Expected weakness ahead caps fed market

Jul 15, 2011
by WLJ

Fed cattle trade was slow to get started last week with feedlots holding off on packer bids, hoping to keep the market steady despite the hot weather settling into much of the country. Packers, on the other hand, were hoping to push prices lower as a result of expected weakness in the beef markets in the weeks ahead. There was only light trade in the western Corn Belt reported through midday last Thursday with a few loads of dressed cattle changing hands in Iowa at $183. There was no live trade reported, however, it was expected to come at prices which were steady to $1-2 lower than the prior week when it finally developed.

Boxed beef prices managed to work their way higher last week on some strength in the near-term markets, however, according to analyst Troy Vetterkind of Vetterkind Cattle Brokerage, forward sales were a little soft, adding to packer concerns about the direction of the market through the end of the month.

"Near-term beef business has been good in both domestic and export channels, however, forward sales have dropped off," he noted last week. "There continues to be talk of curtailing slaughter schedules late this week and next week, however, short-bought packers should start to get a little more serious about covering near-term kill needs."

That near-term demand for beef helped to push the Choice boxed beef cutout to $182.04 at midday last Thursday, an increase of more than $3 from the prior week. Select also added $3 to reach $177.15 although volume, as reported by USDA, was light, with just 105 loads moving during the morning trading session.

Export markets have been a key factor to the strength in U.S. cattle and beef prices for several years and that strength continued in May with USDA reporting last week that for the month, sales reached 234.8 million pounds, up more than 15 percent from May 2010 levels.

"In the first five months of the year, U.S. beef exports reached 1.1 billion pounds, 232.5 million pounds or 27 percent higher than the comparable period a year ago," noted Chicago Mercantile Exchange analysts Steve Meyer and Len Steiner last week. "The latest WASDE (World Agricultural Supply and Demand Report) raised the estimate for U.S. beef exports in 2011 to 2.613 billion pounds and we suspect that forecast will be raised again in the coming months on strong beef demand from Asian and North American markets."

They reported that the increase was 314 million pounds more than in 2010.

"While beef exports to Korea declined 10 percent in May, U.S. beef shipments to Japan remain very strong and at 43.9 million pounds, they were 50.4 percent higher than a year ago and the largest monthly volume to this market since December 2003," said Meyer and Steiner. "Japanese demand has been very firm following the tsunami and nuclear disaster due to domestic supply disruptions, a reduction in seafood consumption, as well as a weak U.S. dollar versus the Japanese yen. Currently, the Japanese Yen is up 16 percent in value compared to May 2010. The growth in Japanese beef exports accounted for almost half of the overall increase in U.S. beef exports in May."

They also reported that exports to Canada during the month were up 23 percent from May 2010.

"Beef exports to Canada were up 23 percent from a year ago while shipments to smaller markets rose 21 percent," said the pair. "Exports to Mexico remain steady while exports to South Korea have been declining after a torrid pace earlier in the year as suppliers rushed to build inventories after the foot-and-mouth disease outbreak."

Strong demand from the export markets isn’t the only strength in the market. There remains good demand for ground beef and cow beef from the retail segments. The result has been a very good market for cull cows, particularly in the northern Plains markets where cows are trading as high as $75 in some markets. In the southern Plains, where herds are being liquidated at a rapid pace due to ongoing drought and a shortage of feed, prices were slightly weaker due to the larger supply. In Amarillo, TX, last week, cutter/canner prices were reported in a range of $56 to $63.

Feeder cattle

The strength of feeder cattle demand was on display at yet another video sale last week. Western Video Market’s sale, broadcast from Reno, NV, brought outstanding results and good prices for sellers on all classes of cattle, with good demand reported throughout the three-day sale. Heavy offerings of feeder cattle saw strong prices with 235 steers in the 885 lb. class for August delivery bringing an average price of $142. Lighter weight classes, also from the northcentral region, also brought excellent prices. An offering of 616 head of steers in the 600-630 lb. class brought an average of $146.98 while heifers in the 600-645 lb. class sold from $134.50 to $148.

Offerings from western states also fared well with 333 head of age- and source-verified steers in the 720-740 lb. range selling from $135 to $147.50. A sampling of 900-945 lb. steers sold in a range of $127 to $132. Steers in the 650-670 lb. class brought an average of $151.56 while an offering of 700 lb. steers sold at $149.50. The lightweight cattle also brought eye-popping prices, with 119 head of 405 lb. steers bringing a price of $205.25.

Vetterkind noted last week that the market remains firm as a result of significant concerns over the availability of feeder cattle in the second half of the year. Feedlots are bidding aggressively for feeder cattle, even at higher prices because of the tight supply picture. He noted that the drought in the southern half of the U.S. is forcing feeder cattle off pastures and into feedlots early, which is also going to add to the supply issues going forward this fall and winter.

The increase in supply as a result of drought didn’t hamper sales last week in southern Plains cash auction markets. At the market in Oklahoma City, OK, feeder cattle and calves sold $3-6 higher compared to the last market test two weeks earlier. Demand was reportedly very good for most classes of cattle, particularly light weight cattle which were suitable for shipment to parts of the country where grass is available.

In La Junta, CO, light steer calves were trading $3-5 higher from $160-182.50 while heavier steers were called steady from $140-161. Light heifers were $2-4 higher from $135 to $150.

To the west in Prescott, AZ, steer and heifer yearlings sold $5-8 higher than the prior week while steer and heifer calves brought prices called $7-10 higher. And in Cottonwood, CA, last week, a light run of cattle under 600 lbs. sold $4-10 higher than the previous sale two weeks earlier. — WLJ