Fed cattle prices continue slide

Markets
May 27, 2011
by WLJ

—Holiday weekend sales will be a significant factor in market direction.

Fed cattle prices slipped further last week with trade in the southern Plains reported at $104, with some instances of $104.25, down mostly $4 from the previous week. Dressed sales in the south came at $165, down as much as $7 from the week before. In Nebraska and the Corn Belt feeding areas, fed cattle prices were also sharply lower last week. In Nebraska, live sales came at $105-106 last Tuesday while Corn Belt live sales were reported at $105-107 and dressed trade occurred in a range of $168-170, with some instances of $172.

The lower prices being paid for fed cattle last week served to boost packer margins to levels in the neighborhood of $80 per processed head. The margins, which had been under pressure until recently, should help stabilize the cattle market in the week ahead, analysts noted. However, the trend in cattle prices will be difficult to determine until Memorial Day sales have been assessed. Where beef prices go from here, in the short-term, may depend heavily on the holiday weekend weather. If major urban areas, particularly on the East Coast, experience weather that is conducive to outdoor grilling, clearance levels should improve, paving the way for steady to higher fed cattle prices over the next couple of weeks. On the other hand, analysts said that weather which hampers holiday beef sales could have the opposite effect on the market.

Late last week, there were some positive signs that sales ahead could be supported. The boxed beef cutout prices, which had been slowly declining, posted a reversal and for the week through last Thursday, were higher on larger volume levels. At midday last Thursday, Choice boxed beef cutout values were down slightly from the previous day at $178.93 at midmorning, however, prices were more than $3 higher than the prior Thursday. Select also posted gains, reaching $173.10, up slightly from the prior week.

However, despite the improvement in margins and boxed beef sales, slaughter volumes have been somewhat disappointing in recent weeks. In order to prevent a backlog of cattle later in the year, which will restrict upside price potential, harvest volume needs to begin improving soon. The week through last Thursday was estimated at 515,000, an improvement from the 512,000 head posted for the same period a week earlier, but it was still below even the lackluster tally of 517,000 posted during the same period the prior year.

With packer margins improving, boxed beef values stabilizing, and domestic volume showing signs of improvement, there is some expectation that fed cattle prices could stabilize at current levels, however, analysts still expect the summer low to come sometime in July. However, the U.S. dollar value will play a key roll in determining where that low will be set.

In recent weeks, as more turmoil in European markets came to the forefront, the value of the U.S. dollar, which is seen as a stable bet by investors, has been rising, contrary to expectations. The rise in the dollar value has cut into exports in recent weeks, slowing the sale of beef overseas during that period. If the downtrend in the dollar resumes or other factors intervene to help boost beef sales to foreign markets, it would help reverse the slide in fed cattle prices.

Last Thursday, USDA reported export numbers which showed that the slowing in export sales may be reversing. For the week, sales of beef reached 21,100 metric tons. Mexico came to the table as the largest buyer, with purchases of 7,100 metric tons. South Korea, which has been a very important market for the U.S. this year, was a distant second, with purchases of 4,100 metric tons. Japan was third, with sales of 2,700 metric tons. A return to the robust sales levels posted earlier this year could quickly reverse the current price slide, a trend which could potentially move the market ahead from current levels.

Feeder cattle

Feeder cattle markets last week were widely mixed, with some markets trading steady to slightly higher. Others, in response to a bearish cattle on feed report from the prior week and higher corn prices, slipped sharply lower.

The widespread storms that pummeled the central U.S. last week left devastation in their wake and in some markets, the effect was felt in feeder cattle demand as attention shifted to other necessities. However, there was some beneficial and much needed rain in areas hit by the storms. In those areas, demand could be expected to return as grazing prospects improve.

The larger question in the minds of analysts last week was how long the continued high placement levels can continue. Given that the industry is pulling cattle from the smallest calf crop in more than 50 years, it seems that there will be some kind of hole in the supply ahead. The growth in placements of lightweight cattle last month appears to indicate the current placements may be borrowing from futures supplies, a fact which will further limit the downside price potential later this year while also limiting the chances that market-ready fed cattle will stack up in feedlots.

Demand for cattle bound for grazing this summer remains strong, even in parts of the country where grass is currently in short supply. A large number of cattle purchased in those areas are being shipped north and west, where forage is more plentiful. The availability of grass this summer in those areas has been a key to the strength in feeder cattle markets nationwide, despite the fact that corn prices are double year-ago levels.

Last week, continued delays in planting helped boost corn prices further, which likely translated into the weakness already evident in some markets. At midday last Thursday, current month July corn contracts on the Chicago Mercantile Exchange (CME) were moving higher again, reaching $7.48 per bushel. Meanwhile, the December contract was also showing strength, rising 8 cents to hit $6.78 per bushel. The rising CME corn prices translated into some lower feeder cattle contract trade. The sole exception came on the current month May contract which traded 27 points higher at $124.95. The remaining contracts were lower across the board. The August feeder cattle contract fell $1.40 to hit $123.12 while September was down $1.30 at $124.25 and October moved $1.50 lower to settle at $124.85.

In cash auction market trade in Oklahoma City, OK, feeder cattle sold $5-10 lower while stocker cattle and calves were called $5-8 lower with moderate to light demand on all classes of cattle. Numbers have started to fall as the late run of wheat cattle has mostly ended. Last week’s run was reported at just 6,049 head, down from 8,311 the prior week and 11,266 the same week last year, according to market reports.

Farther to the west in La Junta, CO, on a light market test, steers and heifers under 700 lbs. traded $1-2 higher while yearling feeder cattle were too lightly represented for an adequate market test.

On the West Coast, markets remain strong, although the lower fed cattle market took a toll there, too. In Famoso, CA, stocker and feeder cattle, while still in demand, fell back from their recent highs last week. Stocker steers were called $2-4 lower while stocker heifers traded steady. Feeder steers sold $2-4 lower than the previous week’s sale and feeder heifers were reported $3 behind the prior week. — WLJ

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