Fed cattle reach new record cash prices

Markets
Mar 3, 2011
by WLJ

— Trade for the week reaches $112-113 live basis

Fed cattle prices pushed farther into record territory last week as sales in the southern Plains were reported at $112-113 live basis and at $180-182 dressed in the North and Corn Belt feeding regions. Those prices were $1-2 higher than the previous week’s trade. Trade was mostly complete by midweek with only light clean-up reported on Thursday in some northern areas. Reports indicated that approximately 110,000 head of cattle traded hands last Wednesday.

Analysts have noted that weekly trade volume remains strong despite a slowdown in packer’s production schedules, so feedlots still haven’t seen problems with cattle backing up in lots and inventory remains current. That will benefit the industry moving into the spring and summer months when a backlog of cattle held back to hit higher, deferred futures contract prices suppresses the ability of the market to rally on higher demand.

The slower chain speeds at packing plants have worked to slow production and boxed beef trade has been good as a result. Trade volumes, which typically fall off seasonally in the late-winter, early-spring time frame have been solid and export markets continue to be an important destination for U.S. beef. However, there are concerns about how much higher beef prices will impact domestic market demand. Surging gas prices continued last week, with the national average gas price reaching nearly $3.40 per gallon, an increase of 68 percent from the same week in 2010, according to the Department of Energy. Some parts of the country, particularly West Coast metropolitan areas, were nearing the $4 mark.

The increase in gasoline and other energy prices, including heating oil, which impacts East Coast markets, is alarming for the protein industry because it drains money from discretionary purchases, potentially limiting domestic sales, particularly of more expensive beef cuts which are a key to advancing prices, especially with the onset of grilling season later in the spring.

Recently, concerns have been developing about the sustainability of current high beef prices if inflation levels, particularly for fuel, continue higher, a point worth watching when making marketing decisions, particularly for late summer and fall marketings, analysts point out.

Last week, however, it looked like packers had perhaps abandoned the slower chain speeds after buying slaughter-ready cattle at higher prices early in the week. According to USDA, production through Thursday reached 511,000 head, up 9,000 from the previous week and well above the same period a year earlier when the harvest tally stood at only 490,000 head. The result seemed to have little immediate impact on boxed beef prices with the Choice cutout reported at midday at $172.94 while Select stood at $172.45 with light to moderate trade volume reported for Thursday morning. The export markets, which have been a bright spot for beef markets, continue to play an important role in absorbing product thus far in 2011. The U.S. dollar’s slide has made products from here very attractive to foreign buyers who are showing an appetite for U.S. beef. In many markets, U.S. beef continues to regain market share, particularly from Australia, which has seen its currency appreciate. Shipping problems due to flooding in the northern areas have also pushed beef buyers into the U.S. market, a significant advantage for U.S. producers.

However, last week, there were some marked declines in export sales from recent week tallies. According to USDA, sales last week fell 39 percent from the prior week. Sales reached 14,000 metric tons, with Vietnam reported as the largest buyer at 3,100 metric tons, while South Korea purchased 3,000 metric tons.

The export markets will continue to be a significant factor in the performance of U.S. beef prices as they absorb a growing percentage of U.S. production.

Feeder cattle

Feeder cattle markets were mixed last week with analysts noting that there is a limited supply of cattle coming into markets from wheat pasture and heavy-weight feeder cattle availability is low in most areas. The reduced number of cattle from winter grazing programs has meant good demand and prices for the light offerings of heavy cattle suitable for placement on feed.

The good prices for heavy cattle don’t mean that light cattle are being placed over. There are already reports of buying for spring green-up as winter begins to fade in some regions. A limiting factor will be the extent of drought in portions of southern U.S., many of which have seen little precipitation this winter. If drought persists, it will limit the demand for grass cattle in those areas this spring. Elsewhere, though, as green grass begins to spread this spring, prices could explode higher, as the action in the futures market seems to indicate as a possibility, analysts noted last week.

The Chicago Mercantile Exchange feeder cattle contracts last week pushed to new highs on most contracts at the close Thursday. The March contract added 90 points to settle at $130.27 while April also added 90 points, closing at $132.30. May gained 92 points to finish at $133.45 and August finished the session up 92 points at $134.45. Analysts continue to urge producers to seek price protection at these levels as corn and other outside market volatility presents a significant downside risk as the year continues.

Last week, cash sales showed the strains evident in the marketplace, particularly early week sales. In Oklahoma City, OK, feeder steers and heifers traded $2-4 lower, except heifers over 800 lbs. which were called steady. Demand for feeder cattle was reportedly very erratic at the sale last Monday. Stocker cattle and calves sold steady to $3 higher with demand called very good for grazing cattle as several grass accounts for cattle headed to northeastern Oklahoma and eastern Kansas were heavily competing for five- and six-weight cattle, according to market reports.

Farther west in La Junta, CO, steers under 550 lbs. sold steady last Tuesday while those in the 550-700 lb. class were called $2-3 lower. Heifers under 600 lbs. traded steady and those from 600 to 700 lbs. were $1-2 lower. Yearling feeder steers and heifers were steady to $1 lower with good demand reported for all classes, particularly replacement-quality females.

On the West Coast in Galt, CA, all classes of feeder and stocker cattle were reportedly steady last week. Steers in the 400-500 lb. class sold from $145-176 while heifers in the same category sold between $135 and $166. Steers in the 500-600 lb. range were $140-165 while heifers in that class brought $125-153 and heavier 600-700 lb. steer offerings sold from $120 to $140. Heavy 600-700 lb. heifers brought $120-139. — WLJ

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