Futures market rally boosts trade

Markets
Sep 9, 2011
by WLJ

Fed cattle trade was slow to develop last week after lackluster meat sales over the Labor Day weekend. Futures markets were stronger on live cattle, setting the stage for stronger fed trade later in the week. Beef movement was also slow to develop, however, buyers came to the table last Wednesday and bought heavy, raising cutout values after several days of decline.

Compared to the previous week, slaughter steers and heifers traded steady to 50 cents lower. USDA reported an estimated 38,000 head sold, with sales on the southern Plains priced at $113 for live cattle. In Nebraska, the bulk of live sales sold for $113.50-114, and dressed cattle sold for $181. In Colorado, live sales were reported at $114. In the western Cornbelt, live sales ranged from $113-114, and dressed cattle sold for $180-181.

Asking prices for cash cattle advanced, with offers mostly at $117 for live cattle and $185 on a dressed basis, according to Andrew Gottschalk and Bob Wilson at HedgersEdge.com. “A weak basis in early September is not unusual and it is expected that trade will develop at levels higher. Midway between the previous week’s trade and current offers would be $115. The odd thing about $115 is that nobody is happy at that level. Sellers lose money there, packer breakevens are estimated slightly below that level, and retailers are struggling to sell meat at last week’s prices, let alone anything higher,” they added.

Live cattle futures rallied midweek with an open interest increase of just over 4,200 head, according to market analysts. Awaiting direction on the cash steer market, there was some lower trading in the early electronic trade on profit taking. Cash traded at $1.13, which was steady to firm compared to the previous week. However, with October futures closing last Thursday at $118.82, the cash market was expected to trade higher.

Boxed-beef cutout values were lower on moderate demand and moderate to heavy offerings. The Choice cutout declined 53 cents from the day before to $179.85, while the Select cutout declined 12 cents to $171.01. The Choice Select spread was $9.25.

Good midweek sales volume on boxes came in at almost 400 loads. Some offerings of meat are now higher and with the smaller production level this week, there could be some success at raising cutout values as packers force product higher on expectations of higher cash trade. The slower retail activity following the last big summer weekend and dismal economic news keep product buyers wary, according to HedgersEdge.com. The packer margin index showed packers earning $18.60 a head on a breakeven of $114.75, with an average buy of $113.33, according to HedgersEdge.com.

“I suspect we’re experiencing strong/stronger export demand for U.S. beef. If the packer would reach for cattle this week by raising their bids, this would most likely be confirmation that they’re experiencing increased export demand,” Dennis Smith, Archer Financial Services, said in his weekly update.

Feeder cattle
Feeder cattle traded steady to $2-4 lower this week, influenced partially by the decreases in corn and wheat futures. Harvest outlook is still marginal as many states are still reporting losses and poor condition of crops before the impending harvest. The southern states have still not received adequate rain for wheat planting and fires in Texas have burned 3.5 million acres, limited planting ability even further.

Feed supplies are still tight, and even though corn and wheat dipped slightly this week, the USDA’s monthly Crop Production and World Agriculture Supply and Demand Estimates reports, due on Sept. 12, will dictate the direction the markets take next.

Corn condition ratings dropped another 2 percent this week, with only 52 percent being reported at good or excellent condition. Last year, this number was reported at 69 percent. The more concerning part is that 21 percent is being rated as poor or very poor, compared to just 11 percent last year. September corn futures dropped 21cents to $7.38 this week.

“There are plenty of livestock producers and farmers out there who are sure hoping that the corn harvest turns out better than some of the recent predictions as last week, the Pro Farmers Tour pegged this year’s crop at 147.9 bushels were not encouraging,” said USDA Market News reporter Corbitt Wall. “Hot weather returned to the Midwest this week as temperatures hit the triple digits, making unfavorable conditions for both buyers and sellers.”

Wheat also fell this week by 29 cents to settle at $8.42 for September contracts. Wheat usually follows the corn market because both are used for livestock feed. Large supplied of wheat globally and poor U.S. export demand also Wheat lacks the strength to advance without corn, as global wheat supplies are large and demand for U.S. wheat is poor, due to cheaper wheat from the Black Sea region.

High feed costs are still a concern for feeder cattle buyers. “Calf buyers this week in many areas were hesitant to flex their muscles, where in other areas, some buyers seemed to be more ready for calves than others. Producers are faced with some tough decisions with high feed cost, dry weather conditions, and concerns if any wheat pasture will be available. No doubt a good rain would stimulate interest,” said Wall.

Total receipts last week declined dramatically. In the north-central region, calves and yearlings sold for $2-2.50 lower while in the south-central region, they were steady to $2 lower. In the southeast region, they sold for $1-3 lower.

Cattle Country Video, with a sale out of Torrington, WY, had moderate to good demand. Of the supply, 58 percent were steers, 42 percent were heifers, and 66 percent of the total offered weighed over 600 lbs.

The live auction in Torrington reported steers weighing 600-700 lbs. were steady to $2 higher, and those cattle over 700 lbs. were steady to $3 lower. Heifers over 700 lbs. were steady to $2 higher. Demand was moderate to good, and the Labor Day crowd had active bidding in the barn and on the internet. Supply included 59 percent steers, 41 percent heifers, with 86 percent of the total number of cattle offered (7,250 head) weighing over 600 lbs.

In El Reno, OK, at OKC West, 6,364 cattle were sold compared 5,911 last week. The 300-400 lb. steers sold for $145-166 while 400-500 lb. steers sold for $136-151. Heavier feeders weighing 500-600 lbs. sold for $135-145.25 while those weighing 600-700 lbs. brought $137.25-140.75. Finally, heavyweight steers (700-800 lbs.) brought $131.75-135.25.  

In Texas, calves continue to be light as producers are weaning their herds early. The majority of calves weighed under 500 lbs. Calves averaging 325 lbs. brought $150-154, while those averaging 379 lbs. sold for $142-149. Calves weighing 428 lbs. were sold for $136.50-138, and the heaviest average weight calves, those at 498 lbs., sold for $139.

In the futures market, September feeder cattle were at $133.98 as of midday Thursday, up nearly $1 since last week. October quotes were at $135.60 (up over $2), and November was at $136.73 (up over $3). The majority of futures contracts increased from last week’s prices. — WLJ


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