Outside markets drive fed cattle prices lower

Mar 18, 2011
by WLJ

Fed cattle trade sank last week on a widespread weakness which seeped into equity and commodity markets in the wake of the disaster in Japan and concerns about the U.S. economy. Last week’s futures trade was sharply lower, with a lower trend and two limit-lower days of trade shaving more than $6 off of live cattle contract prices. The result was sharply lower cash trade in a range of $112-115 live and $182-185 dressed, down as much as $5 from the prior week.

Despite the sharply lower trade last week, some market analysts predicted that the decline was overdone and the result of an overly bearish reaction to outside market news.

"We have certainly broken down psychology in the cash market this week and wouldn’t doubt we could be a little lower again next week. However, the futures market looks oversold enough and we have probably seen enough long liquidation at least for this week and would expect to see a short covering rally in that market," said Troy Vetterkind of Vetterkind Cattle Brokerage. "The talk around the market will be that Japan will need to keep importing meat to replenish supplies in the near term and, granted, a certain amount of that will be beef, however, the lion’s share of it right now seems to be pork."

He said the impact won’t be bearish for the cattle or beef markets though, although the pork markets will likely be the biggest beneficiaries of a future rally.

Despite the drop in cash and futures markets last week, the composite boxed beef cutout values continued their ascent as packers sharply trimmed production levels to keep inventories in check. The result had boosted packer margins to a positive $27 per head last Thursday, according to HedgersEdge.com. Although, analysts there noted that product movement had declined to low levels and as a result, cutout values were likely nearing a topping point. Last Thursday, midday Choice product prices reached $188.13, up 50 cents from the prior day while Select gained just 17 cents to hit $186.78. Harvest was estimated to be running approximately 23,000 head behind the previous week, keeping inventories manageable for packers.

The cow beef markets also have been seeing good support, according to Vetterkind.

"The story in the boneless beef market has turned to the fed cattle 50 percent trim where lighter fed cattle slaughter along with more under finished cattle entering the slaughter mix is supporting the fat trim," he noted. Last Thursday, the midday price quote on 50 percent trim product reached $106.26, up nearly $13 from the previous Thursday. The 90 percent lean was also trading higher at $198.31, up $4 from the prior week. The cow beef cutout also improved as a result, reaching $157.91. Vetterkind said cull cow availability remains very tight, as is typical in the spring, which will continue to support the market for the near-term.

Despite the weakness in the market last week there is continued reason for optimism in the cattle markets, and the cattle on feed report, due out last Friday, was expected to add to that support. Ahead of the report, analysts were predicting an average decrease in the placement number of 2 percent. Cattle on feed numbers were expected to show some increase as a result of heavy placements in late-2010 and early-2011, however, the increase which was expected at 3 percent above last year’s levels, remains manageable and shouldn’t have much impact on the market if it comes in as expected. Marketings were also expected to be higher than year-ago levels, rising 2 percent for February.

Feeder cattle

Feeder cattle markets last week were mixed, with the downturn in fed cattle prices and volatility in the contract markets spilling over to impact cash auction market sales. Vetterkind said there is still decent demand for lightweight cattle suitable for spring grass in the country right now, which is supportive of prices. However, he noted that heavier cattle and yearlings could see some price pressure in the near-term until the market volatility is sorted out. That pressure was evident in some markets last week with many reports of heavy yearlings trading at lower money than previous week sales.

It appeared likely that the week ahead could see a rebound in feeder cattle prices. Last Thursday, feeder cattle contracts on the Chicago Mercantile Exchange were posting solid gains, which were likely to play into an improvement in market sentiment during the week ahead. At midday last Thursday, March feeder contracts were posting gains of 200 points to trade at $128.50 while April was up 210 points at $129.25 and May was up 197 points at $131.47. The August contract was trading 195 points higher at $132.80. Although the week was still negative, even with those gains, reason appeared to be returning to the market as traders reassessed the market fundamentals and found the picture encouraging.

In Oklahoma City, OK, last week, feeder steers traded steady to $2 higher while stocker steers and steer calves sold steady to $3 lower. Feeder heifers were called steady to $1 higher. Stocker heifers and heifer calves steady to $3 higher. Demand was reportedly moderate to good for the large offering.

Meanwhile in La Junta, CO, on a large run, steers under 400 lbs. traded steady while those in the 400-600 lb. class surged $10-15 higher while 600 to 700 lb. offerings gained $3-5 from the prior week’s sale. Heifers under 600 lbs. sold $5-8 higher and 600-700 lb. heifers were steady. Yearling feeder steers sold steady to $2 lower with the decline noted on 800 to 900 lb. offerings. Yearling feeder heifers sold steady.

Farther west in Vale, OR, feeder cattle prices were mostly $2-4 higher with 400-500 lb. steer offerings trading from $148-169 while heifermates were $5-6 back. Steers in the 700-800 lb. class sold from $126 to $135 while heifers in the same category brought a range of $108 to $116.

To the south in Cottonwood, CA, last week, a light run of stocker and feeder cattle were reported, however, the market remains strong for cattle in California as a result of the good spring grazing conditions available. Feeder steers in the 500-550 lb. class sold from $155-166.50 while 650-700 lb. steers brought $123-136. Heifers in the 500-550lb. range sold at $145 while heavier 650-700 lb. cattle sold at $123. — WLJ