Fed prices continue to set records
Fed cattle continued their win streak last week with additional gains of $2-3 over the prior week’s trade levels in the southern Plains. Cattle in Texas, Oklahoma, Colorado and western Nebraska traded at $123-124 live while Corn Belt trade was slow to develop last week. Analysts predicted that most cattle would probably move at $126 live and $200 dressed, steady with the prior week despite a break lower in the futures markets.
Although trade volume was good in the South, concerns were developing last week as a result of problems forcing beef into the retail supply chain at current high price levels. In addition, there are reports that export markets are showing some signs of cooling off slightly after a very strong start to the year. Vetterkind Cattle Brokerage analyst Troy Vetterkind said last Thursday that unless there is a shift higher in contract markets quickly, the spring high may be in at last week’s trading levels.
Packers started cutting back production levels somewhat last week, processing just 118,000 head last Wednesday after boxed beef cutout prices faltered in their steady upward rise. The cutout continued to slip last Thursday, with Choice product slipping 72 cents to $190.91 while Select declined 38 cents to $186.71 on moderate trade. Middle meats have been a drag on boxed beef prices for much of the spring. Normal seasonal weakness on these cuts is typical, however, the hotel and restaurant trade has been trimming back on their middle meat offerings since the start of the recession and that trend continues today. Until middle meat demand picks up and prices move higher, the ability to push cutout values higher than current levels will be difficult due to the fact that much of the current demand strength is coming on relatively lower-priced products such as chucks and rounds.
Analysts noted last week that it will take substantial reductions in harvest over a sustained period of time to keep a floor under cutout values as domestic markets are showing signs of weakness at higher price levels. Whether the U.S. consumer can stomach higher prices for necessities for food and fuel for a prolonged period of time remains an unknown and retailers, who are largely absorbing cost increases at the moment, aren’t likely to do so for long.
The concerns that domestic demand isn’t yet strong enough to absorb price increases, coupled with a slowing in export sales, are expected to take prices lower for the next few weeks until the picture becomes a little more clear. Vetterkind noted last Thursday that prices for products traditionally popular with foreign buyers showed signs of weakness, particularly chuck rolls.
Even prices for cow beef product, which have been extremely strong for several months, showed some signs of weakness last week. Prices for the 90 percent lean product fell $10 over the prior week’s levels, falling to $203.13, despite the limited availability and high price of imported grass-fed beef that grinders rely on for much of their formulation. The 50 percent trim product also fell last week, dropping to $104, more than $3 lower than a week earlier.
Vetterkind noted last week that the futures markets have been under recent selling pressure as a result of fund liquidation of contract positions along with some commercial selling. The result has been a strong divergence in cash and futures prices, in the neighborhood of $8-10. That’s despite a steady increase in fed cattle prices.
"You have cash and futures at record all-time highs with record open interest in the futures and a plethora of bullish news priced into the market, so you need to be careful about expectations of how much higher prices can go in the near-term," he emphasized. "Regardless, the market acts heavy up here and in my opinion, we saw a red flag with June (live cattle) closing below $120 and August (feeder cattle contracts) closing below $140."
Cash feeder cattle markets last week were starting to show signs that they may be topping out, according to Vetterkind, who noted that the weakness in the futures markets for both fed and feeder cattle were likely to take a toll on auction market sales in the near-term despite the short supply of feeder cattle. Price protection continues to be a recommended strategy for this fall’s marketings of feeder cattle, according to analysts. The availability of strong prices through the end of the year in contract markets and the willingness of buyers to secure late-year needs should be taken advantage of, analysts continue to note. There remains substantial concern about the drought conditions in the southern Plains where a number of cattle are often wintered on wheat and other pastures. If the drought continues through the summer and grain prices continue higher, substantial pressure could develop in feeder cattle markets, pushing fall prices sharply lower than current levels, analysts warn.
In addition to future concerns for the market, Vetterkind said last Thursday that in the near-term, demand for feeder cattle is also showing some signs of weakness that could mean a near-term top is in the market.
"With weakness in the futures market that could indicate a pending weakness in the next few weeks’ fed cattle market, cash feeders may start to falter a bit starting next week," he said. "Tight available supplies of feeder cattle would suggest that the cash feeder cattle market doesn’t have to break very hard, but we could certainly see a healthy correction in the market. Talk around the country is that certain large feeding companies have turned a lot less aggressive in their procurement of replacement cattle."
Last week in Oklahoma City, OK, feeder steers and heifers traded steady to $4 higher. Stocker steers and steer calves were reportedly $1-4 lower and stocker heifers and heifer calves sold steady to $2 lower as a result of the fact that demand for cattle bound for grass is starting to take a hit due to the drought conditions plaguing the southern Plains. The prior four-month period is reportedly the driest since the dust-bowl era, a problem which does not show signs of shifting in the near-term. Drought forecasts by the U.S. National Oceanographic and Atmospheric Administration’s Climate Prediction Center indicate the region’s conditions are expected to persist for at least the next three months unless there is a change in weather patterns.
Farther west in La Junta, CO, light steers sold steady last week from $170-182 while heavier classes were $2-4 higher than the prior week from $155-169. Light heifers were $2-3 higher from $160 to $174 while heavier heifer calves sold $2-4 higher from $145 to $158.
In Famoso, CA, last week, stocker steers were called $1 higher while stocker heifers were reportedly steady. Excellent grass conditions across much of the state are contributing to the strong demand and rising prices for stocker cattle this spring. Feeder steers sold as much as $3 higher than the previous week while feeder heifers traded $8 higher with good demand for the heavier weights of feeder steers and heifers, particularly those in the 700-800 lb. class. — WLJ