Market fundamentals remain strong

Dec 17, 2010
by WLJ

Weak basis levels and disinterested packers pushed fed cattle trade back to a late-week event last week. Packers were looking at reduced production levels through the end of the year, which limited their interest in procuring cattle. The light, early volume in the North came at prices $1-2 lower with live trade at $99 and dressed cattle at $159-160. Business in the south was expected to hold off until perhaps late Friday.

Vetterkind Cattle Brokerage analyst Troy Vetterkind said he expected the bulk of southern cattle trade to be steady to $1 lower than the previous week at mostly $100-101. 

“The boxed beef market is beginning to trend lower and packers are starting to cut back on production hours, and this is going to continue for the next two-and-a-half weeks. If the beef market continues to lose value as expected next week and the week after, I wouldn’t doubt we see softer fed cattle sales also,” he said.

Retailers have mostly finished their shopping for holiday features and beef margins at both the packer and retailer levels have evaporated in recent weeks as boxed beef prices climbed in tandem with fed cattle prices. Consumers are still resistant to higher prices and as a result, no one in the supply chain appears willing to pay substantially higher prices, leading to last week’s softer undertone.

Packers started to cut into their production schedule last week in anticipation of the softer demand. Through Thursday, production was estimated at 509,000 head, a decline of 13,000 head from the same period the prior week. However, that tally was 17,000 higher than year-earlier levels, an indicator that demand, both domestic and international, has improved over the course of the past year.

Through October, U.S. beef exports have been very strong and trade values have been ahead of the record level set in 2003. In October, according to U.S. Meat Export Federation (USMEF), beef exports achieved their second-highest value of the year at $375.3 million. The strong showing in October pushed 2010 beef export value to $3.28 billion, surpassing the January-October 2003 total of $3.26 billion. Beef export value finished 2003 with an all-time, single-year record total of $3.86 billion. Thus far, 2010 beef export values are up 28 percent from year-ago totals. In terms of volume, beef exports reached 863,046 metric tons for the year, outpacing 2009 by 16 percent. This year’s ratio of total U.S. production exported is 11.4 percent, while the value per steer and heifer slaughtered is $147.62. The per head value in October actually reached $170—nearly $50 higher than October 2009.

U.S. beef has achieved a significant increase in virtually every major destination except for Mexico this year, and even that market is improving. While exports to Mexico are down for the year, October totals were up 5 percent in volume to 22,194 metric tons and 10 percent in value to $71.9 million over October 2009. 

Canada remains one of the largest buyers of U.S. beef, with exports increasing in value by 10 percent from 2009 levels. Japan and Korea have been growing in importance over the past year, with South Korea in particular increasing their purchases of U.S. beef significantly. According to USMEF,  Japan is up 31 percent in both volume, to 103,057 metric tons, and in value, rising to  $528.5 million. Korea remains in fourth place but has achieved exceptional growth this year, jumping 125 percent in volume to 90,640 metric tons and 168 percent in value to $422.3 million.

“The turnaround for U.S. beef in Korea has been remarkable, and USMEF remains committed to sustaining the momentum with aggressive marketing efforts, including the recent launch of phase two of the ‘Trust’ imaging campaign,” Seng said. “Having regained a high level of consumer confidence, we are now able to emphasize the quality and enjoyment U.S. beef delivers rather than focus solely on safety. While safety remains a key point with Korean consumers, we’re now better able to differentiate U.S. beef for its flavor and consistency—which is what really appeals to buyers.”

Feeder cattle

Last week marked the last full week of feeder cattle marketing for 2010 and many sellers took advantage of the stronger market with larger numbers of cattle than recent weeks reported in many areas. Prices last week continued to move higher, with most markets reporting trade that was $2-3 higher than the previous week. There continues to be a shortage of available numbers and buyers have been aggressive at procuring their supplies when they are available, bidding up prices in the process. This trend is expected to continue into the new year as the market sentiment is very bullish, according to Vetterkind, who reported significant fund buying in the cattle markets which is keeping prices at current good levels.

On the West Coast in Cottonwood, CA, cattle suitable for grass traded $3-10 higher last week and yearlings gained $1-4 over the prior week’s strong sale. And in Prescott, AZ, a light run of cattle traded fully steady on the better calves while Choice steer and heifer yearlings were called $2-4 higher.

The market in Torrington, WY, last week saw feeder steers trade $2-5 higher than the previous week while feeder heifers also moved $2-5 higher. Meanwhile in La Junta, CO, lightweight steers sold steady from $140-157 while heavy steer calves were called steady from $125-153. Light heifer calves were $3-5 higher, from $125 to $146, and heavier classed heifers traded $5-7 higher, from $120 to $140.

At the sale in Oklahoma City, OK, last week, feeder steers and heifers sold steady to $1 higher last Monday. Demand was reportedly good for the limited numbers of feeder cattle on offer. Steer calves traded steady to $2 higher while heifer calves traded $2-4 higher. According to reports, demand continues to be very good for calves, especially those under 500 lbs. at the sale. — WLJ