Outside markets impact fed cattle markets

Sep 23, 2011
by WLJ

Fed cattle markets were slow to develop again last week. Futures markets were showing some strength early last week until Thursday when the news of a broader equity market sell-off took place, dragging nearly all commodities down. Cattle feeders were a bit more eager to sell cattle in the wake of the sell-off, and started letting cattle go at $116 live and $182-183 dressed, with prices expected to drift lower for the week.

Concerns regarding ongoing beef demand were weighing on the market. “Some observers saw the unwillingness of cattle buyers to support cash last week (even if it meant limiting trade volume) as a sign the beef had become too expensive to sustain the interest of retailers, food managers and exporters. This market was also checked by widespread commodity selling tied to struggling equities and the still festering EU debt crisis,” John Harrington, DTN livestock analyst said. By Thursday, cattle futures were down sharply, with the October contract losing $3 at the close to settle at $116.25.

All deferred futures contracts closed lower Thursday, according to CME reports. December cattle moved to the lowest level since Sept. 6 as the surging U.S. dollar sparked liquidation in grains, metals and energy markets.

Production slowed late in the week but a significant drop in beef processing will be hard to achieveas year-to-date exports of U.S. beef continue to run 27 percent higher than last year, while beef imports are 16 percent lower so far for the year, according to USDA reports.
Beef production for last week was estimated at 504.1 million lbs. This was 13.2 percent higher than the previous week, and only 0.3 percent higher than the previous year. Total cattle slaughter was 653,000 for the week ending Sept. 17, up from the previous week’s 577,000, which was Labor Day week. However, slaughter was down 21,000 head from the same period last year, which was 674,000 head processed. The packer margin index showed beef processors losing around $12 dollars a head, the first negative margin in a while. We should expect to see some beef production slowdown to maintain the beef cutout or packers will be forced to pay less for fed cattle.
Lackluster domestic beef demand and production cuts will be the main driver to lower cash trade. “I think the market will remain under a degree of pressure until we get into the month of October when we see a more active beef buying pattern develop within domestic channels,” Vetterkind Cattle Brokerage analyst Troy Vetterkind noted last week.
Last week’s boxed beef market came down slightly with the Choice cutout losing trading at $185.20 midweek and the Select cutout was at $172.55. Beef spot sales volumes remained light with only 669 loads selling through last Wednesday. End cuts held steady with ribs and tenderloins still top sellers. The Choice/Select spread was at $13, one of the highest seen in months.  
“Attitudes within the cash beef trade remain the same as buyers are reluctant to step up and chase higher offering prices from the major sellers of beef. Many still cite that consumer demand is rather lackluster given more attractively priced pork and poultry,” Vetterkind said.
However, analysts predict demand will pick up in coming weeks.
A Texas and Southwestern Cattle Raisers Association  survey reported 85 percent of the breeders had liquidated a portion of their herd, with an average drop of 38 percent. Stocker operations were following suit. Analysts predict the upcoming cattle on feed report will show another month of higher placements joined with substantially higher cattle on feed.
Feeder cattle
Feeder cattle rebounded this week after several weeks of declining prices. The total number of head sold nearly doubled, indicating the fall calf run for areas other than the Southwest are underway. The quality and condition of the animals were better, and the management behind the calves offered was indicative of the prices being paid.
True yearlings are bringing higher prices as feeders are trying to meet the demand for the spring fed cattle market, which is forecasted to be higher.
Lightweight calves in the Southwest continue to meet light demand and struggle with the fluctuations in temperatures (up to 60 degrees in a 24-hour period). These unweaned calves are posing a risk for some feed yard buyers as many of them are light and have not been through a full vaccination program.
Feeders will need to be mindful of keeping these calves away from their older animals as the young animals are much more susceptible to disease, especially when coupled with the stress of heat and separation from their mothers.  
Commodity trading struggled last Thursday. The corn market took a sharp drop last week as a broad-based sell-off in commodity markets is occurring in outside markets. Some analysts are predicting a worldwide recession, which is scaring investors into selling.
December corn futures also continued to drop last week and as of midday Thursday, they were reported at $6.53, the lowest they have traded in quite a while. Wheat also fell over 50 cents last week to end at $6.40 for December contracts as of midday Thursday.
Total feeder cattle receipts last week increased dramatically from the previous week to 456,300, up from 223,000. In the north-central region, calves and yearlings were steady to $2 higher on light and medium weight calves, and $1 higher on heavy calves. In the south-central region, all classes of calves were steady. In the southeast region, prices rebounded from last week’s decline to increase $1-$2.50.
In El Reno, OK, at OKC West, 8,520 cattle were sold compared to 7,772 the prior week. Prices varied greatly, from $1 lower on the heaviest steers to instances of $12 higher on lighter weight calves than the previous week. The 400-500 lb. steers sold for $146-154. Heavier feeders weighing 500-600 lbs. sold for $138.50-142, while those weighing 600-700 lbs. brought $132.50-140. Heavyweight steers (700-800 lbs.) brought $128-136.25, and 800-900 lb. steers brought $122-131.  
Further west at the Hub City Livestock Auction in Aberdeen, SD, 4,533 cattle were offered. Feeders weighing 500-600 lbs. sold for $146 while those weighing 600-700 lbs. brought $139-143. Heavyweight steers (700-800 lbs.) brought $133-137.25, and 800-900 lb. steers brought $125.85-135.50. Yearling super heavyweight steers brought $121.90-133.60.
In Nebraska at six markets, receipts totalled 14,190, slightly higher than the previous week. Feeder steers from 650-800 lbs. sold uneven to steady, and those steers weighing over 800 lbs. sold steady to $2 higher. Feeder heifers sold steady to $1 higher. Demand was good on the heavy weight feeders and moderate on all other classes. Of the total head sold, 54 percent were steers, 45 percent were heifers, and nearly 84 percent weighed over 600 lbs. The highest price came for a group of lightweight steers, averaging 320 lbs., which brought an average price of $179.09. The lowest price was paid was for a 1,055-head group of heavyweight steers averaging 1018 lbs. which sold for an average price of $122.27.
In the futures market, feeder cattle declined after the previous week’s increase due to the same reason as the corn and wheat markets. September feeder cattle were at $132.33 as of midday Thursday, down nearly $4 since the previous week. October quotes were at $134.78 (down over $4), and November was at $136.78 (down over $3). The majority of futures contracts decreased from the previous week’s prices. The CME feeder cattle index was at $132.25 Wednesday.