Cattle prices strong despite outside volatility

Markets
Aug 12, 2011
by WLJ

Fed cattle trade was opening with sharply higher prices last week as a surge in boxed beef prices and improving packer margins helped fuel the market. Although volume was light through midday last Thursday, early dressed trade had been reported on light volume at $185 and analysts were predicting that the volume live trade would come around the $114 mark.

Booming export markets and a tight supply of market-ready fed cattle have all helped fuel the push toward higher prices. The Choice boxed beef cutout moved sharply higher last Thursday morning, gaining $1.79 to hit $178.02, and Select was up $1.70 at $174.18 on moderate trade volume. The cow beef markets were slightly mixed last week, though, with the 90 percent lean product trading flat with the prior week at $178.29 and the 50 percent trim rising sharply to hit $91.30 as demand for beef trim for grinding is outstripping supply. The cow beef cutout rose to $145.37 as the number of cows and bulls heading to market in the southern tier begins to slow somewhat from recent high levels.

That effort to push prices higher was helped last week by USDA’s monthly Crop Production report which indicated that, as expected, the corn crop is unlikely to be as large as had been projected early in the growing season. USDA has begun lowering their estimates for this year’s crop with the report coming in lower than most pre-report expectations. USDA lowered yield expectations from their previous July estimate of 158.7 bushels per acre to 153 bushels per acre. Acres harvested declined by 500,000 in the August report. The result is a projected yield for this year’s corn crop of 12.91 billion bushels.

The result of USDA’s latest projection, if realized, will leave the market with a very tight supply picture. The crop, as it’s currently projected, would result in a stocks-to-use ratio of just 5.4 percent, the tightest it has been since the 1995/1996 marketing year. However, analysts are predicting that future reports will show further reductions in either yield expectations or acreage, which would further decrease the projected carryover if prices don’t begin to rationalize use.

As evidence of possible future reductions, analysts pointed to crop condition ratings, which were also updated last week. Nationally, the corn crop is rated 60 percent good to excellent, compared to last year’s rating of 71 percent good to excellent, while 16 percent of the crop was reportedly poor or very poor, compared to just 10 percent last year.

States with the worst ratings were in the South, with Texas farmers reporting the crop was 72 percent poor or very poor and, clearly, the drought conditions are spreading north, with Kansas corn growers reporting good to excellent ratings of 33 percent while 41 percent of acres were reportedly poor or very poor. However, it was perhaps more disconcerting to note that Indiana growers reported their crop was 21 percent poor or very poor with 41 percent rated good or excellent. Pennsylvania reported 28 percent of the state’s acreage was poor to very poor while 36 percent was rated good to excellent.

The grim reports of crop condition in the South have been widely anticipated and the problems in the Corn Belt also come as little surprise to the industry after northern growers got off to a slow start this season due to a cold and wet spring. However, if the crop continues to deteriorate, it is going to push grain prices sharply higher from their perch near the $7 mark during the year ahead. With hay in short supply and prices climbing, it could serve to push feed prices to levels which will be even more unpalatable for cattle producers.

However, in the short term, the jump in grain prices helped live cattle prices which were also higher. The fundamentals of the livestock market remain highly positive in the near-term and traders spent the week focusing on that action rather than deferring to the equity market to help determine market direction. The result was a 232-point gain on the current month August live cattle contract which pushed the price to $116.62. December live cattle traded 207 points higher to $121.62 while April 2012 rose 165 points to reach $126.67.

Feeder cattle

The higher trade expected in the fed cattle markets helped support feeder cattle markets last week despite higher grain prices. The Western Video Market sale last week turned in good results with good demand for the 75,000 head on offer. For example, an offering of 425 lb. steers from the north-central region brought an excellent average price of $197.50 while heavier 600 lb. steers from the same region sold for an average of $149. Heavier cattle also sold extremely well with a draft of 2,315 head of 850-890 lb. steers bringing an average of $131.57 while 1,447 head of 960-980 lb. steers sold for an average of $126.39.

Several auction markets reported better results last week as the number of feeder cattle being shipped to town slowed from the rush of recent weeks. The decline in numbers helped to boost prices in many markets and some spotty rain and lower temperatures also helped buyers’ enthusiasm last week.

In Oklahoma City, OK, feeder steers sold $2-4 lower. Feeder heifers were steady to $2 lower. Steer calves were called steady and heifer calves were steady to $2 higher. Demand was called moderate to good for feeder cattle.

Meanwhile in Joplin, MO, cooler weather and some moisture helped to cut supply and improve prices last week. Steer calves over 450 lbs. and heifer calves over 400 lbs. sold $1-3 higher, steer calves under 450 lbs. and heifer calves under 400 lbs. traded $5-10 higher. Yearling steers sold steady to $2 higher while yearling heifers were steady. Demand was reportedly moderate to good on a light run.

Farther west in La Junta, CO, light steers sold sharply higher from $155 to $182 while heavier classes were called steady to $3 lower from $140 to $160. Light heifers were traded steady from $130 to $141 while heavier classes brought $120-139, prices which were steady to $2 lower than the prior week. — WLJ

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