Prices slip back after corn tops $5/bushel mark

Markets
Sep 24, 2010
by WLJ

Fed cattle trade wrapped up early last week with the bulk of the action complete on Tuesday and Wednesday. In the southern Plains, live cattle traded mostly steady to $1 higher at $98-98.50. Dressed sales in the Corn Belt and Nebraska were reported at $153-154, steady to $1 lower than the previous week’s sales. Analysts last week noted that some pull back toward the end of the month was to be expected as retailers prepare for fall featuring, which primarily focuses on pork and end cuts, resulting in a decline in both carcass values and fed cattle prices.

Some commodity fund trading last week added to the declines as contracts sold off sharply at midweek last week. On the Chicago Mercantile Exchange last Thursday at midday, contracts were mixed, with nearby months showing signs of a slight rebound. Deferred months were mostly lower. The October live cattle contract was up 10 at $96.27 while the December contract was up 20 points at midday, trading at $98.40. February 2011 was up 2 points at $100.30 and the April contract, which has been leading the way higher recently, was up 10 points at $101.85, although it has pulled back the contract highs posted two weeks ago as some market optimism has faded on the back of slightly withered expectations for a near-term economic rebound, which had helped fuel the recent rise in prices.

Retailers are having a great deal of difficulty passing price increases on to consumers as they continue to be heavily price conscious. The absolute price level has become increasingly important to consumers, outweighing the actual relative value. The result showed up in the government’s recent consumer price index data which rose just 1.1 percent in August from last year’s levels. According to University of Missouri Agricultural Economist Ron Plain, August retail beef prices fell back 7 cents from July to $4.374 per lb. However, that price was 15.8 cents above year ago levels.

"August retail beef prices were the lowest since March," said Plain. "Beef marketing margins are tighter than a year ago. Packer margins were 6.2 cents per pound lower than in August 2009 and distribution-retailing margins were 6.6 cents per pound lower. Slaughter steer prices were $13.80/cwt. higher on a live weight basis this August than last."

One of the key drivers for prices this year has been a decline in carcass weights from last year. Plain noted that for the week ending Sept. 4, steer carcass weights averaged 846 lbs.

"That was up gout pounds from the week before, but 15 pounds lighter than a year ago. This was the 45th consecutive week with steer weights below year earlier levels," he reported.

The decline in carcass weights from last year’s levels has forced packers to increase slaughter levels to make up for the reduced beef production. For the week through last Thursday, harvest was estimated at 519,000 head, steady with the previous week and 18,000 head more than the same date last year. The increased slaughter volume resulted in an increase in beef production of 9 million pounds, which is largely being absorbed by the export market. According to USDA’s Cold Storage report, very little is being held in freezers. According to the report, beef in cold storage on Aug. 31 was 8.3 percent lower than the same date in 2009 and nearly 1 percent below the prior month’s levels. The month-to-month decline was primarily in the stocks of boneless beef, which has seen steady demand. In addition to the consumer demand for boneless beef in the U.S., there has been a drop in the volume of beef being imported from abroad, due to currency fluctuations, which has made it more expensive to import, particularly from countries such as Australia, a major source of beef for grinders. As a result, cow beef prices in the U.S. have rebounded nicely during the second half of the year and are good heading into the fall culling season, which is already underway in many regions, tempering prices slightly. Last week, the cow beef cutout stood at $124.78 while the 90 percent lean traded at $154.03, down $4 from the previous week as a result of the increased supply. The 50 percent trim traded at $60.53, up $1 from the prior week’s price.

Feeder cattle

Corn prices topped the $5 per bushel mark last week, taking a toll on most feeder cattle markets. Prices were mostly lower last week as a result. The sell-off in the live cattle contracts also spilled over into feeder cattle trade, adding to the price pressure. Some southern Plains markets bucked the trend, though, as buyers have begun sourcing stocker cattle for wheat pasture grazing after recent rains allowed planters to start rolling across portions of Texas and Oklahoma. The pressure added by the rising corn market adds to the incentive to cheapen costs of gain, making winter grazing prospects attractive for some.

Derrell Peel, Oklahoma State University Extension livestock marketing specialist, said last week that many stocker operators in the region are in the process of determining their purchasing needs and may begin to step into the market place soon, if they haven’t already. He noted that there are some advantages to waiting for winter, but calves may be too attractively priced at current levels to delay purchases.

"Current prices for stocker calves relative to feeder futures suggest an unusually strong margin for stocker production. It is possible to lock in a buy-sell margin that ensures a value of gain close to $1 per pound for winter grazing," Peel noted last week. "While the normal seasonal pattern is for calf prices to fall into October and November, there is a good chance that prices will fall less than usual this year and, in fact, could increase in the next 30 days if strong wheat pasture demand materializes. Given that the market is already offering a good buy-sell margin, there appears to be less argument than usual for waiting to buy."

However, Peel said that there are still a number of risks that buyers face, including a lack of rainfall if the precipitation pattern changes before the growing season starts in earnest this fall.

"However, many producers have had a good, excellent forage growth this summer and have available standing forage or hay. With the strong value of gain, it is feasible to put together drylot or semi-confinement growing rations that provide a return for growing cattle while waiting for wheat pasture to develop, or, in the worst case of no wheat pasture, to feed stockers in a growing program long enough to sell them profitably," said Peel. "One of the advantages of the current small rollback in feeder prices is that it does not require as many days for a stocker program to be economically feasible."

He said there are some unique opportunities available to stocker operators this year that offset some of the normal risks faced by southern Plains stockers.

"Much of what we call profit in the stocker business is the return for taking risks and it is the taking of those calculated risks that offer the greatest return potential," he said. "The stocker business is all about taking advantage of opportunities, and there are opportunities to move more quickly and more aggressively this fall."

In Oklahoma City, OK, last week, prices slipped farther, adding to the incentives facing stocker operations. Feeder steers sold $1-2 lower. Feeder heifers were called steady to $1 lower. Demand was reportedly moderate to good for feeder cattle and improved as the sale went on. Steer calves traded $1-4 lower while heifer calves were $1-3 lower. Demand was reportedly moderate to good for thin, weaned calves and moderate at best for fleshy, un-weaned calves, as weather remains a concern for buyers in the south.

At Joplin, MO, last week, steer calves under 500 lbs. and heifer calves under 400 lbs. traded steady to $2 lower while steer calves over 500 lbs. were called $2-3 lower. Heifer calves over 400 lbs. were $3-5 lower,and yearlings were $1-3 lower on moderate to light demand and moderate supply.

Farther west in La Junta, CO, steer calves last week were selling $2-3 lower, except for those in the 500-600 lb. class which traded $5 lower. Heifer calves sold $2 lower while yearling feeder steers were $1-2 lower and yearling feeder heifers were called steady.

On the coast in Galt, CA, all classes of cattle traded steady last week. Feeder steers in the 500-600 lb. category traded in a range of $115-135.50 while heifers in the same weight class brought $90-105. Heavier 700-800 lb. steers brought $97-109 while heifermates sold from $82-95. — WLJ

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