Cattle market set to stabilize

Markets
Sep 2, 2011
by WLJ
Cash fed cattle trade was slow to develop last week coming into a Labor Day-shortened production week. Cattle feeders were offering cattle at $114 live and $181 dressed but packer offers were at $110-111 and $177-178, respectively. Trade was expected to be steady to $1 lower than the prior week.

According to Troy Vetterkind, Vetterkind Cattle Brokerage, the fed cattle market remains under pressure, with most fed sales coming in $2 lower. “I would imagine, though, that we will see both the beef markets and the cash fed cattle markets stabilize next week after the holiday.”

Futures markets were softer most of the week with nearly all contract months. The August contract expired last week leaving the front month at October which was trading at $113.60, nearly $2 lower than the beginning of the week. Deferred contracts were also lower but trading in the $120 range for February and April contracts.

“With pressure developing in the grain complex, and increased uncertainty about beef value direction, traders are holding onto their bearish tendencies,” according to Rick Kment, DTN analyst.

Analysts said last week’s losses were curbed by lack of trade activity and expectations of moderate product demand support over the long holiday weekend. In addition, last week’s hurricane on the East Coast may have played a factor in lighter beef trade.

Hurricane Irene was not as severe as early forecasts predicted, but it was serious enough to disrupt transportation and slow meat movement. Grocery deliveries will continue to be impacted and beef flow has slowed, adding to the pause in boxed beef prices, according to analysts.

Also, most buyers may have been content with inventories going into the holiday weekend. “I think after we come back to work from Labor Day that we will see some restocking of beef inventories and we can see at least some minor stabilization in beef cutout values,” Vetterkind said.

Boxed beef cutout values were firm on Choice and lower on Select with light to moderate demand and moderate offerings. Choice was trading at $182.79 while select was trading at $174.37. Last Thursday’s trading session can best be described as a continuing standoff between buyers patiently waiting for prices to go lower and sellers whose inventory position hasn’t yet dictated extensively reduced bids. This resulted in another small overall weekly load total. 

There was a bigger disparity between Choice and Select product this week than we’ve seen in several months. Choice pricing was steady to firm on nearly every cut item. Meanwhile, Select cuts, particularly middle meats such as top butts, were under continuing downward pressure as the week progressed.

After last week’s sharp advance, beef trimming prices leveled off with a weaker undertone going into the Labor Day weekend forward. Fed cattle and blended coarse grinds continued to climb higher, although substantial sales of lean percentage grinds were sold at lower levels for post Labor Day delivery.

Packer margins remained good despite erosion in box prices before the long weekend; the packer margin index showed packers earning $40 per head at the end of the week. The recent trading range for cattle futures may have hit the bottom of the range and should push higher into fall, according to analysts.

“I think as long as we don’t get a big round of fund selling going into the weekend, October live cattle should be able to hold $114 support and October feeder cattle should be able to hold above $130,” according to Vetterkind.

Triple-digit temperatures baking the southern U.S. were amplifying the effects of historic drought in the region, and forecasts offered little hope for relief anytime soon.

Despite scattered rainfall earlier this month, increasingly hot and dry weather over the last week mitigated the benefits of the recent rainfall across the southern Plains, according to a report issued by a consortium of state and federal climatologists dubbed the U.S. Drought Monitor.

“You look at some of these places in Oklahoma and Texas and they are now approaching or breaking the number of 100-degree days,” said Brian Fuchs, climatologist at National Drought Mitigation Center, which is housed at the University of Nebraska.

Record-breaking temperatures and parched fields had July placements hitting record highs. The drought continues to send producers looking for grazing options and water, or forcing them to reduce heard sizes. Although analysts believe that the bulk of the culling is done, and placements will stabilize.

Feeder cattle
Increasing feed costs are becoming more of an issue as corn rose above $7.50/bushel this week, and hay reserves are being depleted as forage is becoming hard to find. The corn harvest outlook continues to decline as many Corn Belt states have received damaging storms and continued heat. Wheat farmers are now looking for rain as wheat planting will start in the next few weeks. The availability of wheat pasture could influence feeder cattle prices coming into fall.

The shortage of forage is causing many cattlemen to feed a higher concentrated ration to calves earlier, which will grow them quicker, but will also cause them to be inefficient. Higher roughage diets allow the cattle to build their frames before being finished, but the hay shortage has limited nutritional ability to do this.

Feeder cattle markets continued to decline due to the cattle on feed report and the lowered fed cattle market. Calves and yearlings sold $2-6 lower than the previous week.

In the north-central region, calves and yearlings sold for $3-5 lower while in the south-central region, they sold for $2-4 lower. In the southeast region they sold for $3 lower.

Apache Video Auction reported 1,688 cattle offered, compared to 2,962 last week. Of those offered, 33 percent weighed over 600 lbs. and 83 percent of the cattle were heifers. This reflects the continued shrinkage of the cow herd in the south-central states as producers are not keeping back replacement heifers and instead focusing on keeping the best-producing cows.

At the Ozarks Regional Stockyard in West Plains, MO, supply and demand were both moderate. There were 3,025 head offered, compared to 2,898 last week and 5,556 last year. Steer and heifer calves were $2-6 lower, with the majority of the calves constituting unweaned, unvaccinated fleshy calves, accounting for most of the decline. Yearlings and long-time weaned steers over 600 pounds and heifers over 650 pounds sold $1-3 lower.  
In Oklahoma City, 6,853 cattle were sold compared to 7,146 last week and 12,871 last year. This supports the trend that the fall calf run has already occurred in the south, and receipts in the next few weeks could continue to drop. Feeder steers were steady to $3 higher while feeder heifers were steady to $2 higher. Steer and heifer calves were steady to $2 higher. Demand was good for all classes, with average quality. Of those offered, 55 percent weighed over 600 lbs., and 45 percent of the cattle were heifers.

 In the neighboring state of Kansas, the Winter Livestock Auction offered 3,316 head. The 300-400 lb. steers sold for $161-$169 while 400-500 lb. steers sold for $152-$171.50. Heavier feeders weighing 500-600 lbs. sold for $146-$155 while those weighing 600-700 lbs. brought $136.75-$140. Finally, heavyweight steers (700-800 lbs.) brought $133.25-$135.50.  

Further north in Nebraska at the Huss Platte Valley Auction, 3,000 head were sold. Cattle were heavier, with no calves weighing under 600 lbs. offered. The 600-700 lb. calves brought $136-$139, while 700-800 pounders brought $133.25-$137. Heavier 800-900 lb. feeder steers sold for $125.85-131.85, and 900-1,000 lb. feeder steers brought $122.40-$123.50.

In the futures market, September feeder cattle were at $133 as of midday Thursday. October quotes were at $133.30, and November was at $134.28. Many of the futures contracts fell from last week’s prices.—WLJ


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