Cattle prices steady despite volatility

Feb 25, 2011
by WLJ

Fed cattle trade last Thursday was being reported at the $110 to $111 level in the southern Plains. Meanwhile, light dressed trade in the north and Corn Belt regions came at $174 at midweek although dressed volume was still too light to call a trend at midday last Thursday. Prices were generally steady to $1 higher at the upper end of the prior week’s action. The futures market, which was trading steady to slightly lower last week, has been leading the cash market for quite some time and analysts said last week that barring some significant downdraft in the futures, the trading range for the week should be mostly steady.

Packers were trimming production levels last week in an effort to regain some of the margin lost as cattle prices climbed. The result was a harvest which was running 12,000 behind the prior week through midweek. However, the impact of lower production levels translated to a steady to slightly higher boxed beef price with last Thursday’s midday Choice quote up 20 cents from the previous day at $170.65 while Select added 46 cents to reach $170.

Analyst Troy Vetterkind of Vetterkind Cattle Brokerage said that there was some significant downward pressure showing up in the cow beef markets last week as the supply of cull cows increased slightly and demand for ground beef appeared to be declining slightly, however, beef from the steer and heifer slaughter looked to have some support.

"Beef markets are begrudgingly moving higher in domestic channels; however, I think packers still have export orders to fill, which will be the supportive factor in this week’s cash market," he explained.

He said there was active interest from foreign buyers for chuck and round cuts recently which should help pick up some of the slack as those cuts are removed from ground beef formulations.

"In all, I would look for beef prices to be relatively supported going into the first half of next week, but if we see export orders slow down, I would assume we will see the cutout values stall as we are running into buyer resistance in domestic channels," said Vetterkind.

Last Thursday at midday, the cow beef cutout continued its downward slide, falling slightly to $154.62, down $3 from a week earlier. The 90 percent lean product was off more than $5 from the previous Thursday at $196.26. However, the 50 percent trim, which is mixed with imported lean in grinding formulations, climbed nearly $5 from the previous week to reach $79.36.

Grain prices saw some downward pressure last week ahead of USDA’s first of the 2011/2012 marketing year supply and demand estimates, which were expected to show corn plantings up by 4 million acres to 92 million acres. However, the early season projections are typically subject to significant corrections later in the season and as a result, are often discounted by the market. There have been signs that commodity trading firms were cashing in positions last week and many agricultural commodities, particularly grains, were under pressure as a result. The December 2011 corn contract was trading 6 cents lower at midday last Thursday at $5.85 per bushel while the spot month March contract was off 5 cents at $6.86 per bushel, down about 20 cents from a week earlier.

The action in the grain trade was adding some pressure to fed cattle prices as traders became concerned about increasing volatility in the outside markets. Oil prices were reaching the century mark last week and there were concerns about $100 oil and gas prices rising through the $3 level and the effect those prices would have on U.S. consumers. The instability in the Mideast is already taking a toll on consumer spending as discretionary funds are shifted toward filling the gas tank at a time when those funds are already tight. If the instability overseas eventually shifts to a major oil producer, analysts warned last week that we may just be seeing the start of oil price inflation. If that trend continues, the impact on the U.S. economy and already stressed consumers could be severe and rapid.

Feeder cattle

Vetterkind last week was among those analysts urging caution among cattle producers. The volatility in the marketplace has the ability to push commodity prices lower in rapid fashion and he said price protection at current levels is important.

"There is incredible risk in these markets with $100 crude, $7 corn, $110-plus fat cattle and $130 feeder cattle," he said. "You have to manage this risk either with futures or if you don’t have a stomach for the increased volatility, to use an options contract."

Last week, some of that volatility was creeping into cash and contract feeder cattle markets despite the drop in corn prices. Feeder cattle markets were trading lower in the second half of the week last week.

"I don’t have much of an explanation for (lower feeder prices) except for the fact that folks are maybe coming back to their senses as they deal with projected $1.10-$1.20 costs of gains going forward with rising fuel and transportation cost, the latter of which who knows how high fuel can go right now," he noted. "Also, though, we are starting to see some nervousness in deferred month live cattle this week given turmoil in corn and energy markets and as in the cow market, I think we are seeing a few more feeders showing up to market this week."

He said he expected that the downward pressure could continue to push feeder cattle prices lower during the first week of March as well.

Last week, the cash trade was divided in feeder cattle markets, as Vetterkind pointed out. Early week sales were strong and prices mostly higher. However, those markets in the second half of the week were under pressure with some lower prices noted. For example, in Oklahoma City, OK, last Monday, feeder steers traded $2-5 higher while feeder heifers were called $1-3 higher with the exception of 750-800 lb. heifers which were called as much as $6 higher. Stocker steers and steer calves traded $1-4 higher while stocker heifers and heifer calves sold $1-3 higher with very good demand reported on all classes of cattle. However, in El Reno, OK, last Wednesday, on a run of cattle called average to attractive with very good demand noted, feeder steers traded $3 lower while heifers were steady to $2 higher. Stocker steers and steer calves were mixed ,with the lighter weights being $1-5 lower and the 450-600 lb. calves trading $3-6 higher. Stocker heifers and heifer calves were $4-6 higher.

Farther west in Loup City, NE, at a Tuesday sale last week, steers sold steady to $3 higher than the prior market test two weeks earlier. Heifers sold $3-5 higher with demand called good and trade was strong throughout the sale.

In the Southwest, on a light run of cattle in Prescott, AZ, prices were sharply higher last Tuesday with sales of steer and heifer calves trending $8-10 higher while yearling cattle were called $6-8 higher than the previous week. And in Cottonwood, CA, the market was mixed with a light supply of cattle. Offerings under 500 lbs. were called $2-5 lower while steers over 600 lbs. traded steady with the prior week. Heifers over 500 lbs. sold $2-4 higher. — WLJ