Video sale posts excellent prices on strong demand

Markets
Jul 1, 2011
by WLJ

The fed cattle trade last week was slow to get started as packers were looking at the expectation that beef prices were likely to drop after the Fourth of July holiday weekend. That kept the bulk of last week’s trade pending at midday last Thursday as feedlots held cattle back hoping to keep the market moving higher, following the better trade of the previous week.

Most analysts were calling the trend steady to $1-2 lower for the week and the very light early trade appeared to confirm that with some light trade in Nebraska reported at $177 dressed, although volume wasn’t enough to call a trend. The corn supply and demand numbers reported last week added to the bearish tone in the marketplace last week as USDA projected a crop planting number which exceeded pre-report estimates by a significant margin. The drop in corn prices that followed the report added pressure to deferred month cattle futures, pushing most contracts down by triple-digit amounts.

At mid-session last Thursday, the up front months were trading mixed, with July live cattle contracts showing a 77 point gain to trade at $112.50 and the August contract down by a similar amount, trading at $110.87. The back months were sharply lower with a loss of 195 points on the December contract which was trading at $119.82 while the February 2012 contract was down 227 points at $121.05. Analysts caution, however, that the corn market will continue its volatile ways through much of the summer as the market’s attention shifts back to the weather and crop condition reports. It was also noted last week that USDA’s acreage number may still be subject to revision, which could reverse the declines seen last week in both the grain and live cattle markets.

Boxed beef prices last week also appeared likely to top out soon now that the summer holiday buying is complete. Analysts had predicted that July was likely to post some seasonal weakness, pushing prices for both Choice and Select cuts lower. The trade was mixed and light last Thursday with only 119 loads trading through midday. That left Choice product 30 cents higher at $178.73 while Select was down 35 cents, trading at $17.03. However, the choppy trade in beef did little to deter packers from upping production levels last week. For the week through Thursday, production was estimated at 520,000 head, up 4,000 from the same period last week and well above the same period last year when the kill reached 513,000 head.

The increase in slaughter volume will keep a lid on beef prices, particularly as consumer demand begins to drag a little going into the middle of summer, a period which typically sees demand fall. USDA reported that there are significant increases in the amount of red meat being produced from all segments of the industry last week. According to the USDA slaughter report, commercial red meat production for the U.S. totaled 3.91 billion pounds in May, up 5 percent from the 3.73 billion pounds produced in May 2010. For the month, beef production was 2 percent above May 2010 while pork production was up 9 percent. The increase in production in the competing meats is likely to keep beef prices under pressure. U.S. consumers are still feeling economic pressure, which is translating into a reluctance to pay higher prices for protein products. That is coupled with an export market which has cooled off since the first few months of the year. As a result, any upward movement in boxed beef or cattle prices is likely to be short-lived for the near-term. Fortunately, for beef producers, U.S. fuel prices have started falling as oil prices declined in June. That drop should leave a little extra money in the pockets of consumers, money that they may decide to spend on beef if they begin feeling a little better about the economic picture at home.

Feeder cattle

The big Superior Video Auction Week in the Rockies Sale last week was the driving force in the feeder cattle markets. With an estimated 200,000 head of cattle on offer, many market watchers were paying close attention to the details. The preliminary results for the sale looked very good through midweek. Cattle of all types and kinds were finding strong demand and excellent prices at the sale last week. There was big demand for the yearling cattle with some representative lots of 800-825 lb. steers out of the south-central U.S. for July-August delivery commanding an average price of $136.60. Lighter weight 750-775 lb. steers from the same region brought an average of $139.27 on more than 1,000 head. An offering of 574 head of steers in the 625 lb. class brought $162.

There was also excellent demand for lightweight cattle in the same region, according to the preliminary report which showed 1,050 head of 400-420 lb. steers sold from $198-200 for November delivery and 880 head of 550 lb. steers sold at $156.

Cattle from the western states also sold well last week with 1,286 head of 570-590 lb. steers selling for an average of $149.75. Even Mexican-origin feeder steers brought excellent prices. An offering of 700 head of 550 lb. steers for immediate delivery sold at $127.25 average. The drop in corn prices last week was likely to translate into even stronger demand and prices in the coming sales if prices continue on their present course.

The strength in the feeder cattle markets last week wasn’t confined to the video auctions, with many cash feeder cattle sales in the country reporting better prices and good demand. For example, in Oklahoma City, OK, on a big run of more than 12,000 head, feeder steers and heifers sold $1-3 higher. Steer calves closed steady to $2 higher while heifer calves were called mostly $1-3 higher. Demand was reportedly good to very good for all classes on offer.

To the west in La Junta, CO, where dry conditions are beginning to push cattle to town, prices were also on the increase last week. At the sale, lightweight steer calves were called $3-5 higher than the prior week while heavier steer calves were called steady to $3 higher from $140-156 with an extreme top of $162 noted. Light heifers traded $2-4 higher from $130-142 and heavier classes were steady to $3 higher from $125 to $140.

On the West Coast in Galt, CA, last week, the market was also quoted steady to $4 higher on all classes of feeder and stocker cattle. Feeder steers in the 500-600 lb. class sold from $125-141 and heifers in the same range sold at $114-125. Heavier 700-800 lb. steers brought $120-135 while heifers in that same weight class were $107-117.50. — WLJ

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