Market slips lower
Fed cattle trade last week appeared to be reverting back to the late week pattern of earlier this year. The demand for cattle by packers has fallen off somewhat now that most of the purchasing for end of year featuring is complete. Last week, there was talk that packers could begin cutting production in an effort to support cutout prices, which have been steady to weaker over the prior week. There was some early trade at prices slightly lower than the previous week at $159.50 dressed basis in Kansas while dressed trade in Nebraska and the Corn Belt came at $162 to a regional buyer. Live cattle trade in the south was expected to develop in the range of $102-103 while dressed trade appeared set for a range of $162-163.
Last Thursday, midday boxed beef prices were trading lower with the Choice product off $1.17, at $163.70, while Select was down 10 cents at $154.07. Slaughter volume was also expected to trend lower for the week with the industry looking for a 665,000-head production week. Vetterkind Cattle Brokerage analyst Troy Vetterkind said last week that he expects prices will continue to trend lower, at least in the near-term. However, he said that although prices may be softer, it doesn’t appear that the market is set to break sharply lower into January.
"Packer margins are stressed and we are coming into the end of the year, which is going to mean kills will be cut back and most of the end-of-year holiday business is completed. Exports are still strong; however, sales have backed off a little the last couple of weeks compared to what they were in October and November," he said.
A bright spot for the market remains the strong demand and pricing for cow beef, Vetterkind noted, saying that imports are well below year-ago levels, which is boosting domestic demand.
"Both imported and domestic boneless cow beef were sharply higher (last Wednesday), which, if this continues, will be supportive to fed cattle values as grinders will buy chuck and round meat from the steer and heifer kill to fill the void once price dictates it," said Vetterkind.
This has caused a sharp increase in boneless beef markets, a trend Vetterkind says isn’t going to change in the near future. If producers begin to build herds over the next year, in fact, it could become exacerbated.
Adding to the tight supply of slaughter cows is a decline in imports from Canada. The parity of the Canadian and U.S. dollar combined with low cattle numbers north of the border has lowered the number of Canadian cows shipped to the U.S. for processing. According to the most recent USDA data, for the past six weeks, imported Canadian cows tallied just 22,634 head, down 24 percent from the same period a year earlier.
Last week, the cow beef cutout rose to $127.58 in morning trade on Thursday, $3 higher than the prior week. That compares to a cutout value of $106.60 on the same date last year. Much of the run up is due to demand for grinding product, as Vetterkind noted. The 90 percent lean product was trading at $156.78 last Thursday, compared to $133.08 on the same date last year. The 50 percent trim value, which has been trading mostly steady in recent weeks, was reported at $76.97 last Thursday, $3 higher than the same date in 2009.
Prices in feeder cattle markets last week were mostly higher, even in the southern Plains where wheat pastures are suffering from drought. However, that had little impact on markets in the region. In fact, prices have been experiencing a good counter-seasonal rally over the past two months. North Dakota State University extension economist Tim Petry noted last week that there have been several reasons for the increase in feeder cattle prices at a time when supply generally pushes them lower. Among those reasons is the recent sell-off in corn of more than $1 per bushel. That decline helped rally support for feeder cattle prices as cattle feeders were able to lock in lower cost of gain than expected. Likewise, a "robust export demand for beef and higher byproduct values helped fuel the rally. Higher futures prices allowed feedlots to be more aggressive buyers of the shorter supply of calves that were available," said Petry. "And, for the first time since 2003, Canadian feedlot buyers started buying northern Plains’ calves. U.S. calf prices were lower than Canadian prices. And Canadian feed barley prices did not increase to the extent that U.S. corn prices did. Large amounts of Canadian feed wheat and field peas that suffered harvest damage were available at up to $50 per ton cheaper than corn in Nebraska."
Whether or not the rally will continue remains to be seen and will depend on several factors, Petry said.
"Corn futures prices are inching back up as projected corn stocks remain tight. Live cattle futures have leveled off as the U.S. economy and domestic beef demand remain lackluster. The time for placing calves on winter wheat pasture will soon be over. And U.S. calf prices have increased relative to Canadian prices, which has reduced Canadian interest in U.S. calves," he said. A month ago, the average of 500-600 lb. steer prices on a U.S. dollar basis at cattle auctions in Saskatchewan was $132.09/cwt. compared to across the border in Montana at $123.59. Last week, the average price in Saskatchewan was $130.88/cwt. compared to $134.86 in Montana."
As a result, the likelihood of further increases in the near-term may be limited, according to Petry.
"In the longer term, prices usually increase seasonally into spring when the demand for calves for summer grazing picks up," he said. "The wild card for calf and feeder cattle prices will be corn prices, which likely will continue to be quite volatile in the next several months."
Last week in El Reno, OK, the trade was mixed, with feeder steers selling steady to $2 higher while feeder heifers were called steady. Steer and heifer calves sold $2-4 lower, with some instances of $6 lower as wheat pasture prospects suffer. Good demand was reported for all classes. Farther west in La Junta, CO, light steer calves sold steady last week from $140-160, while heavier steers sold $2-4 higher from $125-147. Light heifer calves sold $2-4 higher from $117.50 to $136 while heavier classes sold $2-4 higher from $110 to $124.
On the coast in Galt, CA, feeder and stocker steers and heifers were steady with the previous week at good prices. Feeder steers in the 400-500 lb. class sold between $125-146 and heifers in the same class brought $90-110. Steers in the 600-700 lb. range brought $110-128 and heifers of the same type and kind sold from $85 to $100. — WLJ