Feeder cattle find better prices as corn slides

Markets
Jul 8, 2011
by WLJ

Feeder cattle find better prices as corn slides

There are still expectations that beef demand going into the later half of July will weaken and that has the market reacting cautiously to any upside price advances. The full production week ahead should refill any beef supplies that moved through the pipeline prior to the Fourth of July holiday and domestic sales were about in line with expectations, meaning there are ample supplies of beef available given current domestic demand.

The lack of large movements of beef in the domestic market was also limiting upward price movement in boxed beef prices, which are at their highest level in nearly a month. Last Thursday, midday Choice boxed beef was trading 69 cents higher at $180.07 while Select product was up 54 cents at $174.47 on light to moderate movement.

According to Vetterkind Cattle Brokerage analyst Troy Vetterkind, the markets could see some increased buying interest in the coming weeks which could help support the market through the end of July, a period of time which has been pegged by analysts as a time when we could see the summer low set. Vetterkind said last week that there was some export market activity, with particular interest in chuck and round items, which served to help boost prices at midweek.

"The concern is how well beef will move next week and the week after, and time will tell how that plays out," said Vetterkind. However, he noted that the market is likely to remain choppy for the next few weeks.

The export markets continue to perform well, providing added support to U.S. cattle prices. According to USDA, through April, the latest data available, beef exports are running well ahead of last year’s pace, and although sales have slowed somewhat in recent months, foreign sales remain a market highlight. According to USDA’s numbers, sales to Japan and South Korea have shown dramatic increases this year. Through April, exports to Japan were up 66 percent from a year earlier, reaching 44,370 metric tons. Sales to South Korea rose 150 percent to reach 65,753 metric tons.

Only two markets were showing a decline in sales for the first four months of the year. Exports to Russia were down 1.3 percent, falling from 18,970 metric tons in 2010 to 18,733 metric tons for the first four months of 2011. Taiwan shipments also declined slightly, falling 11 percent from 11,532 metric tons to 10,251 metric tons, according to USDA data. Overall, U.S. exports rose 30 percent above last year’s levels, reaching a total tally of 399,754 metric tons.

As another upside, Vetterkind reported that cull cow markets have been moving higher recently, adding to the support that is already in the market as a result of the strong consumer demand for cow beef products. He noted that southern markets were particularly strong last week as packers were running short on inventory.

The demand for cow beef and grind product has supported the market at very good levels. The normal seasonal shortage of cows has also provided a boost to prices. Last week, most auction markets were reporting cull cow prices in the mid to high $70s. Cull bull prices were also strong with prices as high as $97 being reported at Lexington, KY. That was translating into excellent prices for cow beef with the 90 percent lean product trading at $185.47 while the 50 percent trim reached $88.05. Those prices were $12 higher than the same week last year, an indicator of the strong demand in retail markets and the light supply available to packers.

Feeder cattle

Although many early week feeder cattle auctions were dark due to the Independence Day holiday last Monday, those that were open later in the week reported prices which were mostly $2-4 higher across the board.

"Demand for feeder cattle remains robust given lower feed grain costs and the premium structure of deferred live cattle futures," said Vetterkind last week.

Corn prices have been a significant determining factor in feeder cattle markets and following USDA’s surprise supply and demand report two weeks earlier, grain prices have been trading mostly lower. Last Thursday, midday July corn futures were trading at $6.52 per bushel while new crop December contracts were up 7 cents per bushel at $6.15, both well below their recent highs closer to $8 per bushel. The decline in corn prices has helped to rally feeder cattle prices as buyers begin to focus, once again, on the short supply available this fall, rather than what it will cost to feed those cattle through the winter.

Last week, that focus helped to push prices $1-3 higher on feeder steers in El Reno, OK. Feeder heifers were trading $3-5 higher while steer and heifer calves were said to be steady to $3 higher. Dry conditions continue in the southern Plains, forcing some cattle to market early, but buyers have not been deterred and those cattle are finding very strong demand from buyers.

Farther to the west in La Junta, CO, light steer calves sold $3-5 higher last week in a range of $155-170 while heavier steers were steady from $140 to $161. Light heifer calves were called steady from $135 to $152 while heavier heifers brought a range of $125 to $139, steady with the previous week.

The strength continued in West Coast markets last week with Vale, OR, reporting strong demand for the light offering of feeder cattle. Steer calves in the 500-600 lb. class sold from $130 to $155 while heifermates brought a range of $116 to $130. Yearling steers in the 700-800 lb. category sold from $109-121 while heifers in the same class brought $104-117. — WLJ

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