Feeder cattle sales mixed

Markets
Feb 11, 2011
by WLJ

A second week of winter weather delayed trade until late last week as feedlot operators spent much of the week cleaning up and passing early bids from packers. As of midday last Thursday, only light trade to a regional packer in Nebraska had been reported at $169 dressed. Bids of $104 in the South were being passed and trade was expected to develop at prices steady to perhaps $1 lower than the previous week when it finally broke loose.

Sloppy trade in the cattle futures markets over the past couple of weeks and a slipping boxed beef cutout price were causing buyers to wait for lower money last week, despite the winter storm that swept through much of cattle feeding country. Last Thursday’s midday price for the Choice boxed beef product was 75 cents lower than the prior day at $169.02 while Select was up 23 cents, trading at $169.04 with light to moderate trade and offering volume noted.

Some resistance to higher prices has been reported from the retail sector as consumers appear unwilling or unable to absorb higher beef prices and are instead shifting their attention to competing proteins and ground beef. The result is limiting the ability of packers to push cutout prices higher and analysts said last week they expect the current weakness in cutout prices to persist until demand begins to increase seasonally later in the spring. Exports will take up some of the slack in the marketplace as sales into Asia and elsewhere remain strong at good prices. The foot-and-mouth disease (FMD) outbreak in South Korea has pushed buyers there to procure their beef needs from abroad and U.S. processors have been their source of choice. Last week, export shipments to South Korea reached 2,900 metric tons while net sales hit 2,000 metric tons, making Korea the largest buyer last week.

There have been reports that FMD has also become a problem in China, which could force companies there to begin expanding purchases of beef from abroad. The market is currently closed to U.S. beef, but many analysts believe that could change this year. If FMD forces widespread culling, it could open its doors to U.S. beef even sooner to meet its needs, which would represent a significant opportunity for U.S. producers to add carcass value rapidly. Already, Vietnam, which is a proxy for sales into China, represents a significant destination for U.S. beef, with exports of 1,200 metric tons last week. Direct trade would create even larger benefits as a result of greatly increased volume.

The same winter storm that hampered feedlot trade last week sharply curtailed receipts of cull cows in most auction markets last week and prices were reportedly moving higher as a result of the continued strong demand and low availability. Two weeks ago at the CattleFax presentation during the Cattle Industry Convention in Denver, CO, analysts told a capacity crowd that despite an increase of 5 percent in cull cow slaughter during 2010 to historically high levels, prices continued strong through the year. For 2011, CattleFax predicted a decline in beef cow slaughter of approximately 310,000 head as available supplies dwindle and producers begin the process of slowing herd declines. Already, beef cow numbers are at their lowest point since 1963, and CattleFax predicted there would be a slight decline of about 250,000 head next year, further curtailing supplies of cull cows in the future. CattleFax analysts predicted that cull cow prices will hit an annual average of $65 in 2011, and if the U.S. dollar remains low, imports of grinding beef from abroad will remain constrained, perhaps pushing prices above that level.

"Demand for lesser-priced beef items, such as cow meat, is expected to remain high as the domestic economy continues the recovery process," analysts predicted. "Selling cull cows prior to the fall run or retaining ownership into the early spring of 2012 is expected to once again reward producers on price and profitability."

They also noted that selling females bred, as opposed to selling them as open culls, would provide good returns for producers with younger cows which still have some productive life left.

"Bred female values are forecast to average from $150 to $200 per head higher in 2011, near $1,200 per head," CattleFax analysts estimated. "With calf values surpassing all-time highs and expected profitability in the cow/calf sector over the next several years, producers are likely to envision the economic incentive for mild expansion."

Feeder cattle

The profitability predicted by CattleFax was offered with several caveats, including the pressure created by rising feedstuff prices and CattleFax CEO Randy Blach noted that while prices would rise to all-time levels over the next couple of years, so would capital needs and volatility. As a result, Blach urged producers to manage their risk to ensure adequate returns.

Last week, following USDA’s World Agricultural Supply and Demand Estimate, producers in the cow/calf sector got a first-hand glimpse of that volatility as a cut in estimated corn carryover stocks caused corn prices to spike above the $7 per bushel mark on the Chicago Mercantile Exchange. Omaha, NE, cash corn prices pushed up to $6.79 per bushel last week, prices nearly double those seen a year earlier.

The rise in grain prices, coupled with the winter weather that has been sweeping the nation over the previous few weeks, pressured prices last week. However, that same weather greatly reduced receipts in many markets and shuttered others in much of the central portion of the country. Feedlots have been reluctant to place cattle under such harsh conditions and have been holding back shipments of cattle. As a result, last week’s Feb. 1 cattle on feed pre-report estimates from the Livestock Marketing Information Center showed that analysts there were calling for a nearly 1 percent decline in cattle placed in January, a trend which could also continue into February as a result of the weather.

Last week, cash feeder cattle prices in most markets were under pressure as a result of the aforementioned factors. However, there were also pockets of strength to be found, particularly in the heavier weight classes which are generally in light supply. In West Plains, MO, last week, compared to the sale two weeks earlier, feeder steers from 550-750 lbs. sold $2-4 higher while those over 750 lbs. were called steady to $2 higher. Lightweight steers in the 450-550 lb. class traded $5-7 lower and the few available offerings under 450 lbs. traded $7-10 lower. Heifers over 500 lbs. sold steady to $3 lower while offerings from 400-500 lbs. were called steady on light to moderate supply.

In La Junta, CO, on a light market test, lightweight calves were called $2-4 lower from $155-175 while heavy steer calves were $3-4 lower from $135-158. Lightweight heifers’ calves were called $2-4 lower from $130 to $142 while heavier classes sold $3-5 lower from $125 to $143.

Farther southwest in Prescott, AZ, choice steer calf offerings were fully steady last week while heifer calves were called $2-4 lower. Yearling cattle sold steady with the prior week’s action.

On the West Coast in Vale, OR, the market was steady on all classes of cattle on offer. Steer calves in the 400-500 lb. class sold from $139-158 and heifers in the same class sold from $128-146 while steers in the 500-600 lb. range brought $127-153 and heifermates sold from $125-141.

Meanwhile in Cottonwood, CA, last week, a light supply of feeder cattle sold steady to $5 lower on cattle suitable for grass. Yearling cattle sold steady. In Famoso, CA, feeder and stocker cattle sold steady across all classes with excellent grass conditions contributing to strong demand for all classes. — WLJ

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