Markets trade steady after good holiday sales
Fed cattle traded steady last week after a hard sell-off in the futures markets pushed cattle feeders to the table to sell cattle last Wednesday. Live cattle in the southern Plains traded mostly steady to slightly firmer than the prior week at $104 while northern cattle feeders sold live cattle at $106-107 and dressed cattle in a range of $170-171.
The sharp decline in contract trade last Wednesday came as a result that flooding may impact operations at Tyson’s plant in Dakota City, NE. After a company spokesman dismissed those concerns, prices managed to recover from the day’s lows, but the sharply lower contract market was still enough to draw hedged cattle into packer inventories. For their part, packers have seen their margins improve sharply over the past few weeks as cash prices have declined. According to HedgersEdge.com, margins last Thursday exceeded $100 per head processed, which should serve to keep slaughter volume high and the inventory of market-ready cattle manageable for the time being.
Weekend clearance levels last week were better than many had expected ahead of the holiday as consumers returned to the meat case to buy beef. There are reports that despite inexpensive competing proteins, consumers are starting to show signs of fatigue and are returning to beef cuts, despite the higher relative price. If that continues to hold true and if the weather shifts for the better, it would help bolster beef prices into the summer. Wholesale movement last week through midweek was moderate, with prices continuing to show signs of stability for both Choice and Select product. At midday last Thursday, the Choice product was 16 cents lower than the prior day at $178.08 while Select was 25 cents higher at $172.98.
Market analyst Troy Vetterkind of Vetterkind Cattle Brokerage said last week that there were some signs of improvement in the middle meats ahead of Father’s Day, which is a traditional beef grilling holiday. He also noted improvement in the clearance of short ribs, a sign that export markets may also be picking up after a short lull.
"I still contend that the boxed beef market could see some increased business for the next couple of weeks and I think this could be mildly supportive to prices going into the middle of June," said Vetterkind.
Despite that improvement in the market picture, Vetterkind said he believes the summer low is still ahead of the market. The result is likely to be continued volatility as the hedge fund money ebbs and lows in the market as it did last week. The midweek sell off in the contract trade appeared to be largely tied to fund money liquidating contract positions, a trend that has created some significant swings in recent weeks.
Last Thursday at midday on the Chicago Mercantile Exchange (CME), contracts were narrowly mixed, with the upfront month recovering some of the prior day’s losses. The June contract was 75 points higher at $102.90 while August was trading five points lower at $103.87 and October was off 12 points at $109.92. It has been noted that the fall premiums could cause some cattle to stack up in feed yards toward the end of the summer, which may create a backlog of cattle and limit upside price potential. Whether this happens will largely be a function of back-end demand from wholesale and export markets and the overall supply of cattle ready for market. The most recent cattle on feed report indicates there may be a need for some caution later in the summer as the large number of recent heavyweight placements come to the market.
Feeder cattle markets also recovered some of the prior week’s losses last week. Many large markets were closed due to the holiday, which generally lightened runs in other markets held later in the week. The result was a limited number of cattle on offer, which likely accounted for some of the advance in prices. Corn prices, which have added to the volatility in the market, surged higher again last week as concerns over late plantings begin to transform into indications that some producers will take prevented planting insurance payments in lieu of putting in a crop this year. Decision time for acreage switches is rapidly approaching in most areas and last week, analysts noted that the market could see as much as 5 million acres of corn ground switched to soybeans or left idle as a result of heavy Midwest precipitation this spring.
USDA’s weekly crop progress report showed farmers are well behind the normal pace of planting, with just 86 percent of the crop in the ground. The five-year average is 95 percent planted for the same date. However, that number doesn’t fully illustrate how dire the situation is in some critical corn growing states. In Ohio, corn fields were just 19 percent planted, compared to a five-year average of 93 percent complete. Farmers in Wisconsin are 12 percent behind the five-year average of 92 percent complete. In Indiana, planting was just 59 percent complete last week, well off the five-year average figure of 92 percent.
Analysts said last week that the pace of planting indicates that some significant corn acreage is going to be lost this year, leaving production at levels that could be far short of expectations. Even if corn planting continues, yields are likely to be affected in some very important growing areas, adding to supply concerns and summer price volatility. Last Thursday, those concerns were adding to recent gains in contract corn prices on the CME; the July contract had added 5 cents per bushel at midday to reach $7.64 per bushel. The December new crop contract price rose 11 cents during the morning to hit $6.90 per bushel.
Hay prices are also starting to be a concern for producers. A limited supply of hay in storage and a cold, wet start to the spring growing season has already helped to push prices higher this year. Delays in harvest for some growers, particularly on the West Coast, have created concerns about tight hay supplies during the winter ahead. Already, that has caused a price spike in alfalfa hay prices, which have increased 53 percent since December 2010, hitting a new high of $186 per ton in May, according to USDA’s National Agricultural Statistics Service.
However, despite those gains, the limited feeder cattle supply picture managed to override feed price concerns in some classes of cattle last week. For example, in West Plains, MO, steers under 600 lbs. sold $2-5 lower while those over 600 lbs. traded steady to $2 lower in a light test of the market. However, heifers were called steady to $2 higher, with some spots of $3-5 higher on offerings of 350-550 lb. females.
Meanwhile in El Reno, OK, feeder steers were called steady to $3 lower last week. Feeder heifers sold steady to $4 lower. Steer calves sold steady compared to a light test the prior week while heifer calves were called steady to $2 higher than the previous week’s action, with good demand noted for all classes. Farther west in Hub City, SD, prices were called steady on a quality run of feeder cattle, with good demand noted at the sale as grass is beginning to come on strong across the northern Plains.
On the West Coast in Cottonwood, CA, at the special Tehama County Cattlemen’s sale, prices for calves were called mostly steady while heifer calves were reportedly $2-5 lower. Yearling cattle offerings over 750 lbs. traded $3-7 lower than the previous week. — WLJ