Fed Cattle trade softens ahead of inventory report
Fed cattle trade last week wrapped up early with the south trading cattle at $104-105 live basis and in the northern Plains and Corn Belt, live trade came at $103-104 while dressed cattle traded between $166 and $168. There was some softening in the beef markets and futures contracts traded lower for much of the week, lending to last week’s price decline.
Trade volume was light last week with analysts reporting some carryover into the following week was likely and the trend toward pulling cattle ahead is also done for the time being. There remains some concern about higher protein prices ahead and consumers’ reaction to the trend of rising meat prices now that most of the product booked ahead at lower prices has been cleared out of the pipeline, according to Vetterkind Cattle Brokerage market analyst Troy Vetterkind, who noted last week that there is likely to be a softening in the market for the near-term.
"Undertones within the boxed beef market were beginning to turn a little softer late (last Wednesday) as we started to see discounting, sometimes sharp in nature, in the round complex and in top butts from the loin primal," he said.
Boxed beef markets were quoted higher last Thursday at midday with the Choice product gaining 38 cents from the previous day to reach $173.97 while Select was up 39 cents at $172.17, however, volume was reportedly light to moderate on moderate offerings. Slaughter volume for the week was running 6,000 ahead of the previous week’s production with the industry predicting a harvest of 635,000 head for the full week.
The boneless cow beef markets continue to benefit from trade disruptions overseas and a weaker dollar which makes imports from abroad less attractive for grinding formulations. However, last week, some cracks were also starting to develop in that market.
"Imported boneless cow beef markets were being offered lower (Jan. 26) also as traders were looking to move some product after the recent rally," Vetterkind said.
He said food service demand for ground beef last week was also lighter than in recent weeks, adding to the softer undertone in the market. However, he said that consumer demand for ground beef ahead of the Super Bowl has been strong.
"Some beef traders believe that ground beef demand could cool off a bit once we get past the Super Bowl though. Beef demand in the northeast will be a little light the next couple of days as they dig out from another winter storm. In all, the beef complex feels a little soft right now and I would probably expect to see lower markets into next week," he noted.
Last Thursday, that demand was apparent as the cow beef cutout rose to $150.48 while the 90 percent lean product reached $192.35 and 50 percent trim hit $78.71.
Vetterkind said last week that the annual cattle inventory report was expected by the trade to be very bullish for prices moving forward. However, most of those expectations were priced into the market long ago. Pre-report estimates showed that analysts are expecting USDA to report all cattle and calves 1.4 percent below year-ago levels. Beef cows are expected to show a 2.1 percent drop from Jan. 1, 2010, while the calf crop is expected to come in 1.1 percent below last year’s tally.
"If the numbers come out this way, obviously they will be supportive to cattle prices for the balance of 2011 and into 2012, but we have rallied quite a bit in anticipation of these numbers for the last several months," said Vetterkind. "Right now, I would say that we would have to see a pretty bullish surprise in the inventory report to continue the rally at these price levels."
He said he expects a chance of further downside risk into the end of February without some sort of additional support for the market between now and then.
The inventory report was also expected to be supportive of the feeder cattle markets last week with analyst’s pre-report estimates showing a 3-5 percent decline in the number of feeder cattle and calves outside feedlots. Feedlot buyers have been aggressive at filling pen space in anticipation of tighter supplies of available feeder cattle, however, thus far, there has been little sign of a lack of numbers. Placements, according to USDA’s Jan. 1, 2011, cattle on feed report, have been sharply higher than last year, with December placements rising 16 percent from 2010’s depressed levels.
That said, the futures market has been very strong and some cow/calf producers have already marketed their fall calves to lock in current price levels, according to reports from the country. Others are looking at holding cattle back to market as yearlings in places where there is ample winter feed. The premiums available in the market for heavyweight placements has made this an attractive and profitable proposition for past years as the price of feedstuffs and cost of gain rise.
Last week, prices through most auction markets were reported steady to as much as $2-4 lower than the previous week. Prices remain strong and demand is solid in most markets as buyers compete for the limited number of calves on offer. Seasonally, there is not expected to be a big pulse of grass cattle this spring, so buyers are taking what they can get, when they can get it, according to reports.
In Oklahoma City, OK, last week, a run of 10,500 head sold from prices reportedly $3-6 lower on feeder steers while feeder heifers were called $2-4 lower. Demand for the offering was reportedly moderate with some improvement noted as the sale progressed, particularly for lighter weight classes. Meanwhile in Joplin, MO, steer calves under 550 lbs. traded $3-5 higher last week while heifer calves under 500 lbs. were steady to $2 higher. Heavier weight classes of calves and yearlings sold steady to $1 lower on moderate to good demand and moderate supply.
Meanwhile in Hub City, SD, last week, feeder cattle sold steady to $2 lower at an active sale with good demand. In La Junta, CO, light steer calves traded $2-4 lower, from $160-173, while heavier steer calf weight classes were called $3-5 lower, from $140-158, with one lot as high as $180. Light heifer calves traded $2-3 lower, from $135-145, while heavier classes on offer were $2-4 lower, from $125-138, with a few offerings reaching as high as $146.
Farther west in Salina, UT, last week, feeder steers under 500 lbs. were called $8-10 higher while those in the 500-700 lb. class were trading $4-5 higher. Feeder heifers were called mixed but mostly $2-3 higher. Holstein steers traded $1-2 higher than the prior week.
Meanwhile in Prescott, AZ, choice lots were called steady last week on a light test of the market. Plain cattle offerings sold $6-10 lower. Steer and heifer yearlings traded $3-5 lower while on the West Coast in Famoso, CA, stocker steers and heifers sold steady on good demand as pastures remain green and growing. Feeder steers were called steady to $4 higher and feeder heifers were $2 higher on excellent demand. In Cottonwood, CA, the market last week traded mostly steady on steers under 650 lbs. while heifers under 600 lbs. traded steady to $4 higher. Offerings over 600 lbs. were called $2-4 lower. — WLJ