Falling dollar provides added market support

Nov 5, 2010
by WLJ

Fed cattle trade last week was reported mostly $2-3 lower than the prior week’s levels. In Texas, trade was reported at $97-98 live, while Kansas sales came at mostly $97. Northern dressed trade in Nebraska and the Corn Belt came in a range of $153-154. A decline in product values was largely responsible for the lower trade last week as packers worked to maintain their margins despite falling boxed beef cutout prices. Retailers have been resistant to prices lately, according to market analysts, and are reluctant to try to push higher beef prices onto consumers, particularly when competing meats are particularly attractive.

Pork especially is providing downward price pressure in the meat case, making it difficult for beef prices to make any sustained upward price moves. Until pressure from competing proteins eases, it may be difficult for beef prices to move much higher. However, packers have been working hard to maintain prices at current levels by reducing production. Last week, through Thursday, the total harvest was running approximately 9,000 head behind the previous week’s levels, with analysts calling for a 655,000-head production week. At midday, that action had stabilized cutout levels, with Choice trading down 36 cents from the prior day’s level at $159.51 while Select was off 60 cents at $152.56.

The sharp increase in foreign beef sales two weeks earlier has leveled off at levels more typical of recent sales, which has also added to the decline in live cattle prices. Packers had big orders for high-end beef to fill, forcing them into the market, which caused the spike in prices. Despite that short-lived action, export sales continue to provide a good deal of market support. Last week’s announcement that the Federal Reserve was planning another round of monetary stimulus caused further downward pressure on the U.S. dollar, which should be a positive for the attractiveness of U.S. beef. According to the Foreign Agriculture Service, during the month of August, exports of beef and beef variety meats totaled 92,584 metric tons, up 24.2 percent from August 2009. For the year-to-date total, the largest percentage increase was in shipments to Russia, which are up more than 200 percent over last year. That’s followed by shipments to South Korea, which have grown 130 percent from last year’s levels as U.S. beef has become more attractively priced due to the decline in the U.S. dollar value.

That slide has helped increase the U.S. drop value immensely. Last Thursday, the drop value was reported by USDA at $11.68, up more than $3 per hundredweight from year-earlier levels. Demand for U.S. variety meats, as well as U.S. beef hides, has been increasing sharply. As auto manufacturers recover from recession, the demand for hides will continue to grow, adding further support to live cattle prices.

In addition to making U.S. beef prices attractive to foreign buyers, the decline in the dollar has made beef imports from outside the U.S. less attractive to importers. Prices for grinding beef from Australia and elsewhere have risen sharply as the dollar has been devalued, making the inclusion of imported beef in ground beef products more difficult. This has also added to the support for domestic cattle prices. Some end cuts, such as portions of the chuck and round, are priced at levels which make them attractive to grinders. Likewise, there is also high demand from the grinding sector for U.S. and Canadian cull cow beef. U.S. cull cow prices continue to see steady levels despite the seasonal increase in supply. Last week, most markets were reporting cull cow prices in the mid-$50 range, with some higher. Likewise, cull bull prices were in the upper $60 to low-$70 range, where they have been for much of the past few months, well above prices during the same period last year. That strong demand was translating into a cow beef cutout value of $122.21 last Thursday, a full $20 higher than the same date a year earlier. The 90 percent lean product was reported at $148.72, up $7 from a year-earlier. The 50 percent trim product hit $79.56, up more than $19 from year-ago prices.

Feeder cattle

The same declining dollar that was helping to support the fed cattle markets last week was cutting into feeder cattle prices. The decline was helping to boost corn prices to levels close to near-term highs. At midday last Thursday, December corn contract prices were 11 cents per bushel higher than the previous session on the Chicago Mercantile Exchange, trading at $5.92. The falling dollar has been a primary driver of the recent run-up in corn and any added strength in corn prices from the Nov. 9 USDA supply and demand report could add to the price spike, pushing corn well above the $6 level.

The increase in corn prices has made heavier feeder cattle placements more attractive to buyers this year. It has also made wintering calves into next year more attractive. Likewise, it has stocker operations in the southern tier also looking at a good winter. However, Mississippi State University agricultural economist pointed out that some southern operations may not be as profitable this winter as feed resources are scarce and expensive after limited summer rainfall. The same is true for other areas, which may impact the feasibility of wintering calves this year.

"Pasture condition ratings in the region indicate that 57 percent is currently in poor or very poor condition as compared to a prior five-year average at this time of 30 percent (see figure 1). As a result of the drought conditions, hay production in the southeast has fallen (see figure 2) and the depleted hay stocks have not been replenished on many operations," said Riley. "Bermuda hay prices rated good or premium have ranged from $80 to $120/ton over the past few weeks as an indication of the limited supply, and these continue to rise. Ryegrass, which is typically planted in September, was either planted with little soil moisture or was delayed. The effects of this are still uncertain but will most likely lead to limited grazing abilities for livestock—at least in the near term."

The pressures of feed costs cut into cash markets in many areas last week, with sales of heavyweight feeder cattle mostly steady and calf prices generally trending $2-3 lower than the prior week levels.

In Oklahoma City, OK, last week, feeder steers and heifers traded steady to $2 higher. Steer calves sold $1-3 lower. Heifer calves were called steady to $2 lower on moderate demand for calves and good demand for feeder cattle. Meanwhile in Joplin, MO, steer and heifer calves sold steady to $3 lower while yearlings were $1-3 higher. Demand was reportedly moderate for calves and good for yearlings on moderate supply. Farther west in Philip, SD, feeder steers weighing under 450 lbs. sold mostly $1-2 lower, with 450-550 lb. steers selling $1-2 higher. Feeder heifers weighing 400-550 lbs. sold mostly $1-4 higher on good trade and demand.

On the West Coast in Famoso, CA, stocker steers and heifers traded $5 higher last week on excellent demand. Feeder steers were called steady on good demand and feeder heifers traded $2 higher. Farther north in Vale, OR, the market was extremely active with good demand reported on all classes of cattle. Steer calves in the 400-500 lb. class sold from $118-143 while heifermates sold from $114-126. Heavier yearling steers in the 700-800 lb. range sold from $103-112 while heifers in the same class sold from $96-104. — WLJ