Fed cattle prices show sign of summer seasonal decline

Markets
Apr 15, 2011
by WLJ

Cash fed cattle trade was under pressure last week with prices expected to move lower than the prior week by perhaps as much as $3-5 when trade finally developed. At midday last Thursday, there was still little significant activity in the markets with packers bidding $117 for live cattle in the South while feedlots in the region were priced in a range of $119-120. Northern dressed trade had also not developed by midday last Thursday with bids of $187-189 being passed by feedlot managers who had their showlists priced in the $190-192 range.

There was some early week pressure placed on cash trade by a large sell-off in commodities that lowered contract prices for live and feeder cattle markets. There were reports that much of the selling was the result of large speculative firms liquidating contract positions. As a result, April live cattle contracts last Thursday were fully $5 below the prior week’s new contract highs. However, analysts noted that the sell-off was probably overdone and contract pricing showed signs of a modest rebound last Thursday with most contracts trading higher at midday. The fundamental picture for the cattle markets remains strong and, although the seasonal highs are likely in, the decline to summer lows isn’t expected to be very sharp.

The reason for the positive expectations was evident last week in the pre-report estimates for April 1, 2011, cattle on feed numbers, which USDA will officially release on April 21. According to the Livestock Marketing Information Center (LMIC), the number of cattle on feed is likely to continue higher than last year, with 4.2 percent more cattle on feed expected by LMIC analysts. However, those numbers are expected to begin declining in the months ahead as feedlots work through their inventory and place fewer cattle through the summer. March placements are expected by LMIC to decline by 1.6 percent from last year’s levels while marketings are predicted to be 3.9 percent higher than March 2010.

LMIC noted that although placements were expected to fall for March, increases were likely to be reported in the southern Plains states where drought has pushed cattle into feedlots early and large numbers of Mexican feeder cattle have also been placed. Outside of that region, placements are generally expected to be lower than year ago levels. LMIC analysts also noted that marketings of fed cattle were very aggressive during March, as has been the case for the first quarter of the year. The result has been a very tight supply of market-ready fed cattle, made even tighter by a decline in Canadian slaughter cattle imports, which has pushed packers to compete more aggressively for cattle, helping to push prices this spring to new record highs.

Export sales, too, have helped push prices this spring. For the first two months of 2011, beef exports in virtually every significant export market showed growth over 2010 levels, U.S. Meat Export Federation (USMEF) officials said last week.

"Exports of U.S. beef in February reached 89,787 metric tons valued at $371.7 million. For the first two months of 2011, those totals are 179,460 metric tons valued at $727.3 million, increases of 24 percent in volume and 45 percent in value. Mexico, South Korea, Canada, the Middle East and Japan are the top five export markets," USMEF officials said. "Mexico leads the way in volume and value, importing 40,542 metric tons valued at $151.6 million, increases of 3 percent in volume and 22 percent in value over last year as this key market continues its rebound from the global economic slump that affected it more profoundly and for a longer period than many nations."

South Korea also was a large buyer of beef during February, a trend which is being assisted by growing acceptance of U.S. beef among consumers who are overcoming their early resistance to renewed exports.

According to USMEF,
South Korea’s beef purchases grew by 121 percent in volume and 142 percent in value for the first two months of 2011, reaching 28,150 metric tons valued at $120.2 million.

"The success we’re seeing in South Korea for U.S. beef is extremely gratifying," said USMEF President and CEO Phil Seng. "It wasn’t that long ago that public sentiment was very unfavorable for U.S. beef. But with the support of checkoff dollars and the USDA Market Access Program, we have devoted significant resources to an aggressive "Trust" imaging campaign—now in its second phase—and proactive partnerships with prominent Korean retailers and foodservice outlets. We’re seeing the fruits of those efforts."

Japan has also been a large buyer of U.S. beef despite continued age under 20 months restrictions on imports. According to USMEF, sales to Japan since the first of the year are up 75 percent in volume and 81 percent in value to 20,359 metric tons valued $106.2 million. As the country resolves its infrastructure problems and looks to rebuild cold storage inventories, that number could rise sharply later this year, adding more support to prices.

Feeder cattle

Feeder cattle markets in most parts of the country were under pressure last week as live cattle markets looked to move lower in the near-term. Feeder cattle numbers are also starting to show seasonal declines in the central states as most spring marketings have been shipped. Elsewhere, on the West Coast, most cattle producers are enjoying the best grazing season of the past several years as ample moisture has broken the drought, allowing cattle to remain on pasture longer. In those areas, runs through auction markets remain light and demand for cattle suitable for grazing has been excellent as buyers look to take advantage of conditions. The result has been very strong pricing for the past several months. Producers reportedly expect to be able to graze well into June, if not longer. The result will be big demand and light availability this spring in areas where grass is available, pushing prices higher. It will also translate into higher placement weights when those cattle eventually come off grass later this year.

Last week in Oklahoma City, OK, feeder steers were called $3-5 lower while feeder heifers were $2-5 lower. Steer and heifer calves traded $2-4 lower on a light test. Dry conditions continue to plague central and western Oklahoma. This and high corn prices continue to take their toll on the lighter weight cattle, according to market reports. As a result, demand was said to be good for those feeder cattle on offer and moderate at best for stockers and calves.

Farther west in La Junta, CO, last week, light and heavy steer offerings were called $3-5 lower on light supply while heifers sold $3-5 lower on the lighter offerings and $2-3 lower on heavier classes.

In Galt, CA, all classes of feeder and stocker cattle on offer sold steady with the previous week. Steers in the 400-500 lb. class brought a range of $155-175 while heifers of similar type and kind brought $145-165. Heavier steer offerings in the 600-700 lb. range sold from $130-145 while heifers in the same class sold from $125 to $145. — WLJ

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