Fed cattle prices decline as demand weakens
Fed cattle trade slipped again last week as high temperatures and declining demand hit the market. Analysts have been calling for a late July summer low, so the market could be close to hitting its bottom in the near term. In the southern Plains last week, live fed cattle traded $2-3 lower at $108-109 while dressed cattle in the North were called $4-5 lower from $174-175.
Some softness was noted in the boxed beef markets last week as the heat took a toll on consumers across the eastern two-thirds of the country. Although there was some expectation that the weather would ease over the Midwest, it was predicted to continue across the East Coast. Consumers typically cut their beef consumption in hot weather and, as a result, demand from the retail sector has been on the decline. Packers have responded by lowering their offering prices for live cattle while retailers have responded by pulling back from the boxed beef markets, which is taking a toll on cutout values. Last Thursday, at midday, Choice boxed beef had fallen $1.43 from the previous day to trade at $176.81 while Select was off $1.21, trading at $171.53. However, those lower prices were helping to keep product movement up, with 226 loads of fabricated product and 48 loads of trim and grind product sold.
Market analyst Troy Vetterkind of Vetterkind Cattle Brokerage said last week that as a result of the softening demand, he expected production to decline.
"Packers are going to curtail production schedules this week and next in an attempt to keep beef prices supported as demand wanes. Most are looking for a 660,000 head kill for (last) week," he said. "Cash cattle markets could remain under pressure (during the week ahead) if futures and beef markets fail to find some stability. However, we have two major cattle reports slated for release (July 22) that could alter the direction of the futures market should there be any surprises."
Vetterkind also reported that there has been good demand from the export markets which is adding some support to the market at the present moment. In particular, problems in the Japanese market continue after reports surfaced two weeks ago about traces of radioactive material being found in beef. Sensitive Japanese consumers have turned to foreign supplies of beef, including U.S. beef in a major way recently and sales last week were particularly strong. USDA reported that for the week of July 8-14, Japan was the largest buyer of U.S. beef, with sales of 4,200 metric tons.
Japan wasn’t the only big buyer during the most recent buying week. Mexico purchased 4,100 metric tons and Vietnam followed with 3,900 metric tons. South Korea rounded out the top four largest buyers for the week with purchases of 3,500 metric tons. Sales to overseas buyers were extremely strong across the board with total sales of 23,600 metric tons. The market has picked up sharply in recent weeks, a factor which could lead to larger beef exports than are currently predicted, a fact which would greatly benefit prices going into the fall if it continues.
Declining consumer demand is also impacting the market beyond the middle meats, according to Vetterkind.
"The ground beef complex saw lower pricing yesterday as not only has demand slowed there as well, but also there are increased supplies of boneless cow beef showing up to the market in the south due to heavy culling because of drought," Vetterkind said.
He noted that the heavy culling is forcing the market for slaughter cows lower, particularly in the south, however, the supply is also cutting into prices in the northern states as packers there pull cattle north.
Last Thursday, the 90 percent lean product had reached $181.28, nearly $3 lower than the prior Thursday. The 50 percent trim fell almost $4 from the prior week to $78.54 and the cow beef cutout declined to $147.46, a drop of more than $2 from the previous week.
The movement of cattle in the south hasn’t been restricted to cull cows. Last week, large numbers of feeder cattle were shipped off southern Plains pastures where drought has hammered forage production. There is little remaining pasture grass in the southern Plains and southeast U.S. and, as a result, producers are shipping calves and stockers to market in big numbers.
According to Vetterkind, that has pressured feeder cattle markets in the south.
"Feeder cattle in the south are moving aggressively to market as summer pastures in that part of the country are all but depleted," he said. "So, not only are there increased receipts coming to market to pressure prices but also there are so many cattle moving in the south that finding a truck to haul them is becoming an issue, which keeps buyers paying lower money for feeders if they have to sit around a barn for a day or two before they can move."
The fact that cattle are moving off of pastures now will cut into prices in the near-term, however, it will only serve to further limit the supply of feeder cattle available this fall and winter. There are already concerns about availability later in the year and into 2012, so the current liquidation in the southern tier could help prices during the traditional fall run.
The impact of the feeder cattle movement was fully documented at the market in Oklahoma City, OK, last week where the run of nearly 15,000 head doubled the receipts of the same week in 2010. Feeder cattle at the sale traded $2-5 lower while steer and heifer calves were called $5-10 lower. Loud lots were hit hardest as concerns about the health of those cattle in temperatures in excess of 100 degrees pushed prices as much as $15 lower than the prior week despite moderate demand noted for all classes of cattle.
The story was similar in El Reno, OK, where the availability of trucking was also an issue last week. Feeder steers sold $6 to mostly $10 lower while feeder heifers were called $2-5 lower. Steer and heifer calves sold steady to $3 lower.
Farther northwest, there hasn’t been as much pressure on prices and feeder cattle managed some early week gains on sales in La Junta, CO. Light weight calves sold $2-4 higher from $160-181 while heavier classes brought prices which were called steady to $2 higher from $140-165. Light heifers brought a range of $130-145, steady with the prior week, while heavier females sold steady from $125-135.
To the north in Montana, there were few sales with runs large enough to report, but there have been some private sales of feeder cattle at prices said to be very strong. Grass in the northern regions has been plentiful for the first half of the summer and there is little incentive to ship cattle early as forage remains plentiful in most areas. In Billings, MT, although there was a very light market test, feeder steers in the 540-580 lb. range brought $118-128 while heavier steers in the 745-850 lb. range sold from $115.50 to $117. A package of five-weight heifers brought $122 while heavier seven- and eight-weight heifers sold from $114.50 to $117.
On the West Coast in Famoso, CA, the market was called steady with good demand across the board. Stocker steers in the 425-500 lb. range sold in a range of $115-149 while heavier 500-575 lb. steers sold at $115-137. Feeder steers in the 600-700 lb. class brought a range of $105-120.75 while heavier 825-900 lb. steers sold from $100-128.50. Stocker heifers in the 425-500 lb. category sold from $105-130 and feeder heifers in the 625-700 lb. class brought $98-111.50. — WLJ