Choice cutout values continue upward climb

Nov 25, 2011
by WLJ

Fed cattle trade was again slow to develop last week, with just a handful of cattle trading in major feeding areas. Most market analysts were looking for fed trade to be completed Wednesday afternoon at a slightly lower level.

By midweek, negotiated cash trade was active on very good demand in the southern and northern Plains as well as the western Corn Belt before the holiday. Compared to the previous week, in the Texas Panhandle, live sales traded $.50-2.50 higher from $123-125. In Kansas, live sales traded $1-2 higher from $123-124 with the bulk of sales at $123. Compared to the previous week in Nebraska, live sales traded $2-3.50 higher from $125-127 with a few up to $128.

Dressed sales traded $4 higher mostly, at $200, with a few up to $202. In Colorado, live sales traded $3-3.50 higher at $127 with a few up to $127.50. Compared to the previous week in the western Corn Belt, live sales traded $2-3 higher from $125-127 with dressed sales $4 higher at $200 with a few up to $202.

Commercial red meat production for the U.S. totaled 4.27 billion pounds in October, up slightly from the 4.26 billion pounds produced in October 2010, according to USDA’s monthly Livestock Slaughter report.

Beef production, at 2.22 billion pounds, was 1 percent below the previous year. Cattle slaughter totaled 2.86 million head, down slightly from October 2010. The average live weight was down 9 pounds from the previous year, at 1,289 pounds.

Poor economic news from China plus a poor bond auction in Germany pressured most economic sensitive commodity markets, pushing cattle markets sharply lower midweek, according to CME.

A jump in the U.S. dollar added to the negative tone and sparked increased fund selling early on Wednesday, according to analysts. However, news that the cash market traded $2 higher to $124 in Texas helped and the market pushed above the previous days’ highs to trade moderately higher on the day into the mid-session.

The lack of fed cattle trade was the result of packer bids at $120, according to Troy Vetterkind, Vetterkind Cattle Brokerage. ”I would assume that if packers were to raise bids up to last week’s market of $122-$123/$1.96 that they would buy a lot of cattle,” Vetterkind said.

Wednesday’s cattle slaughter number came in at 131,000, 125,000 the previous week, and 129,000 the previous year.

Cattle futures rallied some midweek as cash prices moved higher. Continuing a recovery from the previous week’s selloff, December contract was supported at $118.50 “December live cattle is into some near term resistance at the 45-day and 100-day moving averages at $121.50 and a 50 percent retracement from the $125-$118.50 break comes into play at $121.90,” Vetterkind said. The same moving average resistance in the February live contract came into play at $123.70.

The boxed beef market was much stronger and packers were wanting to spend $120–122 for fed cattle to get their margins back in positive territory.

Boxed beef cutout values came in at $197.77 midweek, which was up 90 cents from the previous day and up from $195.45 the previous week.

Wholesale Choice beef cutout values continue the upward climb. This, combined with the decline in the price of Select beef, adds to the growing spread between Choice and Select beef which was at $19.20, according to USDA.

“Limited production and steady demand for beef continues to support the cutout market,” Vetterkind said.

USDA’s monthly Cold Storage report, released last Tuesday, indicates that the total inventory of frozen meat and poultry as of Oct. 31 was smaller than both last month and last year.

Total beef stocks were estimated at 414 million pounds vs. 427.5 million pounds last month and 414.6 million pounds last year.

In its Livestock, Dairy, Poultry Outlook report, USDA noted that after peaking at a weekly average of $187.25 per cwt. during the last week of August 2011, Choice cutout values declined to $180.25 during the second week in September before reaching $189.92 during the second week of November.

At the same time, Select beef declined from a peak of $181.75 during the third week of August 2011 before declining to a low of $168.70, but then reached $171.43 during the second week of November.

This strength in Choice beef has been attributed to both smaller numbers of Choice grade cattle and continued large cow and bull slaughter and to Wal-Mart’s decision to sell Choice beef in their stores, USDA said.

The basic laws of supply and demand brought corn futures down last week. USDA’s weekly corn export sales report last week showed net exports of 8.2 million bushels, the lowest since the end of August and less than half the volume of weekly sales in November last year. Export shipments since Sept. 1 are off nearly one-fifth from a year ago, but outstanding export sales for this year are up nearly 16 percent, reports USDA.

Analysts have been expecting exports to be off.

USDA projects exports at 1.6 billion bushels, down from 1.84 billion last year and 1.98 billion in 2009-10. The projected exports would set a nine-year low, noted University of Illinois economist Darrel Good in a Nov.

14 outlook release.

“Exports have been less than 1.6 billion bushels only six times in the past 36 years,” he reported. “Through Nov. 10, the pace of weekly export inspections continued to run well below the average pace needed to reach the USDA projection.”

Prices opened at barely under $6 on the spot December contract the day before Thanksgiving. Corn trading was accompanied by lower wheat prices and those declines may signal a switch to wheat for some feeding areas, according to analysts.

In addition, higher oil prices in the past couple of weeks have stimulated ethanol demand. The basis in Guymon OK, is 90 cents over December contract. Corn is now pricing into most rations at $12.50/ cwt.

Feeder Cattle

The Nov. 18 Cattle-on- Feed report was well forecasted with only October marketings wavering from analysts’ expectations by falling slightly on the cattle market’s friendly side. Nov. 1 inventories were 4 percent larger than a year ago (18th straight larger year-over -year figure) while October placements were 99 percent of last year and marketings were 3 percent larger than 2010.

Kansas and Nebraska were the only two states to report cattle on feed totals below the prior year, down 3 percent and 1 percent, respectively.

The largest increases in cattle on feed were reported in Arizona, at 16 percent, and Washington, 15 percent. Cattle on feed seasonally increase by an additional 149,000 head by Dec. 1.

Compared to the previous week, the bulk of available feeder offerings were springborn calves weighing from 500-700 lbs. which sold steady to $4 higher.

The calf demand was by far the best for lighterweights where trading activity exploded and prices ranged $6-12 higher with many instances as much as $20 higher than already record levels. True yearling feeder cattle were lightly tested but sold with a much higher undertone.

The current price levels are extremely satisfying to cow/calf producers who have persevered through historically challenging droughts and wintry weather over the last few years, not to mention the temptation to plow up their grass or totally devote their land to recreation.

Many of these calf producers and yearling backgrounders have experienced a more profitable year than they could have ever imagined, but not even last week’s all-time-record fed cattle trade was enough to pull some feedlot closeouts out of the red ink.

Cattle feeding has mostly become a game of small margins on economies of scale mired in risk management that many times offers more opportunities than the cash position itself. Most feedlots refuse to operate with empty pens and their desire to maintain inventories causes an accumulation of feeder cattle that have unrealistic breakevens.

The previous week at the Pratt, KS, Livestock Auction, an outstanding offering of nearly extinct grass yearlings was on hand. The famed Gardiner Ranch sold a string of top quality blackhided “green” yearlings full of carcass-driven genetics and complete with an attractive weighing condition.

One light load of steers weighed 704 lbs. at $157.10, with accompanying straight loads of 804 lbs. at $155.10 and 870 lbs. at $149.25.

These will be some of the last grass yearling sales of the fall as offerings have been liquidated at prices hundreds of dollars per head higher than their owners could have hoped for.

Now, as these backgrounders look for future opportunities to profit, they have become extremely aggressive for lightweight calves to dry winter and get the early jump on next spring’s grass.

Steers are preferred, which has stretched the steer/heifer spread wider than Choice/Select or even Diesel/Gasoline. Now, the majority of male calves under 500 lbs. sell at prices greater than $150. Feedlots were unable to maintain last week’s record breaking fed cattle market (a live steer weighted average price of $125.49 for the five major feeding areas) and sold $2-4 lower from $122-123.50.

In Texas, feeder steers and heifers sold firm to $5 higher. Yearling cattle were lightly tested but a higher undertone was noted. Demand was moderate to good.

Slaughter cows and bulls sold firm to $5 higher.

In the Washington, Oregon and Idaho area, feeder cattle receipts were 4,900, up from 3,600 the previous week, and 800 a year ago. Both stocker and feeder cattle were steady in a light test.

Feeders were 100 percent of the supply. The feeder supply included 33 percent steers and 67 percent heifers. Near 91 percent of the supply weighed over 600 lbs.

In Montana, steer calves under 600 lbs. sold steady to $2 higher; steer calves over 600 lbs. sold $2-4 lower. Yearling steers were lightly tested. Heifers calves sold $1-4 higher. Yearling heifers sold mostly steady. Feeding cows sold steady to $2 lower. Slaughter cows sold unevenly steady. Slaughter bulls sold steady to $1 higher. — WLJ