Fed market moves $2-3 higher

Markets
Jun 16, 2011
by WLJ

Fed cattle trade was developing last Thursday in a full range of $107-109 live in the southern Plains. Northern trade, where volumes were still on the light side, was reported at $178 dressed at midday last Thursday. Those prices were $2-3 higher on the live cattle and dressed trade was $3 above the prior week’s levels.

Packers were continuing their trend of positive margins last week and there was talk of increasing production levels, which continue to lag behind expectations, at least in part due to lower supplies of market-ready fed cattle. However, lower consumer demand is also playing a role as consumers remain very price conscious. Last week, that price-driven mentality pushed boxed beef prices lower on Wednesday only to see them bounce back on Thursday during the morning trade. At midday, USDA reported Choice product was 37 cents higher at $172.31 while Select regained $1.06 to trade at $167.07.

Fortunately, the lower prices have helped to spark an improvement in movement into retail and export channels. The lower prices last Wednesday spurred beef buyers into action and the load count for the day hit an excellent level of 433 loads, which could help push retailers to feature beef for the Fourth of July holiday, which is traditionally a hamburger and hot dog grilling event.

Slaughter volume was expected to reach 680,000 head last week, an improvement from recent week tallies and well above the same week last year which hit 661,000 head. Analysts have noted that slaughter totals need to continue strong through the summer if the industry hopes to avoid a wall of cattle in the late-summer, early-fall marketing period.

The lower prices are also helping to draw foreign buyers back to the U.S. beef market despite a rising U.S. dollar value. There has been a lull in export sales for the past several weeks after what was a very solid market in the late-winter, early-spring period. Sales declined from their red-hot levels in April, but last week, sales tallies, reported by USDA, rose sharply. For the week of June 3-9, USDA reported that net sales reached 15,800 metric tons with Japan coming into the market as the largest buyer with purchases of 4,700 metric tons. Canada was second, buying 3,800 metric tons and South Korea, which has dropped down the rankings recently, was the third-largest foreign buyer of U.S. beef for the week with 2,100 metric tons purchased.

The rising dollar and a sell-off in oil markets last week pushed corn prices sharply lower through much of the week. Last Thursday, the July corn contract was down an additional 18 cents per bushel from the previous week, falling to $7.07 per bushel on the upfront contract. That price was down from $7.84 just a week earlier. The drop in corn prices helped to cheer the cattle markets, which had been under pressure after corn prices jumped in recent weeks as the planting season continued longer than hoped.

Feeder cattle

Feeder cattle markets were one of the biggest beneficiaries of the drop in corn prices last week. Troy Vetterkind, analyst with Vetterkind Cattle Brokerage, noted last week that the improvement in feeder cattle was particularly good in the northern Plains markets.

"The north has a bit more pen space right now as opposed to the southern Plains feed yards," he explained. "Yearling supplies of feeder cattle remain tight and will likely remain that way for another 30-45 days until we start to see cattle move off summer pasture in the northern Plains."

As a result, prices for heavyweight and yearling cattle remain strong in all markets. The first big summer video auction of the season, Superior Livestock’s Corn Belt Classic, also saw excellent prices this month. The auction of more than 60,000 head saw prices rise $2-4 over the most recent Superior Video offering of yearling steers while yearling heifers rose $2. For example, an offering of 475 lb. steers for October delivery from a Kansas consignor brought a price of $148. A lot of 580 lb. steers from Oklahoma for September delivery sold at $152 while an offering of 635 lb. steers for June delivery from a Texas ranch brought a price of $145. Heavier offerings also sold well. An offering of 785 lb. steers from an Oklahoma consignor for August delivery brought $129.

The cash auction markets last week were seasonally light in most areas of the country, but even there, the fall in corn prices helped to push prices higher. In El Reno, OK, last week, prices were mixed, but it was noted that the trend was difficult to call due to the variance in weights from prior sales. However, it was reported that demand was good for all classes. At the sale, feeder steers sold steady to $2 lower while feeder heifers were called steady to $2 higher. Steer and heifer calves were steady to $3 lower compared to a light test the prior week.

Farther west in La Junta, CO, prices last week were reportedly steady to $1 higher in a light test of the market. Yearling cattle were called steady.

In California at the sale in Cottonwood, prices were called $5-10 lower due to the warmer weather and the increase in the number of calves coming off their cows. Yearlings over 700 lbs. were reportedly steady to $3 lower than the prior week’s levels. — WLJ

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