Feedlot, cow/calf sectors in the driver’s seat

Markets
May 13, 2011
by WLJ

Light fed cattle trade had developed by midday last Thursday with reports of $112 live trade in Kansas, with Texas and Oklahoma feed yards expected to follow at similar prices. Dressed trade in the North was also light with an expected range of $181-185 when full trade finally developed last week. Prices for the week were $3-4 lower than the prior week’s action in the live markets and $1-3 lower on dressed trades.

The boxed beef cutout values were also slipping last week, although buyers appear to be reaching price levels that they find attractive as sale volumes reached good levels at midweek with 437 loads trading last Wednesday. Midday Thursday, Choice boxed beef prices fell $1.25 from the previous day’s levels to reach $175.74 while Select was down just 19 cents at $170.79, with 189 loads of product trading during the morning session.

Packers are becoming more cautious in their pursuit of cattle and prices are slipping back from their early-spring highs as a result of that caution. Livestock Marketing Information Center Director Jim Robb reports that margins for the packing sector haven’t seen much seasonal strength and, as a result, packers are beginning to lower their offers in recent transactions.

"Typically, packers see losses in January, February and March before things start to improve in April and May, but we haven’t seen that yet this year and it has created a bit of a margin squeeze for them," Robb said. "Although cattle feeders are feeling pretty good right now. As current as they are, they can back away from the markets at anytime if they don’t like the price and they will still be just fine."

Robb says that cattle feeding margins through the spring have been very good, far better than many analysts had predicted, which has left the industry in a good position to ride out small market downturns for the near-term.

"We’re seeing that feedlots that were able to lock in their corn prices early have been able to turn profits about $50 per head higher than what many of us forecast this spring," said Robb. "On top of that, there are still some good premiums in the market for age- and source-verified cattle right now, which is adding to their margins."

However, Robb said there could be some near-term volatility in the marketplace, particularly as the cattle on feed report approaches later this month.

"We’re starting to see some of the pre-report estimates trickle out and those numbers are going to cause some skittishness in the market," he said. "We’re expecting to see a double-digit increase in year-over-year placement numbers. In the southern Plains, we could see placements increase as much as 20 percent over last year’s figure."

He noted that the most important numbers will be found in the placement weight spreads. If the increase in placements is confined to just lightweight cattle, then the large jump shouldn’t pose much of a problem for the market as cattle feeders will be better able to handle the increase in supply from late summer into fall. However, if the placement increase is concentrated on the heavier side of the scale, it could result in a large number of cattle coming onto the market at the same time later this year, resulting in an oversupply situation which could pressure prices lower later in the year.

"The placement figures will be important to watch later this month, but even more important will be how heavy these cattle were when they were put on feed," said Robb.

He also noted that with the strong calf prices thus far in 2011, there has been an increase in the number of Holstein steers being placed on feed, which has resulted in much of the increase in placements in the Northwest and other traditional dairy feeding areas.

"We’ve seen veal slaughter numbers fall sharply and that’s because the majority of those animals are making their way to feed yards in places like Washington, Idaho, California and even Arizona, which has also had an impact on how feed yards have performed so far this year."

Feeder cattle

Robb said that extremely good feeding conditions over the winter have also been a boon to cattle feeders, with many reporting their best results in years, which has helped move the feeder cattle markets higher.

"We’ve seen many feedlots with average daily gains in the 4.5-5 lb. range over the winter, with reports of 6-6.5 conversions not being uncommon. Now, some of that’s due to better quality cattle and some of it is due to an improvement in the quality of corn that’s been fed this winter, but it’s also due to the fact that we’re managing cattle better," said Robb.

The end result is that feedlots are feeling pretty good right now and they have money on hand to chase replacement feeder cattle right now, said Robb.

Although supplies of available feeder cattle remain tight, there are clearly still cattle out there, however, he said some feed yard managers are becoming concerned about summer supplies of feeder cattle. Numbers in most areas are beginning to dwindle and the number of feeder cattle coming in from Mexico is also slowing.

"There are still cattle out there that can be placed, but some feedlots are beginning to look at where the next set of replacements are coming from and there just aren’t a lot of them out there," said Robb.

In fact, supplies of feeder cattle are expected to remain tight right through the fall marketing season.

"We’re already hearing reports from some reputation outfits that they were seeing interest as early as April for fall calves," said Robb. "Now, those are reputation outfits, but there are a lot of years that we worry about whether we will see interest in contracting fall cattle in June, but this year it came in April, so that’s clearly an indicator of what the supply picture is this year."

The current limited supply picture continued to translate into strong prices in many markets last week, particularly in portions of Colorado, Kansas, Nebraska and elsewhere, which received some much needed moisture. A large storm rolled through the central states last week and brought enough precipitation to the region to help boost grazing prospects which, just a week earlier, were looking grim. Prices in those markets showed improvement last week as a result.

In El Reno, OK, feeder steers traded $1-3 higher last Wednesday, although feeder heifers sold steady to $2 lower. Steer calves and stockers were steady to $4 lower while heifers were $2-4 lower on a very light test.

In Dodge City, KS, on a light run of cattle, steers in the 700-800 lb. class sold steady while heavier 800-900 lb. offerings were weak to $2 lower and 900-950 lb. cattle were firm to $1 higher. Lighter weight classes were too few in number to offer a market comparison last week although a steady undertone was reported.

Meanwhile on the coast at Cottonwood, CA, sales of cattle under 700 lbs. were called steady with the prior week while those over 700 lbs. traded $2-5 lower. In Famoso, CA, stocker steers were steady while stocker heifers sold $2 lower. Feeder steers were called $2 higher while heifermates traded $2 lower than the previous week’s action, although big demand and continued near-record-high prices were noted. — WLJ

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