Cash trade sharply higher
Cash fed cattle markets were sharply higher last Tuesday afternoon with prices moving $3-3.50 higher than the previous week in the south at $101.50 to mostly $102 live basis. In the northern Plains, fed cattle traded early ahead of the holiday at $101-101.50 live and 162 dressed. Early trade volumes on Tuesday were good and likely cleaned up most of the available showlists in the southern tier. There was little action at midweek in the Corn Belt, however, analysts said trade in the region was likely to come in at $162 dressed basis or higher when trade finally developed.
Good demand for middle meats from domestic retailers was the key to much of last week’s higher trade, according to Vetterkind Cattle Brokerage analyst Troy Vetterkind, who noted that retailers are stocking up on middle meats and traditional favorites for holiday features. He also said there was some good demand for chuck and round cuts for immediate delivery which retailers will promote following the Thanksgiving holiday. That demand was the basis for last week’s stronger boxed beef pricing and moderate movement of product into retail channels. Last Wednesday, midday Choice boxed beef price stood at $161.18, up $1.04 from the prior day, while Select added $1.75 to trade at $151.54. Slaughter volume for the week was also expected to be heavy despite the holiday and associated production cuts. Vetterkind said the industry was looking for a 565,000-head production week.
The demand in the cash markets has helped to push contract trade to levels last seen in 2007 when live cattle contracts challenged the $104-107 levels, which are providing resistance to contract trade now, according to Vetterkind. However, he said there is reason to believe that there could be a move to break through to new highs some time in the near future.
"December live cattle are approaching weekly highs from back in August at $102.35, which is going to provide some near-term resistance. However, taking $102.35 out on a closing basis by [Nov. 26] would indicate a move up to weekly highs from back in September 2008 at $104.55," Vetterkind said last week.
He noted, though, that there is some discrepancy about where resistance levels lie due to differences in open pit trade on the futures markets, which stand at $104.55 versus the levels set in the electronic trade which spiked to $107.05, which was set the following night in September 2008. Vetterkind said the $104.55-104.70 level probably represents the more realistic resistance level than the $107 level set in electronic trading on lighter volume. As a result, he said if the market can "close December live cattle above $102.35 by [Nov. 26], a move up to $104.50 would seem more plausible rather than $107.
"However, February and April live [cattle contracts] are already making this trade up to the $107 area so perhaps this is getting to be enough upside for a moment," said Vetterkind. "Feeder cattle futures are approaching weekly highs from back in September 2007 at $119.80 and would tend to think that this is probably high enough for this move as well. We can probably get through these old highs in both live and feeder cattle at some point in time next year, but I don’t know if the market can carry enough strength to do it going into the end of the year."
He said that for the near-term, short coverage is probably warranted at these levels via short futures positions or long put options on expected production "from now until the first of March."
"We are going to find more cattle to kill past the first of the year and, seasonally, beef demand slows down after the holidays going into spring," Vetterkind noted. He cautioned that profit taking after the recent rally in the futures trade was a risk that the market should be careful to watch for over the next several sessions.
Despite the strong feeder cattle markets, producers haven’t shown any signs that they are beginning to build herds. Good demand for cow beef and strong cull cow and bull prices have encouraged producers to ship cows, according to USDA market reporter Corbitt Wall.
"Cow/calf producers continue to deeply cull their herds as is not only evident by high percentages of slaughter cows and bulls at auction markets across the country, but also through actual slaughter data," Wall reported last week. "Year-to-date beef cow slaughter is currently running 16.6 percent larger than the five-year average, which includes the huge sell-off year of 2008 when the southern Plains suffered extreme drought."
Despite that increase, he said prices have held up very well through the fall and have managed to avoid the normal seasonal decline.
"Average dressing Breaking and Boning cows (70- 85 percent lean) are still routinely bringing in the low to mid $50s and the reported Cutter Cow Cut-Out Value is holding firmly over 120," noted Wall. That could make next year’s calf crop even smaller than the current one, providing the catalyst for break-out high prices that Vetterkind expects may be ahead.
Feeder cattle markets last week were also higher, following advances in the cash fed cattle trade and solid gains in the contract markets. Despite many markets being dark for the later half of last week, early week sales were noticeably higher. Improvements in the southern Plains moisture conditions and warmer than normal temperatures were responsible for many of the gains in central and southern Plains markets and the already good grazing conditions in the West, helping to boost prices in California and much of the Southwest.
There have been concerns that southern Plains wheat pasture grazing was going to be extremely limited this year, but good moisture last week helped ease some of those concerns, and prices moved higher as a result. Additional moisture could provide more support if it continues. The Nov. 1 Cattle on Feed report showed a sharp increase in lightweight placements in the southern feedlots as those cattle had no other alternatives. As a result, some of those cattle may be sent back to grass in an effort to cheapen cost of gain. The result could be a sharp rise in early spring placements, so USDA’s "other disappearance" category will be an important number to watch in coming months, particularly for producers looking to market cattle in the February/March time frame as supply could grow to levels larger than currently expected, market analysts said following the release of the cattle on feed report.
In Oklahoma City, OK, last week, feeder steers and heifers traded $1 to mostly $2 higher. Feeder cattle over 800 lbs. were lightly tested, but demand was called good. Steer calves sold $4-10 higher while heifer calves were called $4-6 higher on very good demand for lightweight cattle as stocker operators looked to add to their winter inventory as pasture conditions improve.
Farther west in La Junta, CO, lightweight steer calves were called steady last week from $135-158 while four-weight steers brought a range of $125-137. Light heifer calves were $2 higher than the previous week, from $120-130, while heavier classes traded $2 lower from $105-122. Meanwhile in Torrington, WY, feeder steers and heifers sold $2-4 higher while lightweight heifer calves traded as much as $3-7 higher last week.
On the West Coast in Cottonwood, CA, lightweight cattle under 475 lbs. traded $2-5 higher last week while other cattle suitable for grass sold steady to $2 lower. Yearling steers were called steady and heifers brought $2-4 lower than the prior week. And in Madera, CA, stocker and feeder cattle were called steady with the previous week in a light test. — WLJ