Fed prices reach record highs at $117-118

Mar 11, 2011
by WLJ

Cash fed cattle prices surged higher again late last Wednesday with feedlots selling market-ready cattle at prices $5-6 higher than the prior week at $117-118 and $10-12 higher dressed basis at $188 to $190 with a few sales reported as high as $192 dressed. Sales volume on the midweek trade was good and at 93,000 head, likely represented the bulk of the week’s action with only clean-up trade expected later last week.

After paying sharply higher prices last week for fed cattle inventory, packers will need to boost boxed beef cutout values sharply to make money on last week’s buy, analyst Troy Vetterkind of Vetterkind Cattle Brokerage noted last week. Although prices moved higher in the wake of the trade, it won’t be enough to cover the sharply higher live trade.

"All grades of boxed, ground, and boneless beef advanced in price (last Wednesday) and we can expect to see more of the same next week in response to the sharp increases in live cattle costs," he said. "Middle meats were especially strong yesterday as short bought retail and wholesale buyers stepped into the market to secure a portion of steak needs ahead of what is expected to be a sharp increase in prices next week. It is estimated that packers need to move boxed beef prices another $7-$10 higher in order to make this week’s buy work out, and talk of limiting production next week to make that happen is already being floated around."

He said boxed beef prices are likely to continue their advance into the week ahead as a result of the packers’ cuts to production. Last Thursday, midday Choice boxed beef value was up $1.25 from the previous day at $178.12 while Select was up 89 cents to reach $176.46.

The bullish market fundamentals pushed live cattle futures to new all-time record highs last Wednesday. The April contract set a mid-session high of $1.178 while the December contract hit the $1.223 mark. The surge in cash prices and the gains in boxed beef markets are fueling much of the rise and forcing packers to pay higher prices to procure their inventory needs. Packer margins have been in the red some time, but they are working on managing production schedules to prevent an oversupply of beef which they will have to discount to move. The result has been a steady rise in boxed beef prices, which are up 5.2 percent from the middle of February and are now at their highest point since February 2008, which has helped keep packer margins steady.

Aside from tight market-ready supply, much of the improvement in the cattle and beef markets continues to be driven by the strong export demand for beef. Last week, USDA’s Agricultural Marketing Service (AMS) reported that beef sales to South Korea during January jumped sharply from both prior-month and prior-year levels.

"During January, South Korea imported 11,438 metric tons of beef from the U.S., which was the largest single month volume since December 2003, pre-BSE," AMS stated. "Also, this was 18.9 percent higher than the previous month and was 54.1 percent greater than a year ago."

The dramatic rise in beef sales to South Korea is a result of a wide-spread outbreak of foot-and-mouth disease (FMD) there. The spread of the disease has weakened demand for domestic beef and pork supplies among South Korean consumers. In turn, retailers are sourcing much of their beef and pork needs from overseas markets, including the U.S. Australia remains the largest supplier of beef to South Korea, but U.S. exporters have gained substantial market share as a result of the FMD scare and will be in a good position to hold much of those gains even after the disease issue fades.

Other Asian buyers have also been increasing their purchases of U.S. beef as it represents a significant value over some competing products from countries such as Brazil and Australia where the U.S. dollar trades at a relative discount to their currencies. Last week, USDA reported that Mexico was the largest buyer of U.S. beef, purchasing 2,500 metric tons, but that was followed closely by Vietnam, with purchases of 2,200 metric tons and South Korea and Canada, which sourced 1,400 metric tons each. South Korea received shipments of 4,900 metric tons last week, substantially higher than any other nation last week.

The tight supply of cattle in the U.S. coupled with the overseas demand for beef has put beef and cattle producers in the driver’s seat for 2011. Prices are set to remain strong for much of the year despite some expected increases in feedlot placements in February. The supply side of the market equation has been working toward the current tight supply situation for many years as cow/calf herds liquidated and even if herd numbers begin to show growth this year, the supply will continue to be outstripped by global beef demand for at least the next couple of years. Market dynamics pushed fed cattle prices to record-high levels last week and if demand continues to grow, particularly overseas, that trend could continue for the next couple of years. However, there remains a great deal of volatility ahead and producers continue to be advised to protect their exposure to that volatility.

Feeder cattle

The optimism in the fed cattle markets continues to overflow into the feeder cattle markets and prices in most auction markets last week were higher. Cattle feeding margins have reached an estimated level of nearly $200 per head, so feedlots are sourcing any and all available supplies of feeder cattle and paying excellent prices. The optimism in the market place is pulling large numbers of feeder cattle north from Mexico. USDA reported last week that import numbers from Mexico are more than 50 percent above year-ago levels. For the week ending Feb. 19, 2011, imports of feeder cattle from Mexico reached 30,176 head, which was 7,500 fewer than the previous week. For the year-to-date total, USDA reported imports of 166,980 head, up from 111,219 head for the same period in 2010.

Feeder cattle prices in the U.S. have reached excellent levels and those prices are pulling more cattle north. USDA reported Mexican feeder cattle prices which are $15-25 higher than year-ago levels. For Mexican steers in the 400-500 lb. class, USDA reported prices for the week ending Feb. 19 were $127-140 while 500-600 lb. steers were bringing $116-130.

In U.S. auction markets, prices were higher last week on advances in the futures market and the gains in fed cattle prices. In Oklahoma City, OK, last week, market reporters noted that the spring run of wheat grass cattle, although few in number this year, have mostly come to an end. Buyer demand last week pushed sales of feeder cattle under 750 lbs. as much as $2 higher. Feeder heifers sold steady to $2 lower. Stocker steers and steer calves traded $1-3 higher. Stockers heifers and heifer calves sold steady on moderate to good demand for all classes, with very good demand noted for thin-fleshed stockers.

Meanwhile, in La Junta, CO, last week on a light run of cattle, lightweight steer calves sold steady from $170-192.50 while heavier classes sold steady from $145-172.50 with five-weights bringing $163. Light heifer calves sold steady to $2 higher from $140 to $158 and heavier classes of heifers were steady, bringing a range of $135-150 with those in the 500-600 lb. range selling between $120 and $128.

On the West Coast in Galt, CA, all classes of feeder cattle sold steady to $5 higher last week. Steers in the 500-600 lb. category were trading from $150 to $170 while heifers in the same class brought a range of $140-161. Steers from 600-700 lbs. sold from $130 to $153.50 with heifermates trading from $130 to $143. Heavyweight 700-800 lb. steers sold at $115-125 while heifers in the same class brought $110 to $118. — WLJ