Live cattle futures mixed

Markets
Sep 30, 2011
by WLJ

Trade remained sluggish most of last week with only a few token packer bids of $116 live and $1.83- 1.84 dressed being passed by bullish feedlot managers asking $120 live and $1.90 dressed. “The way it looks right now, a $118/$1.86-$1.88 trade seems reasonable,” according to Troy Vetterkind with Vetterkind Cattle Brokerage. Prices remained steady, gaining some momentum from the bullish cattle on feed report.

Midweek, cash cattle markets asking prices were at $120 in the south and $187 and higher in the north. Open interest increased 43 positions (327,670). Spot October reduced 779 positions (40,754) and December contracts added 913 positions (148,211). DTN’s projected slaughter number for last Thursday was 130,000.

The sluggish market doesn’t appear like it’s going to change for another week or two, according to analysts. “If packers continue to struggle having to sell beef higher, I would think we would have a round of kill cuts ahead of us. This could keep rally potential in the cash market limited until we get into the first or second week of October,” Vetterkind said. Cash feeder cattle continued to trade $2-3 higher at most of the major auction markets. The markets in El Reno, OK, and Dodge City, KS, reported increased receipts, with cattle still coming in from drought-stricken areas. “There are also a fair amount of yearling cattle beginning to move in the northern Plains, which keeps rally potential in the feeder trade somewhat limited,” Vetterkind added. Slaughter cow markets remain lower by $2-3 as the fall run gets underway.

The boxed beef market remained mixed midweek.

Choice cuts were quoted at $183 while Select cuts were at $169. However, the rest of the loin complex remained under some negative pressure along with certain end meats. Analysts believe box prices will move higher as packers face the reality of sharplyhigher cash prices. The Choice/Select spread was the widest in many months at $14. Boneless beef markets were lower, both domestically and imported, as demand for grinding beef is sluggish and supplies abundant for the near term. The general consensus is for cutout values to continue to drift lower as buyer demand is slow, according to Vetterkind.
While the cattle futures started higher midweek, they typically ran mostly 7 to 85 lower, according to DTN reports. Spot October ran out of oxygen midweek over 121, bothered in part by lackluster beef demand and poor processing margins, DTN reported. Souring outside markets also worked against holding the early high ground.
The midweek rally futures saw during Wednesday’s session on fund buying and continued short covering was short lived. Once that fund buying dried up, the futures drifted lower going into the close on Wednesday. Given there is already a $1-2 higher fed cattle trade priced in for the week and the fact that the beef market is a little sloppy, near term rally potential from here could be limited this week, Vetterkind said.
According to HedgersEdge.com, consumer demand should be observed closely in the coming months, with special attention to domestic demand as it represents 89 percent of total beef demand. Any sign of slippage domestically or in export trade could subtract dollars from the potential average price during 2012. There is the potential for some over-supply risk if fed cattle get backlogged.
Feeder cattle
The bullish cattle on feed report surprised many analysts, and the feeder market responded accordingly with prices steady to higher. Continued tight supplies and prices will respond as the supply goes down.
“As the cattle on feed inventory is a good indicator of the flow of cattle into the market but the actual supply is determined by the number of cows on the ground and that number has been shrinking for some time. Given the heavy liquidation of cows in the southern Plains, the beef cow herd will likely be even smaller come Jan. 1, 2012, leading to lower calf crops in 2012 and 2013,” according to Steve Meyer and Len Steiner in their daily CME Livestock Report.
Commodity trading has continued to struggle as of last Thursday. December corn futures also continued to drop last week and as of midday Thursday, they were reported at $6.34, down nearly 20 cents since last week, which is the lowest it has traded in a very long time.  
Even though some rain has fallen, wheat prospects are still a big issue. “These dry conditions have another impact on pasture and feeding practices in their influence on wheat planting, wheat pasture and, ultimately, the supply of hard red winter wheat next summer. USDA reported that 26 percent of total winter wheat acres had been planted as of Sept. 25. That is an 11 percent gain for the week but leaves planted acres 6 percent behind the same date last year and 9 percent below the 10-year average,” according to Steve Meyer and Len Steiner in their daily CME Livestock Report.
Wheat increased over 10 cents since last week to end at $6.51 for December contracts as of midday last Thursday. Cattle usually move to wheat pasture in October and November.
Warm days and cool nights, along with little prospects of wheat pasture, keeps demand moderate for feeder cattle.
Total feeder cattle receipts last week decreased dramatically from the previous week to 291,900, down from 456,300. In the north-central region, calves and yearlings were down to $0.50-2.5 lower on light and medium weight calves, and almost $1 higher on heavy calves. In the south-central region, all weights decreased $1-2.50. In the southeast region, prices continued to rise, increasing $1.60-$2.
In Oklahoma City, OK, at the Oklahoma National Stockyards, 10,160 cattle were sold compared to 9,961 the prior week. Feeder steers and steer calves were steady to $2 higher. Feeder heifers were mostly steady to $1 higher, and heifer calves were mostly steady to $2 lower. The demand was moderate to good for feeder cattle, and improved throughout the day as the futures rallied. Buyers are becoming more selective with calf purchases. Supply included 47 percent over 600 lbs. and 47 percent heifers.
Further west at the Winter Livestock Auction in Dodge City, KS, 3,819 cattle were offered. The 400-500 lb. steers sold for $150-154.50. Heavier feeders weighing 500-600 lbs. sold for $142.50-147.50. Heavyweight steers (700-800 lbs.) brought $131.10-137.10, and 800-900 lbs steers brought $132.75-134.60.  
In the far West at the Cattlemen’s Livestock Market in Galt, CA, feeder steers were steady with good demand. The 400-500 lb. steers sold for $145-174. Heavier feeders weighing 500-600 lbs. sold for $130-150 while those weighing 600-700 lbs. brought $115-138. Heavyweight steers (700-800 lbs.) brought $110-128 and 800-900 lb. steers brought $105-124.
In the futures market, feeder cattle increased slightly. September feeder cattle were at $133.03 as of midday last Thursday, up nearly $1 since the previous week. October quotes were at $135.70 (up almost over $5), and November was at $142.05 (up nearly $6). The majority of futures contracts increased from the previous week’s prices.
The feeder index was at $132 as of Wednesday last week, and the variance between the feeder index and the future prices indicate that an increase in cash prices of feeders could occur in the coming weeks.

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