing base of calves while also becoming less efficient due to excess unused capacity. Those factors could lead to a vicious cycle of downsizing in the industry, analysts worry.

Feeder cattle

The feeder cattle markets last week got a boost from the improvement in cash trade although action in most auction markets was seasonally light. Most of the attention last week was focused on the Western Video Market sale in Reno, NV, where buyers bid calf and yearling prices up to exceptional levels across the board. Yearling cattle saw very strong buyer interest and prices were very good. Likewise, calf markets were also very strong, particularly for cattle which had age and source verification.

Cattle in the central states found very good prices. For example, a consignment of 120 head of 925 lb. steers from a Nebraska ranch sold for $107.75 while another lot of 180 head of 900 lb. steers sold for $107. A lot of 220 steers weighing 1,000 lbs. brought a price of $104.35 for immediate delivery. Lighter weight calves from the central states also sold well. A consignment of Wyoming 560 lb. steer calves for October delivery sold for $125 while 190 head of 450 lb. weaned steers from Colorado for late-October or early-November delivery sold for $141. Consignments from states farther north were priced similarly with a lot of 220 head of steer calves from Montana weighing 600 lbs. for November delivery sold for $117.50.

For consignors from western states, the shipping basis did little to deter buyers from bidding up prices for cattle. A load of 925 lb. steers from Nevada for December delivery sold for $104.50 while a consignment of 210 head of 675 lb. steers from California for August delivery brought a final bid of $123 and a shipment of 720 lb. steers, also from California, for November delivery brought $112.25. In all, those in attendance were very happy with the results of the sale. Buyers and sellers alike were very optimistic about the direction of the business.

Elsewhere, many auction markets were dark last week as producers turned their attention to haying and other summer projects. In the markets where sales were held, there were reports of prices mostly steady with recent weeks despite the building heat and humidity in the central U.S.

In Oklahoma City, OK, last week, feeder steers sold steady while feeder heifers were called $1-2 higher. Steer and heifer calves sold steady to $2 higher with moderate to good demand reported for all classes of cattle. Meanwhile in Joplin, MO, a light run of cattle resulted in steer calves and yearling steers selling steady to $2 lower. Heifer calves and yearling heifers were called steady with moderate supply and demand noted.

Farther west in La Junta, CO, lightweight steer calves sold steady with the previous sale at $120-135 while heavier steer offerings sold steady from $115 to $130. Lightweight heifers sold in a range of $105 to $115 while heavier weights brought as much as $107.

On the West Coast in Cottonwood, CA, prices last week were called mostly steady to the sale two weeks ago while in Famoso, CA, prices were called $2-3 higher than the prior sale on a good run of cattle. Demand was called excellent for all classes of cattle. — WLJ

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