Feds trade lower

Markets
Apr 28, 2011
by WLJ

Cattle prices trended lower last week in very early trade, the bulk of which took place on Monday and Tuesday. Prices in the southern Plains were $2 lower than the prior week at mostly $117 live. In the north, light trade took place at $185-187 dressed basis, with a few reported as high as $189 in Nebraska.

The market was under pressure from the cattle on feed report last week as placements and on feed numbers both came in slightly higher than expected. The large supply of cattle expected to come to market in the later half of the summer created a downdraft on futures markets early in the week, causing a sharp slide in contract prices and added pressure to move cattle early last week. Although contract prices recovered much of their early week losses last week, there continue to be a number of concerns about summer demand in the face of higher energy prices and rising beef prices, market analysts John Michael Riley of Mississippi State University and John D. Anderson, livestock economist for the American Farm Bureau Federation, noted last week.

"With higher fuel prices in the works and as food prices climb, consumers will be forced to make penny-pinching decisions across all spending categories," they said. "Research has shown that retail beef price increases have a greater impact on beef demand than pork or poultry retail price increases have on their demand. So, all else equal, as prices at the meat case go up, consumers are more likely to abandon beef."

The monthly cold storage report indicated that some of that demand destruction may already be underway at the retail level as total beef stocks in freezers were reported at 448.83 million pounds, according to USDA. That total was down just 2 percent from the prior month, however, it was 17 percent higher than the year-earlier figure. Normal March draw downs in beef supply are closer to 4 percent, although some market analysts noted that the 4 percent year-over-year gains in fed cattle marketings may have added to the supply, causing a short-term anomaly.

As a result of the buildup in cold storage supplies and increased production levels, beef prices remain under a degree of pressure. Last Thursday, midday Choice boxed beef prices were reported at $184.45, down slightly from the prior day and more than $3 from a week earlier. Select was trading at $178.03, down from $181.92 a week earlier.

Riley and Anderson also pointed out last week that a buildup of beef supplies isn’t the only concern for cattle producers. Problems with crop progress in the Corn Belt are adding to the pricing pressure in cattle markets.

"National plantings are at 9 percent complete versus a prior five-year average of 23 percent. The dominant players—Illinois, Indiana, Iowa and Nebraska—were 17, 13, 25, and 10 percentage points behind their respective average. Corn stocks and stocks versus use are at extremely low levels causing prices to remain high and volatile," said Riley and Anderson.

The delay in plantings is perhaps too early to create much concern about a decline in acreage or yields, however, it has the market’s attention and the report pushed contract corn prices higher early last week. Even cash corn prices have moved higher in response. Omaha cash corn last week was trading at $5.92 per bushel, up from $5.71 per bushel the prior week, prices which are sharply above prior year levels of $3.73 per bushel for the same date.

The rise in corn prices has also pushed dried distillers grains (DDG) sharply higher, which is creating added cost of gain for feedlots. Last week’s DDG pricing was reported at $181.50 per ton, up from $114.63 per ton for the same week in 2010. As a result, feedlots are beginning to pressure feeder cattle prices lower in some markets, particularly in the southern Plains where there are fewer alternative feed sources, such as grass pasture, available right now to lessen the cost of feeding replacements.

Feeder cattle

The aforementioned pressure on feeder cattle markets was highly evident early last week as feeder cattle cash and contract prices stumbled. Early week sales saw prices fall as much as $3-5 on nearly all classes of cattle. However, prices managed to stage a partial recovery after some profit-taking in the contract markets caused grain prices to retreat at midweek, allowing feeder cattle contracts to recover much of the ground lost in the early-week sell-off.

At midday last Thursday, the spot-month May contract was trading higher at $130.85. In fact, prices were in the green nearly across the board, with the only weakness found in the January 2012 contract. August feeder contracts were up 20 points at mid-session, trading at $135.05 while September was 25 points higher at $136.05. October was up 30 points at $136.40.

Some of the late-week recovery helped later-week cash auction markets last week. Many of the Wednesday and Thursday reports last week showed better results for sellers than those early in the week.

Some increase in the amount of moisture falling in the southern Plains over the past two weeks has also helped ease pricing pressure on feeder cattle as some green grass prospects begin to improve enthusiasm for spring grazing through parts of Colorado, Kansas and Oklahoma. Areas to the south, however, remain very dry and more precipitation in those areas is still needed.

In Joplin, MO, last week, the opposite problem is creating market pressure. Too much rain in the area has caused some widespread flooding, according to market reports. As a result, light runs were reported and participation was limited. At the early week sale, steer and heifer calves and yearlings traded steady to $2 lower on a light test with light supply and moderate demand noted.

In El Reno, OK, last Wednesday, feeder steers sold steady to $3 higher. Feeder heifers were called steady to $2 higher while stocker steers and steer calves traded steady on a light test. Stocker heifers and heifer calves were steady to $3 lower, except those in the 550-650 lb. class, which sold $5-6 higher with good demand on all classes of cattle.

Farther west in La Junta, CO, feeder steers and heifers under 700 lbs. were called mostly steady in a light test while yearling feeder steers traded $2 lower. Meanwhile in Hub City, SD, light feeder cattle sold mostly steady while heavier feeder steers and heifers sold with definite lower undertones, however, an accurate market comparison was difficult due to a light run during the previous week. According to market reports, 900 lb. steers sold $4 lower. Significant precipitation and a lack of spring warmth and drying continues to plague northern-tier producers and last week, many markets, including Hub City, reported a lack of numbers due to problems with shipping. Despite those issues, demand in the North remains good at most markets on the expectation that spring grass isn’t far off now.

On the West Coast, demand remains very strong for feeder and stocker cattle with continued excellent prices being offered as grass is plentiful in nearly all areas and precipitation continues to fall along the coast. In Madera, CA, last week, prices were steady with the prior week’s sale with steers in the 500 lb. class trading from $116-143 while heifermates were in a range of $110-138. Heavier 700 lb. steers sold from $105 to $118; heifers in the same class brought $107-112. Meanwhile at Cottonwood, CA, prices were mostly steady on feeder cattle offerings, except 650-750 lb. steers which sold $2-3 higher on the better kinds. — WLJ

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