Fed cattle slip to $108-109

Markets
May 20, 2011
by WLJ

Fed cattle traded sharply lower again last week with trade in the southern Plains reported at $108 live and $172 dressed, prices which were down $4 from the prior week’s sales. In the North, live cattle traded at $109 live and $175-176 dressed, which was $8-9 lower than the prior week levels. Continued liquidation of contract positions by hedge funds and

Continued liquidation of contract positions by hedge funds and weaker-than-expected demand combined to take a toll on fed cattle prices last week. Analyst Troy Vetterkind said last week that although it was too early to call the trend for the week ahead, it appeared there may be some near-term support developing after a steep two-week slide in the market.

"Next week may be a little too early to call, however, there did seem to be a slightly better demand tone to the cash beef market for first of June delivery and we are getting the futures down into some long-term support at $105," said Vetterkind. "Perhaps if we were to see the futures market hold this $105-$106 area and beef prices were to start moving higher next week, we could see some sort of stabilization in the cash fat cattle trade."

Packers have reportedly had difficulty getting asking prices for beef products and have resorted to discounting in an effort to keep volumes up. Last Thursday, at mid-day, Choice boxed beef was $1.82 lower at $175.57 while Select was up 24 cents to trade at $172.64. The discounts, particularly in the end meats, had reportedly spurred some buying interest last week. Movement was moderate with 158 fabricated loads and 48 trim and grind loads trading through mid-day.

Demand for ground beef ahead of the Memorial Day holiday has reportedly been good, which has helped the grind products and cow prices hold steady. Last Thursday, mid-day prices on the 90 percent lean were reported at $197.88, up $1 from a week earlier, while the 50 percent trim was up more than $9 from the prior Thursday at $113.68. The cow beef cutout stood at $159.02, slightly higher than a week earlier.

Vetterkind noted that the market could see some support develop in the week ahead as a result of the coming Cattle on Feed report. Analysts last week estimated that cattle on feed numbers, as of May 1, will rise 6.5 percent from year-earlier levels. Placements during April are predicted to be up 4.3 percent from May 1, 2010. Marketings are predicted to be 3.6 percent lower than last April due to one fewer slaughter days during the month this year.

"The market knows about the larger on feed population and we are waiting for slaughter levels to increase going into June/July. Placements continued to run above year-ago levels during the month of April due to higher year-over-year feeder cattle prices and drought-induced liquidation on southern Plains pastures," Vetterkind noted. "Placements are expected to drop off significantly throughout the last half of this year which will keep a premium structure in deferred-month live cattle futures. We probably have most of this report priced into the futures market, and as mentioned above, wouldn’t doubt we see a rally next week after its release."

The unknown variable in the market equation is how the volatility in the corn market will impact cattle prices. Last week, predictions of a smaller-than-expected crop by some analysts and continued delays in planting across the northern tier and through the Mississippi River valley pushed corn prices sharply higher. The gains in the grain trade may add some support to deferred-month cattle futures and boost late summer cash expectations. However, the same price rise that may help fed cattle prices took a toll on feeder cattle prices last week as feeder contracts traded sharply lower on the spike.

Feeder cattle

The spike in corn prices that pressured futures markets last week also added a negative bias to many auction markets last week. The generally lower trend in fed cattle added to the downward pressure on cash prices in most auctions around the country last week. However, there were some pockets where good price support was noted. Some much-needed rain fell last week across portions of the central Plains. The rain helped improve spirits and grazing prospects in portions of Colorado, Kansas, Nebraska and Oklahoma with rainfall totals reaching more than two inches noted across large portions of the area.

As a result, some auction markets in the affected area reported better prices last week, particularly early week sales which moved cattle prior to the mid-week spike in corn prices which pushed corn back to the mid-$7 per bushel range. For example, in Oklahoma City, OK, feeder steers and heifers traded steady last week. Early demand was called moderate for feeder cattle, improving as the sale went on. Steer calves traded $2-3 higher, while heifer calves were steady with moderate to good demand noted for calves at the sale.

Additional moisture over the past few weeks also boosted some sales at the market in West Plains, MO, although some classes did trade lower. Steers were $3-5 lower at the sale, except for the better quality 600-650 lb. offerings, which sold fully steady with some instances of $1-2 higher. Heifers were called steady to $2 lower with moderate supply reported.

Farther west last week, in Hub City, SD, feeder steers sold $1-2 lower while feeder heifers sold $1 lower with an active market and moderate demand noted. While in La Junta, CO, steers under 700 lbs. traded $2-3 lower last week and heifers under 700 lbs. were called mostly steady with the prior week’s sale. Heavier weights and yearlings were reportedly few in number.

On the West Coast, markets continue to benefit from good prices and excellent grazing conditions. All along the coast, markets have been reporting good demand for cattle suitable for grazing, although even here, prices have been pressured recently by the weaker futures and rising feed costs. For example, in Cottonwood, CA, last week, prices were reportedly $3-5 lower while heifers under 600 lbs. were called fully steady for the better kinds. — WLJ

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