Live cattle prices reach $104 in some markets

Dec 3, 2010
by WLJ

Feeder cattle prices at or near record levels.

Live cattle prices surged to near-record levels last week as good demand at home and abroad encouraged packers to pay up early for cattle. On Tuesday last week, live sales in the South jumped $2-2.50 to reach $104 while dressed cattle traded at $161. In the northern Plains, live cattle sold from $102-103 with dressed sales at $165. Corn Belt live sales were reported at $101-102 with dressed trade at $162-165.

Boxed beef prices continue to trade mostly sideways at solid levels although volume, particularly in the export markets, has been strong. Boxed beef values at midday last Thursday were up more than $2 from the previous week while shipments have shown signs of improvement over the past week as retailers begin to take delivery of product for the holiday shopping period this month. That activity has helped to support middle meat values. Slaughter volume for the week was expected to reach 660,000 head last week.

Vetterkind Cattle Brokerage analyst Troy Vetterkind said last week that the markets may take a breather as traders begin to take some money off the table, but at current price levels, attractive hedging opportunities abound. It appears that placement levels, which have been on the rise for the past three months, could begin to weigh on deferred month contracts, which could pull down cash prices during the first quarter of 2011, but currently, those cattle are already locked in at a profit despite high calf and corn prices. However, cattle feeders are currently pulling cattle forward to take advantage of good margins, estimated near the $100 per head mark, which could prevent a backlog of cattle in the late-winter, early-spring time frame.

However, Vetterkind cautioned that for the time being, a cautious approach to the market was warranted, particularly in the futures markets.

"I don’t know if we will see a big break before the weekend until more is known about next week’s cash cattle outcome. Beef is moving and packers need cattle to kill to fill orders, so, fundamentally, the market is still on pretty good footing," said Vetterkind. "We are at the extreme top end of a $96-$102 cash trading range coming into the end of the year, which would suggest that there is probably more risk to the downside in the near term than topside."

He said that it was possible the market would test the near-term support levels at $102 in December live contracts and $105 in February live over the next few days as a function of the currently over-bought state of the market. He said that without additional fundamental market input, the contract market highs of $103.85 for the December contract and $106.95 for the February contract would probably represent tops for the near-term market.

The advance in beef price and exports has come as the U.S. dollar has fallen, which generally helps boost commodity prices, particularly abroad. As a result, exports have been strong through much of 2010. That relationship has also substantially helped to boost hide and offal values. Last week, Chicago Mercantile Exchange analysts Steve Meyer and Len Steiner noted that after the steep decline in hide and offal values during the economic downturn in 2009, prices have gained approximately 80 percent since. Last Thursday, hide and offal values reached $11.98 per hundredweight (cwt.), an increase of 25 percent from the same week in 2009.

"But while byproduct for steers are currently trading near all-time record highs, keep in mind that overall steer values are near record highs as well," the analysts noted. "Indeed, steer byproduct values now account for about 12 percent of the live steer prices, about the same as they were 10 years ago."

The market is largely driven by demand from foreign buyers. Hides make up a large portion of the drop value and the rebound in the auto markets has helped push prices substantially higher. The demand for leather for car interiors has helped push hide prices to $74 per cwt., up sharply from year-ago prices.

Likewise, beef variety meats are adding support to live cattle prices. Meyer and Steiner pointed out that while hides have increased sharply in price, variety meat exports have also surged as demand from foreign buyers improves. The weakened U.S. dollar has made high quality variety meats from U.S. cattle more affordable to buyers overseas, who have jumped on the product, driving export levels in 2010 15 percent higher than those last year. That has helped boost prices more than $2 per cwt. to account for one-sixth of the overall value of fed steers.

Feeder cattle

Feeder cattle markets also pushed higher last week in the wake of sharply higher fed cattle trade. The cash feeder cattle markets last week were widely reported to be $2-4 higher with some markets posting even larger advances. Moisture conditions in the southern Plains continue to show improvement, which is helping to spur buying interest in the central and southern Plains region and demand for replacement feeder cattle remains strong, supporting markets elsewhere. Cattle feeders have taken advantage of the weakness in the corn markets over the past several weeks to lock in feed costs and also live cattle prices on the back end. Those market fundamentals have helped improve feeder cattle markets substantially, with prices nearing all-time highs in many markets as buyers compete for the remaining tight supplies of feeder cattle. Lightweight feeder cattle under 450 lbs. have broken through the $150 level over the past couple of weeks as buyers in the South stock up on cattle to go to grass. However, that could be short-lived if the region doesn’t continue to see rainfall, a trend market analysts are watching as it could push those cattle into feedlots early. Likewise, prices for heavy-weight feeder cattle have also hit outstanding levels with top-quality steers weighing from 800-900 lbs. averaging $119.73 while nine-weights averaged 114.90 heading to either Iowa or Nebraska for feeding at the market in Green City, MO, during Thanksgiving week, according to USDA market reporter Corbitt Wall.

He noted that those cattle, if hedged against the $108 April live cattle contract, would need to feed for less than 90 cents per pound of gain on corn costing more than $5 per bushel just to break even.

"For most feeding operations, this could only be reached through outstanding performance in ideal conditions with no unforeseen problems arising," Wall said.

Last week in Oklahoma City, OK, feeder steers traded steady to $2 higher with six-weights $4 higher. Feeder heifers were called $1-2 higher. Steer and heifer calves sold $2-4 higher with good demand reported for all classes of cattle on offer. Farther north in Loup City, NE, compared with the last sale three weeks prior, prices were sharply higher. Steers under 700 lbs. sold $10 to $13 higher with weights over 700 lbs. trending $7-8 higher. Heifers under 600 lbs. were called $12-14 higher and those over 600 lbs. sold $8 to $10 higher. Demand was called good on all classes of steers and heifers.

Meanwhile in Torrington, WY, on a large run of cattle, steer and heifer calves sold $3-6 higher than the sale two weeks earlier, with some cases of $8-10 higher reported. Yearling steers were too lightly tested to offer a comparison, however, yearling heifers sold mostly $5-6 higher with some instances of $8-10 higher on good demand.

On the West Coast in Madera, CA, the market last week was called steady on a light test while in Galt, CA, prices were also reported steady with the previous week’s sale. At the market in Famoso, CA, stocker and feeder steers were called steady while stocker heifers sold $3 higher than the prior week’s sale. Improving pasture conditions have sparked good demand for grass cattle and that action has resulted in record-high prices at many markets in the state. Demand for replacement-quality females has also reportedly been high, an indicator that cow/calf producers there are in the process of building their herds. — WLJ