Grass prospects provide a boost to feeder cattle prices

Markets
Nov 12, 2010
by WLJ

Fed cattle trade was slow to get started last week with most cattle feeders holding out for higher money after a surge in the futures market and mostly steady boxed beef trade. By midday last Thursday, only a limited number of fed cattle had traded hands, mostly in Kansas at $97.50 live and in Iowa at $153 dressed. Those prices were mostly steady with the bulk of the prior week’s trade. Many analysts were calling the market steady to possibly $1 higher last week ahead of the majority of the week’s trade.

Boxed beef prices have slipped back from near-term highs over the past several weeks and the focus for retailers and consumers alike shifts toward the Thanksgiving holiday. As a result, featuring has been focused on more traditional items instead of beef products. That has made pushing boxed beef prices higher while maintaining volume difficult. Last Thursday, Choice boxed beef was trading at $157.05 at midday, down 30 cents from the prior day, while Select was also down slightly at $148.96 on moderate trade volume. Packers had been cutting back harvest numbers, but last week’s production was back up and any large reductions in slaughter appeared unlikely with the trade looking for a 650,000-head week.

The offal markets are nearing levels last seen at market highs in 2008 and have been allowing packers to pay more for cattle despite sluggish domestic demand. Hides, in particular, are showing improvement. Last Thursday, drop prices hit $11.78, up nearly $3 from a year earlier.

Although demand for beef in the U.S. has been uneven this year, cow beef has been a bright spot for the past three years. With the U.S. dollar value on the decline, ground beef producers have been relying heavily on domestic supplies of cow and bull beef along with some end cuts when they are priced at levels that work in grinding formulas. This demand has added support to fed steer and heifer prices, however, it has been extremely helpful in maintaining cull prices for the past several years despite a relatively heavy supply at times.

Last week, the strength in cull prices continued. Cow and bull slaughter volume for the week ending Oct. 23, 2010, reached 147,375 head, 7,000 more than the previous week and well above the year-earlier tally of 139,140. Dairy cattle accounted for slightly more than 37 percent of the mix while beef cows were 54 percent of the total. Bulls accounted for approximately 9 percent of the total. Despite the increase in volume, prices have been sharply higher than year-ago levels. For the year-to-date period, cow and bull slaughter is well ahead of last year’s pace. Through Oct. 23, cow and bull slaughter totaled 5.72 million head, compared to the same period in 2009 when the total reached 5.47 million head.

Last Thursday, midday cow beef cutout prices reached $121.08, up nearly $20 from the same date last year, while the 90 percent lean product was $21 higher than a year earlier at $147.05 and the 50 percent lean was up $11 from the same date last year at $72.46. The drop in imported lean grass-fed beef by ground beef producers is largely responsible for the increase in demand and price. Imports of beef from Argentina, Australia and Brazil are well below last year’s levels through August, the latest figures available. Imports from Australia are running nearly 29 percent behind 2009 levels while imports from Brazil have dropped 58 percent. However, imports from Canada have been on the rise, despite the U.S. dollar’s parity with the Canadian dollar. Imports of beef from Canada were up through August, rising 12 percent from last year. Likewise, imports of Canadian slaughter cows and bulls have also increased from last year as the lack of Canadian slaughter capacity and the demand in the U.S. continues to make shipping of cows and bulls south of the border for processing attractive. For the year-to-date period through Oct. 9, imports of Canadian slaughter cows were reported at 150,726 head, up from 131,372 head, an increase of 13 percent. Despite the increase, the total imports for the year only represent the approximate equivalent of one slaughter week in the U.S., so pricing impacts are negligible due to the strong U.S. demand. Conversely, the U.S. is shipping a significant amount of beef north to Canadian buyers. According to USDA, shipments of U.S. beef to Canada through August totaled 98,024 metric tons, up 1.1 percent from the same period in 2009, making Canada the second-largest buyer of U.S. beef, behind Mexico.

Feeder cattle

The disruption in the feeder cattle markets last week due to the troubles at one of the nation’s largest cattle brokerages appeared to be minimal. There were some reports of problems in a few areas, however, they had little impact on prices. Most markets reported better prices than at previous sales, with good buyer demand. The recent moisture in the southern Plains has helped boost prospects for winter wheat grazing, and pastures in much of the Southwest and in California are reportedly very good, spurring strong demand and good prices for stocker cattle bound for winter grazing programs.

A break in the recent run-up in corn prices also provided encouragement for feeder cattle buyers last week. Despite a cut in USDA’s expectations for this year’s corn crop, grain markets trended mostly lower last week. Corn prices have consolidated below the $6 mark and last week’s grain trade was cited as a positive factor in many markets.

In Oklahoma City, OK, last week, feeder steers and heifers were called steady while steer calves were mostly steady. Heifer calves sold mostly steady to $2 lower. Demand was reportedly best for heavier weight or short-term feeders as a result of the corn prices as buyers look to cut their cost of gain. Demand for calves was called moderate.

In Joplin, MO, last week, steers under 550 lbs. and heifers under 500 lbs. traded steady to $3 higher; heavier weight calves and yearlings were steady. Demand was called moderate to good with supply called moderate. Calf buyers were said to be noticeably more aggressive for light-weight calves than in the previous weeks, likely as a result of the improvement in the southern Plains precipitation picture.

Farther west, in Torrington, WY, steers and heifers under 700 lbs. traded steady to $4 higher while those over 700 lbs. sold steady to $2 higher on good demand. To the northwest, in Billings, MT, steer and heifer calves sold steady to $2 higher. Yearling cattle were lightly tested, but a steady tone was noted.

On the West Coast in Galt, CA, feeder steers and heifers under 650 lbs. were called steady to $4 higher last week on a good run of cattle. Feeder steers and heifers over 700 lbs. were steady at the sale. — WLJ

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