Fed cattle prices jump $3-4 higher

Markets
Dec 23, 2010
by WLJ

Fed cattle prices surged higher unexpectedly last week as short-bought packers were forced to pay up for their cattle needs. Prices were $3-4 higher in most areas of the country, with southern Plains trade in the $102-104 range while dressed trade in the North was confirmed from $161 to $164. The activity last Wednesday came at heavy volume and should have cleaned up most of the available showlists in the country. According to Vetterkind Cattle Brokerage analyst Troy Vetterkind, some of the willingness to pay more for cattle was a sharply higher futures trade last Wednesday that, at midday, was limit higher on the February contract, which ended the session at $107.55 while the April contract added 142 points during the day to finish at $110.95.

“Packers will come into next week with margins deep in the red and it will be interesting to see how much higher they will be able to sell beef to offset higher costs of live inventory,” he said, noting that hide and offal values are about $2.50 per hundredweight higher compared to last year, which is helping packer margins.

“Perhaps it won’t be so bad for (packers) if export business continues strong and domestic business picks up after the first of the year. Although we did see a net reduction in beef export sales last week,” he said. “Next week’s cattle market will be too early to call right now. We’ll have to get into next week and get a better handle on beef business.”

Production for the week was expected to hit 535,000 head and next week’s kill schedule will also be reduced, which should help limit the amount of beef flowing into retail channels, allowing packers to push beef cutout prices higher after they traded mixed to lower for much of last week on light buying interest as retailers had mostly met their holiday needs. The Choice boxed beef trade last Thursday at midday was up 23 cents from the previous day at $158.69 while Select was down 50 cents at $152.70 with light to moderate trade.

Vetterkind said some of that lower trade may have been overstated.

“Private sources would suggest that a steady to higher market was more the case,” he said of the boxed beef markets at midweek.

“While middle meats continue to need discounting to spur buying interest, end meats, thin meats, and ground beef seem to have a little better tone and higher prices were seen there,” Vetterkind said. “Boneless cow beef remains an issue to source from both domestic and international channels, and I believe this is going to help keep end meats and thin meats from the steer/heifer kill supported as processors will source this meat to grind.”

The Thursday cow beef cutout was $132, up sharply from a year earlier when it stood at $109.64. Likewise, the 90 percent lean at $165.46 was also well above last year’s level of $139.06. The 50 percent trim trade has been steady at good levels for much of the past year as ground beef continues to enjoy strong domestic consumer demand. Last Thursday, the 50 percent lean was trading at $75.95, up $2 from the same time in 2009.

He said he expected the beef markets to trade steady to perhaps higher into the end of the year.

Feeder cattle

Contract trade last Thursday on the Chicago Mercantile Exchange also helped feeder cattle prices and the nearby contracts posted big gains on the heels of the sharply higher trade in live cattle contracts. Vetterkind said the action opened the door for the March feeder cattle contract to trade up to $127.

“The money wants this cattle market to go higher into the first of the year so there is no sense in trying to fight that trend, at least for the time being,” said Vetterkind. “Producers need to be taking advantage of this by purchasing put options on cattle that will be marketed from now until next summer. You have to do some risk management at these price levels.”

Last week’s limited auction market trade was on seasonally light volumes and mostly steady to higher prices. Many late-week markets were dark last week and most will be closed through the end of the year, making last week the final opportunity for cattle producers to market cattle until the new year.

In Oklahoma City, OK, last week, feeder steers and heifers traded steady to $1 higher on good demand. Steer calves sold steady to $2 higher while heifer calves were called $2-4 higher with good demand noted for calves, particularly those under 500 lbs. Meanwhile, farther west in La Junta, CO, lightweight steer calves were $4 higher last week, from $140 to $161, while heavier weights were steady from $125 to $153. Light heifer calves sold steady from $125 to $139 and heavier classes were also steady from $120-133.

Farther north in Philip, SD, feeder steers sold mostly $3-4 higher and feeder heifers sold mostly $5-6 higher last week. Buyer attendance was reportedly good with good demand on lot loads of cattle.

On the West Coast in Cottonwood, CA, the market continued strong with outstanding prices reported on steers under 600 lbs., which sold steady to $2 higher, while those over 600 lbs. were called $2-5 lower. Heifers 500 lbs. and under were called $5 lower. Heifers more than 500 lbs. traded $2-5 lower. — WLJ

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