Fed cattle firm despite outside market slide
Cash fed cattle trade was slow to develop last week as cattle feeders held out for higher money. The light, early trade seemed to indicate that the tactic was working, with the light volume trading at $109.50 to $111 in the Corn Belt, although there were not enough animals trading hands at midday last Thursday to call the week’s trend. Most analysts believed that the firm cutout values and continued strong export business would help push prices higher last week. The bulk of the week’s business was expected to come in a range of $110-111 live and near $178-180 on the dressed trade.
Outside markets might be the one wildcard in the mix for the near-term. Equity markets were selling off hard early last Thursday and the resulting spillover into the commodity markets was adding some weakness to the deferred month contracts. The spot month August contract was showing some resiliency at midday last Thursday, which may help trade firm through the next week or two if it manages to maintain its strength.
The U.S. dollar was posting some significant gains late last week as signs of slowing growth in Asia and Europe pulled down competing currencies. The rise in the dollar could have a large impact on commodity markets if the trend continues for any length of time. Export markets have been responsible for a large portion of the strong beef trade since the start of the economic downturn in the U.S.. If export markets begin to slow, it could take a toll on beef cutout values which would translate down the line to lower cattle prices, despite the positive inventory situation.
The Choice boxed beef cutout value slid slightly last week, dropping just 14 cents in morning trade last Thursday to $173.37 while Select was up 55 cents during the session to trade at $170.06. Packers are reportedly having to discount middle meats slightly to get them sold as demand remains lackluster. End meats are still receiving good demand from the export trade and some of that product is also being sourced to meet the demand for ground beef, according to market analysts.
Last week, that U.S. dollar strength was helping to push boneless cow beef markets higher along with the end meats. As the U.S. dollar increased in value, the Australian dollar has also been climbing, making imports of boneless beef for grinding in the U.S. more expensive. Buyers instead are having to turn to domestic markets to fulfill their needs, pushing cow beef prices higher. Last Thursday, the cow beef cutout rose to $146.25, up 47 cents from the previous day. The 90 percent lean product reached $179.48 while the 50 percent trim hit $81.05, up $2 from the previous week’s level.
To put the importance of the international trade into perspective, last week, Utah State University agricultural economics professor Dillon Feuz reported that through May, total U.S. beef and veal imports are down approximately 30 million pounds per month, or 15 percent when compared to 2010.
"Total beef and veal exports through May are running 25 percent above the prior year; that is an additional 46 million pounds each month. So far this year, our four largest export markets are Mexico, South Korea, Canada and Japan. South Korea had been quite variable, being the largest market some months and the smallest of the four major markets some months. These four markets account for over 65 percent of the total beef exports," Feuz reported. "Because of the reduction in imports and the increase in exports, the U.S. continues to be a net beef exporter this year. On average, we are shipping out about 50 million pounds more of beef each month than we are shipping in. If these positive trade trends continue, and with the continuing decline in the size of the U.S. beef herd, cattle prices should remain strong for the next few years."
Feeder cattle prices were mixed last week and highly regional. Heat and health remain big concerns in the southern Plains and the large numbers of feeder cattle being shipped to town are weighing on some of the southern tier markets. Although numbers of feeder cattle are showing some signs that they may be on the decline, they are still being offered in numbers larger than last year as a result of the drought. Buyers, however, have been discounting cattle that may be subject to health problems, particularly those lots that are fresh off the cow. As long as the heat continues and loud lots remain prevalent, markets in the southern Plains may remain soft, a trend analysts noted may continue for another few weeks.
In El Reno, OK, last week, feeder steers traded steady to $2 lower. Feeder heifers were selling steady to $3 higher. Steer and heifer calves were steady on a very light test due to an abundance of bull calves offered, the market reports noted. Demand for the offering was reportedly moderate.
Meanwhile in Joplin, MO, producers there are also feeling the pressure of dry conditions. Steer and heifer calves sold $3-7 and yearlings were steady to $3 lower on moderate to light demand and moderate supply. According to auction report,s last week was expected to be the hottest of the summer thus far and producers are already reporting that they are feeding hay as a result of the heat and dry conditions. Stock water is also becoming a concern in the region.
Outside of the central and southern Plains, the markets are mostly higher as light numbers and plentiful grass are keeping cattle and calves on the ranch. Across the northern states and in the far west areas, it will be awhile before the limited supply of available calves begins moving to markets and this is helping to stimulate demand and prices for the light offerings.
On the West Coast in Famoso, CA, feeder cattle were called steady while stockers were reportedly steady to $2 higher with good demand reported on all classes on offer. And in Cottonwood, CA, on a light run, steers in the 700 lb. category were called steady to $2 higher while heifers over 700 lbs. traded $2-4 higher.
In Madera, CA, stocker and feeder cattle traded steady with the previous week in a moderate test of the market. — WLJ