Cattle trade cools

Markets
Jan 21, 2011
by WLJ

Midweek fed cattle trade last week came in lower than the prior week’s action as price fatigue appears to have set in. Boxed beef cutout values have started to show signs of topping out and near-term export needs appear to have been fulfilled, leading to last week’s price break. Early trade in Kansas was reported $1 lower than the prior week at $107 live basis while Nebraska feedlots traded cattle at $106 live and $172 dressed, prices $1-2 lower than the previous week.

A number of analysts said last week that the roll-over in the markets may represent a near-term top, although most expected the market was just taking a breather before moving higher again in the spring as is currently indicated by the futures market. Tight supplies of fed cattle remain the driving market factor and there is little to indicate those factors will change any time soon.

Consumer demand will play a roll in the markets however, and there are indications that the boxed beef market will have difficulty moving above current levels. Last week, trade was largely mixed, with Choice values trading lower last Wednesday on good volume. Consumer spending remains constrained in the U.S., a trend that is expected to continue for much of the year, meaning it will be difficult for packers to push beef prices higher at the wholesale level, resulting in margin compression.

Last Thursday, the midday Choice boxed beef cutout stood at $172.86 while Select was higher at $170.93. USDA noted that last Wednesday’s middle meat trade was heavy, with strong interest in ribs and loins, in fact, the agency noted that Choice tenderloin trade volume was the highest since February 2008 as buyers took advantage of the lower Choice prices. Packer margins, according to HedgersEdge.com, were in the black last Thursday at an estimated $9 per head, which has helped to keep production levels on solid footing. Last week’s harvest was expected to reach 635,000 head, approximately 7,000 head more than the prior week’s production. The remainder of the carcass has been trading well as many products are being targeted for ground beef production and the export markets, which remain a key to maintaining carcass values.

The drop value has also been on the rise, throwing additional support under carcass values. The Wednesday price for hide and offal was quoted at $12.80 last week. That price is an improvement of $3.80 from the same week a year earlier and a significant source of added value for packers. International demand for offal has been strong as a result of the improving economic conditions overseas and the weak U.S. dollar value. Flooding in parts of South America and Brazil have interrupted trade flows from several key ports, which has also added to the strength of U.S. beef prices as buyers turn to packers here to fulfill their needs. This trend may serve to strengthen U.S. beef sales in the future, too, as international buyers develop relationships. If the U.S. dollar continues to fall against other beef trading nations, it will add further attractiveness to U.S. beef purchases.

The falling dollar and the trade disruptions in the southern hemisphere have had an impact on U.S. beef markets in other segments. The cow beef demand from the grinding sector has continued strong through the economic downturn and consumer appetite for ground beef remains solid. Much of the raw lean material for ground beef has traditionally been sourced in foreign countries and mixed with trim and fat from the steer and heifer slaughter to make ground beef. With the fall of the U.S. dollar and now shipping problems in those countries, ground beef blenders are sourcing lean grinding beef domestically, which is throwing support under the cutout as products are diverted for ground beef.

Over the past year, cow beef values have shot higher and last week stood well above year-ago levels. The cow beef cutout stood at $148.11, which was $7 higher than the prior week and $31 above the same date in 2010. The 90 percent trim reached $189.89, an increase of $10 from the previous week and up nearly $38 from the same date last year. The 50 percent lean product was also higher, trading at $83.15 last Thursday, up $1 from the prior week and $17 from last year. Those gains could go even higher as slaughter volumes in the U.S. fall seasonally into the spring, meaning another year of big profits for any producers who chose to feed cows through the winter to be marketed in the spring as “white fats.” Last week, most auction markets across the country were reporting cull cow prices in the $70 range while bulls were hitting the low- to mid-$80s, up $1-3 from the previous week as a result of the cow beef market dynamics.

Feeder cattle

Feeder cattle prices in auction markets last week continued to benefit from the fed cattle trade, although there were some signs here of a near-term cooling off as some markets began to report prices which were lower than the previous week’s action. Market analyst Troy Vetterkind noted that Dodge City, KS, reported that the market on yearling cattle weighing over 800 lbs. was $2-$6 lower last week.

“Now, that’s one sale and it might not mean much, but if we start to see a softer tone develop within the cash fed cattle market in the next couple of weeks, undoubtedly we are going to see cash feeder cattle values follow suit,” he said. “Again, we probably haven’t seen the cash top in the feeder cattle market yet for this year, however, the $130 area on 650-750 lb. steers and $120-$125 area on 750-850 lb. steers might provide some resistance for a couple of weeks.”

The much-discussed tight feeder cattle supply has resulted in the outstanding market over the past several months and U.S. producers have been benefitting from it. Producers in Mexico have also been taking advantage of the strong market, shipping feeder cattle to the North in big numbers, according to recent USDA data. During 2010, the U.S. imported 1.21 million head of feeder cattle from Mexico, 30 percent more than 2009 and 72.6 percent more than the number imported in 2008. USDA noted that as prices began to rise in the fall, feeder cattle imports from Mexico increased seasonally, peaking in November.

“This year, the peaks were historically high, with one week even reaching nearly 65,000 head,” USDA reports noted. “According to USDA Economic Research Service (ERS), U.S. feeder cattle prices remained well above the exchange rate adjusted Mexican feeder cattle price equivalent, as they did for most of the year. USDA ERS expects cattle imports to increase during 2011 as the result of an expected smaller North American cattle inventory.”

According to ERS, the adjusted price for imported Mexican feeder cattle in the 300-400 lb. class was $124-137 for the last week in December, up from $88-100 a year earlier. Steers in the 400-500 lb. category sold from $114-127, up from $80-93 for the same week in 2009, and steers in the 500-600 lb. range were $104-117, up from $74-85 a year earlier, making the trip north well worthwhile for producers south of the border, a trend likely to continue.

Last week in U.S. auction markets, prices were mostly higher, although as noted, some cracks were starting to appear. In Oklahoma City, OK, feeder steers and heifers traded $5-9 higher. Stocker cattle and calves sold $7-10 higher with extremely good demand noted for all classes of cattle. Meanwhile in Joplin, MO, steers and heifers under 600 lbs. sold $3-7 higher with a few in the 300 lb. class called $8-10 higher. Those offerings over 600 lbs. were called $2-5 higher with good demand and moderate supply.

Farther west in La Junta, CO, last week, steers under 700 lbs. traded $2-3 higher with some instances of as much as $5 higher. The exception came on cattle in the 450 to 550 lb. class which sold mostly steady. Heifers under 500 lbs. traded steady to $1 higher while those in the 500-700 lb. class were $2-5 higher with a full advance on heifers in the 600-700 lb. category. Yearling feeder steers were called $1-3 higher while yearling feeder heifers were $3 higher with good demand noted for all classes of cattle on offer.

On the West Coast in Galt, CA, feeder steers and heifers under 650 lbs. were called steady to $5 higher while heavier weights traded steady. Steers in the 500-600 lb. class were bringing a range of $140-158 while those in the 700-800 lb. category sold from $105-121. Feeder heifers in the 500-600 lb. class sold from $120 to $143 while those in the 700-800 lb. range traded from $95-110. — WLJ

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