Market steady after big run in prices

Markets
Jan 7, 2011
by WLJ

Fed cattle traded early last week at prices mostly steady to $1 lower than the previous week’s sharply higher prices. Southern Plains cattle sold in a range of $105-106.50 live basis while cattle in the north brought $104 live and $167-169 dressed, with good numbers trading hands in the northern Plains and Corn Belt feeding regions. Trade volume in the southern Plains was reportedly light, with packers in the area reducing production schedules to help improve margins and better match supply with demand.

Seasonally, analysts predicted last week that fed cattle and beef markets could show some softness through the month of January as retailers look to competing proteins for featuring and consumers check their spending after the holiday period. As a result, boxed beef prices could trend lower as end cuts such as the chuck and round find more buying interest and ribs and loins trade downward for a month or more. There were already signs last week that packers were curbing production levels as the industry was expecting a 640,000-head production week. Through midweek, harvest was estimated at 367,000 head, down 6,000 from the prior week and 2,000 fewer than the same period last year. Choice boxed beef was trading slightly lower last Thursday. At midday, the Choice boxed beef composite cutout stood at $166.60, down 21 cents from the previous day, while Select cutout prices rose 52 cents to trade at $160.96 on light trade volume.

The beef cutout was finding some support last week despite lackluster middle meat movement into retail channels. Analyst Troy Vetterkind said that problems overseas were also adding some support to cutout prices.

“Boneless beef supply remains an issue with the recent flooding in Australia curtailing supplies even more than what was seen before due to currency exchange rates,” he said, noting that it is providing additional support for end meats and thin meats from the fed cattle complex as grinders look for products to include in grinding formulations.

“Export business is around, however, domestic business is a little light due to higher offering prices,” said Vetterkind. “In all, though, I would continue to look for higher boxed beef prices going into next week as packers keep the kill cut back to help improve margins.”

If packers are able to push prices higher into 2011, it could begin to alter how consumers view their beef purchases. Some analysts and restaurant consultants have been looking at menu choices which could translate into shifts in beef sales in the U.S. As prices rise, restaurants have been looking to lower-priced cuts and alternative products to keep menu prices down. Another developing trend is a shift toward using thinner cuts and smaller portions to complement other items on the plate, such as vegetables and starches, similar to the trends in Asian cuisine where beef is often expensive and used in very small amounts. If those trends develop in the year ahead and show staying power, it could fundamentally shift beef consumption in the U.S. It would mean consumers shift their focus toward making items such as steak a luxury item, while everyday purchases favor thin meats and alternative cuts out of the ends, a possibility worth watching, both in grocery stores and restaurants in 2011.

Cow beef prices for the past two years have benefitted from some of those shifts in consumer buying preferences and they continue into the new year. Cull cow and bull prices last week in most auction markets were called $2-3 higher than comparable sales two weeks prior. The demand for ground beef has kept prices high and could send them higher into spring, making cows fed over the winter extremely valuable over the next few months as supply declines in auction markets. Last week, the cow beef cutout stood at $138.02 during morning trade on Thursday, that’s up $23 from the same date in 2010. The 90 percent lean product has also surged higher, reaching $174.54 last week, compared with $149.88 a year earlier. The 50 percent trim has gained $7 over the previous year to trade at $84.07 last week, indicators of continuing strong demand for the product.

Feeder cattle

Feeder cattle markets were mostly $2-3 higher last week when compared to the most recent established markets two to three weeks earlier ahead of holiday closures. The continued improvement in the feeder cattle markets is largely thanks to the surging fed cattle markets, which are nearing all-time records. Cattle feeders have been bidding aggressively for the limited supply of available feeders as they look at deferred contract prices and the opportunity to lock in a profit despite the high input costs. However, analysts have been cautioning for several weeks about the potential risks that lie ahead and they continue to urge producers to minimize their risks. Supplies are expected to continue to be tight for the foreseeable future, but the increased risks posed by swings in input prices will continue to add volatility to feeder cattle markets in 2011.

Last week in Oklahoma City, OK, feeder steers traded $2-5 higher while heifers were $2-3 higher than the last market test two weeks earlier. Steer calves were called $1-4 higher and heifer calves were called steady on demand that was reportedly moderate to good for calves and good to very good for feeder cattle.

Farther west in La Junta, CO, lightweight steers sold $3-5 higher from $145-164 and heavier weights were $5-8 higher from $135-153. Light heifer calves sold $3-5 higher from $125-142 and heavier classes were $5-7 higher from $120-143. Meanwhile, at the market in Hub City, SD, feeder cattle sold steady to $2 higher last week on an active market with good demand.

On the West Coast in Galt, CA, feeder cattle prices continue strong with good demand noted from all classes of cattle. Grazing conditions have been reportedly very good throughout the state and prices for cattle suitable for grass or feeding remain strong as a result of the demand. Last week, steers in the 400-500 lb. class brought a range of $130-158 while 500-600 lb. steers sold from $115 to $142. Heavier 700-800 lb. steers sold from $97 to $118. Light heifers from 400-500 lbs. sold from $120-149 while heavier 600-700 lb. offerings brought $105-117. — WLJ

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