Fed cattle trade expected to move $1 higher

Markets
Feb 18, 2011
by WLJ

Most of last week’s cash fed cattle business looked to be delayed until Friday, perhaps until after the release of the USDA Cattle on Feed report. Packers were offering $105 live basis in the south and $168 dressed in the north, but it didn’t appear those levels would be enough to spur any action in the market. Feedlots were firmly priced at $110 live in the southern Plains and at $173-175 dressed in the north. Analysts said when trade finally developed it would likely be at steady to higher money than the prior week as contract trade and boxed beef values had firmed, giving feedlots the upper hand last week.

Slaughter volume last week was running 11,000 head above the previous week as export market demand surged, causing packers to ramp up production. For the week, the market was predicting harvest would hit 637,000 head. At midday last Thursday, the Choice boxed beef cutout was trading slightly lower at $168.17 while Select was up from the prior afternoon at $167.99. Analyst Troy Vetterkind of Vetterkind Cattle Brokerage said he expected the export business would push the packers to pay more for cattle last week as demand for limited supplies outstripped the actual price of cattle.

According to Vetterkind, demand was also pushing cow beef prices higher last week as the 90 percent lean product rose to $200.92, up more than $20 in the past month. Much of the increase in price can be attributed to the seasonal decline in cow availability and a drop in imported beef and cows from trading partners. Last week, Chicago Mercantile Exchange analysts Steve Meyer and Len Steiner noted that imports of cows from Canada are down sharply, adding to the jump in prices.

"Imports of Canadian slaughter cows for the period January 3 - January 29 are estimated at 14,546 head, 7,106 head or 32.8 percent lower than the comparable period a year ago. During the same time frame, US cow slaughter was reported to be 529,000 head, almost exactly the same as a year ago," they noted. "It appears that while U.S. cow slaughter (mostly dairy cows) was higher in January compared to last year, the reduction in Canadian slaughter cow imports offset the domestic slaughter increase in January. US 90CL lean grinding beef hit $203/cwt on (Feb. 10), a new record high."

Demand is also strong for beef and particularly so for ground beef in the US as consumers continue to seek out value in the meat case. That demand has translated into an excellent market for cull cows and bulls, with reports of $80 cows and bulls well into the mid- to high-$90 range becoming common. For producers who held cull cows back to be marketed this spring as white fats, the move should be extremely profitable, as it has been for the past several years.

Another reason for the surge in cow beef prices is a lack of availability of cuts from the steer and heifer slaughter as demand for end meats surges from overseas buyers. That has increased the price of chuck and round primals to levels which aren’t conducive to using them in grinding formulations, pushing cow prices higher as a result.

Last week, USDA reported export beef sales for delivery in 2011 of 15,100 metric tons, up sharply from the previous week. Japan was the largest buyer, with a reported volume of 5,400 metric tons while Mexican buyers purchased 2,900 metric tons. South Korea, where foot-and-mouth disease (FMD) continues to be a problem, bought 2,000 metric tons. Last week’s shipments to South Korea were evidence of that demand, with a total of 4,300 metric tons being shipped to that market. Reports from South Korea indicate that the FMD outbreak is taking a toll on consumer confidence in the nation’s protein supply and as a result, foreign beef is seeing greater demand. Beef from Australia continues to be the favorite, however, recent figures show U.S. beef is gaining market share as consumers gain confidence in the product.

Feeder cattle

Most feeder cattle markets reported higher cash prices last week after closures interrupted sales over the previous two weeks. Most of the central and southern Plains markets reported that producers had managed to dig themselves out after the snow and numbers at many markets were better than in recent weeks. Mud was still a problem in many areas, but it did little to dampen buyer enthusiasm.

Vetterkind noted that buyers were more concerned about availability than price last week as feedlots continue to worry about tight supplies of feeder cattle. The result has been the sharpest spike in prices since late last year.

"Feeder cattle futures trading into new contract highs yesterday (Feb. 16) fuels the fire. I would continue to look for continued strength in the cash feeder complex until March futures begin to break back under $130," he said.

Corn prices could be the single factor preventing a large spike in the markets. Concerns continue to grow in the market about corn supply as exports and ethanol use continue to absorb grains at current levels. Analysts note that, soon, the need to buy more acreage will drive all grain prices higher as they compete for acreage ahead of planting season. The end result is likely to be a rationing of grain to maintain some level of carryover stock. At what level price rationing occurs will be the main question moving ahead, but demand remains solid at $7 per bushel for corn, so it will be somewhere north of that level. Cattle feeders are already seeing their cost of gain spike and reports from the country indicate that bull producers have seen their feed costs double over the winter from the previous years’ levels. How high prices can climb will depend heavily on the ability of consumers to pay sharply higher prices for beef over the year ahead. Reluctance to do so could result in a rapid unwinding for market prices. Caution is necessary at nearly all levels and analysts are strongly suggesting that producers protect some of their risk at current levels.

As noted, prices were higher again last week at most auction markets. In Oklahoma City, OK, after two consecutive weeks of reduced operations, feeder steers and heifers traded $3-6 higher. Stocker cattle and calves sold from $6 to $12 higher. Demand was called extremely good for all classes on offer last week.

Farther west in La Junta, CO, last week, light steer calves sold $5-7 higher from $165-185 while heavier steers sold $10 to $15 higher from $145 to $158. Fourweight steers ranged as high as $172. Light heifer calves traded $3-5 higher from $140-150 while one package of extremely light heifers traded hands at $201. Heavier weights sold $2-3 higher from $127-136.

On the West Coast in Galt, CA, all classes of feeder and stocker cattle were steady last week with steers in the 400-500 lb. class trading from $145-170 while those in the 500-600 lb. category were selling from $140 to $158 and heavier 700-800 lb. offerings brought $110-123. Heifers in the 400-500 lb. class sold from $130-150 while those in the 500-600 lb. range sold between $120 and $135 and those in the 700-800 lb. class traded from $100 to $120. — WLJ

{rating_box}