Prices drop on domestic concerns

Markets
Aug 26, 2011
by WLJ

Fed cattle prices dropped last week as a result of weakness in cash prices and decreased demand from the consumer segment. On the Plains, cattle traded for $112.50-113 live and $180-181 dressed. Corn Belt trade ranged from $179-$181 dressed and $113 live. Those prices were steady to as much as $4 lower from the previous week’s trade.

A larger than expected increase in the number of cattle on feed was reported by USDA on Aug. 19, indicating that larger supplies of beef will be coming available in the months ahead. Concerns over that bulge in supply through the winter limited upside potential in the markets last week, adding pressure to the market. For the near term, it appears that any advances in fed cattle prices will be limited.

“As far as a forecast goes for next week, the market will be steady at best to lower,” said Bob Wilson, analyst at HedgersEdge. com LLC. “We are moving into a larger supply of cattle. Not all of the cattle that are being offered were cleaned up last week, so they will be carried over to this week, increasing the available supply. The shortened week next week will put pressure on the seller.”

The Labor Day holiday had been helping to boost sales as retailers geared up for pre-holiday beef features, however, most of that buying had been completed by midweek last week. However, the late buying interest did help boost beef prices through Thursday.

Boxed beef prices continued their climb for most of the week through last Thursday with the Choice product reaching $188.15, up $1.55 from the previous week. Select was $1.43 lower than the prior Thursday at $181.71. Volume for the day was light with just 90 loads trading hands through midday last Thursday as only spot buying interest was reported after holiday needs were filled earlier. Wilson noted that the late buying interest helped to keep prices higher last week, but going forward, there wasn’t expected to be much additional domestic support to add market strength. “Prices have increased due to late buyers, but it’s not indicative of the general market trend,” said Wilson.

He noted that packers margins increased $20-$30 from the prior week to an estimated $66.25 on Thursday and should continue to rise in the near-term. That will help to ease some of the downward pressure on fed cattle prices.

The futures market trade was also choppy last week, however, a late week rally helped support prices generally steady with the prior week’s action on the Chicago Mercantile Exchange (CME). Last Thursday, the August live cattle contract closed at $113.75, down 25 points from the prior week. October ended the session at $114.15 while December was 32 points higher than the previous day at $116.47.

Although domestic supply and demand concerns hampered the trade last week, international exports continued to shine, with U.S. Meat Export Federation reporting sales results for the first half of the year which were on track to set new records.

“Exports have already increased prices. They have added $190/head for every fed animal. As long as we maintain that, we can maintain these prices. If exports trail off, expect prices to follow. However, even as good as they are, 88 percent of consumption is still domestic,” said Wilson.

The concern over the grains markets have keep corn prices high and they may continue to rise. Prices may not go down until next year’s corn crop is known, according to Wilson. The high grain prices will continue to put pressure on feeders. The costs of gain and production will go up, which means they will be looking for higher prices on the fed cattle side. However, if the expected corn crop planting next spring is good, prices may finally begin to fall, Wilson noted.

Feeder cattle

Cash feeder cattle markets continued lower last week, with most auctions reporting prices which were generally $2-4 below the previous week, according to Vetterkind Cattle Brokerage analyst Troy Vetterkind. Pressure from lower CME cattle futures and the release of the cattle on feed report, in addition to continued Wall Street volatility, weighed on cash feeder prices and caused them to finish the week steady to $3 lower.

Although front-month August futures were able to gain 20 cents at midday last Thursday, other nearby contracts were holding losses of 80 cents to $1.17 as traders were focusing on the pressure in live cattle markets as well as the recent price gains in the corn market.

According to USDA reports, calf sales in the Midwest and northern Plains were brisk (mostly $3-5 higher) as backgrounders became less fearful of marketing these purchases during the late-fall run. Because of the earlier than usual shipments of feeder cattle from southern Plains pastures, there is expected to be far fewer cattle offered during the late-fall marketing period. Analysts also believe this fall’s market outlook is lining up to be much better than expected with feedlot buyers paying premiums for cattle due to finish in April. The April live cattle contract was trading about $10 higher than the up-front month August contract.

Despite the optimism, corn prices will be a concern to cattle feeders with many market analysts predicting this year’s crop will fall below current expectations. The closer the industry moves to harvest, the smaller the crop appears to be. The increase in price may serve to limit enthusiasm for late fall placements.

Typically, the bulk of cow slaughter comes after calves are weaned, but this year’s peak of the July liquidation almost equaled the “normal” level of cow culling seen in the fall. That cow liquidation in the Plains will impact the beef market for years to come, according to analysts.

In auction market trade last week in St. Joseph, MO, steer calves under 600 lbs. sold steady to $5 higher compared to the last comparable sale held two weeks earlier. Yearling steers over 600 lbs. were $2-5 lower and all weights of heifers traded steady to $3 lower. High heat indexes in Missouri continued to be a factor and most cattle were showing signs of heat stress, according to USDA.

Neighboring Oklahoma saw feeder cattle lightly tested, feeder steers were $2-5 lower, and feeder heifers $3-6 lower. Steer calves were steady to $4 lower and heifer calves $4-8 lower, with moderate to good demand on steer calves. Market reports noted that the basis in corn has changed, creating cost of gain that are equal to the cost of cattle. That, in turn, has limited the demand for feeder cattle. The bulk of the Oklahoma supply continues to head to greener pastures out of the state.

Meanwhile in Dodge City, KS, steers were firm to $2 higher last week while heifers were available in limited numbers. Dodge City broke a record set back in 1934 for days over 100 degrees with 46 days. The harvest of corn silage is in full swing, with a significant increase in the number of acres being put up for silage because of poor pollination.

On the West Coast in Famoso CA, feeder steers were $2-3 higher, with big demand reported on stockers and quality replacement heifers. Heifers were $3-6 higher, with feeder heifers $2-3 higher. Feeder steers were also in big demand, coming in $2-3 higher.

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