Early fed cattle trade reported $1-2 higher

Markets
Jun 24, 2011
by WLJ

A see-saw week in the fed cattle markets pushed off the bulk of trade last week until very late, with the majority of the action looking to be postponed until Friday. The early light sales in the Corn Belt and Nebraska were reported at $178-180 dressed while some live cattle trades were reported at $110-111 at midday last Thursday. Those prices were steady to $2 higher on the dressed cattle and $1-2 higher on the live cattle than the prior week’s action.

The majority of live cattle trade was expected to occur in a range of $110-111 when it was fully developed last week while the dressed trading range was expected to stay within the range established in the early week trade.

Fed cattle prices were supported by an early week rally in the commodity markets last week. The futures markets surged ahead early in the week, bolstered by the positive news in USDA’s cattle on feed report and a sell-off in the corn markets. At the same time, boxed beef prices moved higher for much of the week on wholesale buying as retailers stocked up ahead of the Fourth of July holiday ahead. The buying activity, while still moderate in terms of volume, came on rising prices, a positive sign for the markets. Choice boxed beef last Thursday moved 53 cents higher during morning trade, pushing the price to $178.50 while Select added 63 cents to hit $173.64.

Derrell Peel, Oklahoma State University Extension livestock marketing specialist, said last week that the market reacted positively last week in large part because of the Cattle on Feed report which showed that availability of fed cattle is likely to be limited later in the second half of the year as a result of shrinking placements and a positive trend in marketings during May.

"Have we seen the summer low in fed cattle prices?" he asked. "It is possible, but the fed market may challenge the previous lows again in the next month, at least briefly. Previous placements ensure that seasonal fed cattle supplies will be ample through July and into August."

He said the key will be consumer demand, which will be reflected in boxed beef prices. "If boxed beef prices hold at current levels or move higher, any challenge to fed cattle prices should not be too severe or long lived. From the unexpectedly strong fed prices at the current time, another test of the fed market might hold close to the $105/cwt. level," said Peel. "If boxed beef prices weaken, pressure will increase to push fed prices lower."

He said the uncertainty in the fed cattle markets is tied to the seasonal influences of supply pressure relative to demand, a factor which will influence the markets for the next two months.

"Beyond that, the supply fundamentals will increasingly dominate through the remainder of the year. Feedlot placements are expected to remain below year ago levels for the rest of the year and feedlot inventories will drop from the June 1 level of 104 percent of last year to below year ago levels by August or September and remain lower for the balance of 2011," said Peel.

He said that by the fourth quarter of this year, beef production is expected to fall by 5 percent or more from last year’s levels, which will offset the higher beef production during the first six months of 2011.

"Annual beef production is expected to be down roughly 0.5 percent year over year with all the decrease coming in the fourth quarter of the year," said Peel. "Fed cattle prices in the fourth quarter may not exceed the spike highs of last spring, but the average quarterly price is expected to equal or exceed the second quarter price."

Feeder cattle

The same factors swinging the fed cattle market around are also causing volatility in the feeder cattle markets. Although the fed cattle market may have not yet notched its summer low, analysts are saying that the low may be in the feeder cattle market, just ahead of the start of the summer video sale season. Feeder cattle contracts on the CME last week were moving higher with some expectations that the deferred month contracts may look to challenge their all-time highs in the near future. At midday last Thursday, feeder cattle futures were mostly lower, trading under pressure from outside markets which were hammered hard late last week by global pressures. The August contract was 37 points lower at $137.62 while September was down 22 points, trading at $138.17. October fell 47 points to hit $138.42 and November was down 77 points, trading at $138.62. The decline came despite corn prices which have fallen sharply from nearby highs.

Last week, auction markets reported mostly steady to higher prices across the board. For example, in Oklahoma City, OK, feeder steers and heifers traded $6-10 higher while steer and heifer calves were called steady. Demand was reportedly extremely good for all classes of cattle on offer.

Meanwhile, farther west in La Junta, CO, light steer calves were steady from $145-160 while heavier classes sold $5-10 higher from $140 to $159. Lightweight heifer calves traded steady from $130 to $140 and heavier heifers sold steady from $115 to $125.

On the West Coast in Cottonwood, CA, prices last week improved by $3 to $10 with the general market rally. Feeder steers in the 450-500 lb. class brought a range of $125-139 while heavier 600-650 lb. offerings brought $114-128.50. Heifers in the 500-550 lb. class sold from $112 to $121 while heavier heifer classes brought a range of $105-118 on the 600-700 lb. cattle. — WLJ

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