Fed cattle prices jump $5 on better demand

News
Aug 20, 2010
by WLJ

Fed cattle traded sharply higher late last Wednesday as packers worked to meet higher demand from retailers looking to fill meat cases ahead of the Labor Day weekend rush. Packers have been very short-bought for the past several weeks, according to industry sources, and as retailers increased their orders to meet consumer demand, packers needed cattle to meet that demand, causing prices to rise to $98-99 with a few reports of some trade at $100 in the South last week, fully $4-5 higher than the previous week’s action. Likewise, dressed trade in Nebraska and the Corn Belt gained $5-6 to hit the $154-156 range last week. Much of the week’s trade wrapped up in the late evening on Wednesday, so counts weren’t readily available last Thursday, but analysts predicted that cleanup was good enough to account for most of the week’s action ahead of the Cattle on Feed report due out last Friday.

The sharply higher boxed beef prices, which were reflective of the better demand from retailers, gave packers added incentive to pay up for their cattle supplies last week. The composite boxed beef cutout prices last week posted sharp gains, adding to packer margins. Last Thursday, the midday Choice cutout stood at $158.76, a gain of $4.50 from the previous week, while Select had added more than $4 to reach $151.22 on good movement of product through the week. Slaughter volume for the week was expected to hit 655,000 head, steady with the prior week’s production.

Gains in beef export volumes are also helping to boost prices. That is particularly true in Mexico now that anti-dumping tariffs have been lifted. The removal of those tariffs is making beef more affordable for consumers south of the border, helping to spur demand. For the week, USDA reported export volume was up 44 percent from the prior week, reaching 12,800 metric tons. That figure represents an 8 percent improvement from the four-week average trade volume. The biggest increases in sales were to Japan, which ordered 5,800 metric tons last week, Vietnam, where sales rose to 1,400 metric tons, and Mexico, which purchased 1,300 metric tons.

The fed cattle markets have likely seen their summer lows, put in early this year in June, and analysts now predict that better days are ahead for the beef markets as demand, both foreign and domestic, appears to be better than anticipated earlier this year, according to Oklahoma State University livestock marketing specialist Derrell Peel.

"Although macroeconomic conditions are still fragile, the stock market has stalled and unemployment hasn’t dropped much; domestic beef demand has certainly not been the negative that it was last year," Peel said. "Moreover, export demand has continued strong all year and has provided critical support to beef markets."

However, tight supply has also been a major factor in limiting the traditional summer price slide, Peel noted.

"Lighter carcass weights have resulted in lower beef production despite slaughtering more cattle this year. Not only are feeder cattle supplies at historically low levels on an annual basis, but strong feedlot placements in May and June reduced available supplies for the second half of the year," he said. "Feedlot placements for the rest of the summer will be lower but will increase seasonally when the fall runs of long yearlings and calves begin. It appears that feedlots are quite current and even the large May and June placements will not result in significant bunching of feedlot marketings this fall."

For the cattle on feed report due out last Friday, analysts were predicting cattle on feed numbers would be reported at 2 percent above Aug. 1, 2009. July 2010 placements were expected to be well below last year, at just 92.6 percent of last July, and marketings were projected to be only slightly below last year’s pace, down just 0.3 percent.

Peel noted that some of the decline in placements during the late summertime period is due to improved pasture conditions which will help the industry going into fall.

"Good forage conditions this spring and summer spurred strong demand for summer grazing. Based on current budget projections, there will likely be good demand for winter grazing on wheat pasture," he said. "Although supply driven cattle markets tend to squeeze margins, forage based gains are valuable in a world of higher priced corn. Stocker margins certainly look more favorable than feedlot margins in the coming months."

Peel said that this combination of factors points to higher fed cattle prices and more upside potential than downside risk.

"Fed cattle prices will likely advance into the upper $90s late in the year, perhaps just about covering the increasing feedlot breakevens that will result from higher feeder cattle prices," said Peel. "Feeder and stocker prices will be subject to seasonal pressure in the fall, but both strong stocker demand and continuing feedlot demand (depending critically on corn prices) may limit seasonal declines."

Improvements in beef demand will also add support to the market, according to Peel.

"At some point, perhaps as early as this fall, limited heifer retention could begin further squeezing feeder supplies. I expect feeder and stocker prices to remain very robust for the remainder of the year," he predicted. "That said, while there are many reasons to be bullish, risk is ever present and every producer must evaluate their unique situation to determine the best approach to these market opportunities."

Feeder cattle

Feeder cattle markets also moved higher last week in the wake of the improvements in the fed cattle markets, with most auction markets reporting prices $1-3 higher than the previous week’s sales. Increasing numbers of early-weaned and bawling calves are being reported in some regions which is affecting prices in a few areas, particularly in the portions of the country where dry conditions have cut into pasture supplies for producers. Portions of the central and southern Plains have been significantly affected by hot, dry conditions during the second half of the summer and producers have been shipping cattle to market early, particularly in parts of Kansas and Missouri. Because cattle feeders are still facing several more weeks of hot weather, those short-weaned or unweaned calves are being discounted by buyers reluctant to take on the risk of expensive cattle that will be impacted by the weather. However, yearlings and calves which have been preconditioned are finding good demand and prices in nearly all areas as feedlots look to replace cattle being sold out of feedlots that are extremely current in their marketings.

Last week in Oklahoma City, OK, feeder steers sold $1-3 higher while feeder heifers were steady to $2 higher. Steer and heifer calves were called $2-4 higher with good demand noted for all classes of cattle on offer. To the northwest in the Intermountain region and northern Plains, few trends were available last week as grass remains in good supply and feeder cattle receipts are seasonally light, a trend which should continue for the next few weeks. On the West Coast in Vale, OR, a good test of the yearling market found good prices and demand last week. Steers in the 700-800 lb. class sold from $97-107 while heifers were $1-4 back. Steers in the 800-900 lb. range brought $98-105 and heifers in the same category were called $4-6 back. Farther south in Cottonwood, CA, a light run of cattle under 550 lbs. was reported, so no trend was available. However, calves in the 550-700 lb. class sold steady to $4 higher and yearlings were called $1-2 lower. — WLJ

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