Winter weather market rally cools off

Dec 30, 2011
by WLJ

The fed cattle market fell back in line last week after giving cattle feeders a white Christmas. Cattle feeding margins improved some as cash fed cattle prices jumped $4 per cwt. to $123 in southern feedlots. Northern feedlots sold cattle $6-7 higher at $125-126, and dressed cattle sold mostly at $202 per cwt. Bidding remained limited last week, with $119 in the south Plains and $193 in the Corn Belt, because of weather woes.

This year’s beef production numbers are coming in just under 2010 results.

November’s livestock slaughter report showed beef production totaled 2.15 billion pounds, a 4 percent decrease from November 2010.

Total U.S. commercial red meat production decreased by 2 percent from last November’s totals, moving from 4.33 billion pounds last year to 4.26 billion pounds. January to November 2011 production was 45 billion pounds, up 1 percent from the same time period in 2010.

Offers are in a full range of $124- 127 live and $204-205 dressed, according to Andrew Gottschalk with “Product values are advancing based on limited production schedules. We expect product prices to trend lower as soon as full production is resumed. It is increasingly evident that consumers are unwilling to support prices at current levels,” he said.

“Not surprisingly, as prices have declined, cattle feeders appear to have become less enthusiastic sellers,” according to John D. Anderson, Ph.D., senior economist, American Farm Bureau Federation.

The volume of deliveries from negotiated sales has dropped fairly sharply in the last couple of weeks. Last week, negotiated sales were 78 percent of a year ago. Two weeks ago, they were just 65 percent of a year ago.

Deliveries of formula and forward contract cattle have been generally close to even with yearago levels—except for two weeks ago when they shot up as much as 14 percent higher. Overall, delivery volumes for the last couple of weeks have been down by 10 percent to 12 percent yearover-year, according to Anderson.

Tim Petry of North Dakota State University in an article published by the Livestock Marketing Information Center last week discussed the increase in the markets, citing several factors that have driven this unusual fall rally in calf prices:

1) Corn futures prices have fallen sharply. The demand for calves is derived from the demand for fed cattle roughly a year hence and the cost of converting a calf into a fed steer. The feeder cattle market serves as an intermediary in that calf demand derivation. When corn futures were near $8 per bushel at the end of August, those calf-to-feeder-to-fed steer conversion costs loomed huge and kept calf prices low relative to heavier weight cattle markets. But the plunge in corn futures to near $6 per bushel during September promised much lower-than-expected feed costs, adding value to calves.

2) 2012 live cattle and feeder cattle futures increased. Both of these added potential value to the endproduct of calf grazing or backgrounding. Live cattle futures rose from $122 in September to near $130 by early November. Feeder cattle went from $134 to $150 from September to November.

3) Calf supplies are tight.

The July 1 cattle report pegged the 2011 calf crop at 1 percent smaller than one year earlier and had feeder cattle supplies outside of feedlots (which includes calves) at 2.5 percent lower than last year. Summer placements saw many more light cattle moving into feed yards, further tightening the number of calves available this fall. A feed cost advantage caused some calves to move from the northern Plains into Canada for feeding. That is an unusual circumstance but it certainly contributed to stronger calf prices, especially in the north.

As for the outlook, Petry points out that calf prices are already at record levels, implying that more strength may be difficult to come by. Calf supplies usually increase into the spring months but they may be historically tight this year given the reduction of the beef cow herd and continuing drought conditions in the Southeast and southern Plains.

Boxed beef prices were basically steady the previous week, with the weekly Choice average gaining $0.57 to $189.14 and the weekly Select average slipping $0.69 to $171.49. Last week, they moved higher by midweek. Both Choice and Select cutouts pushed $1-2 higher. The Choice cut out was quoted at $193.50 and Select at $179. The spread was $14, the lowest in several weeks and is expected to narrow in the coming weeks but remain well above historical levels, analysts said.

Futures prices have been working higher but were threatened by corn prices that are sharply higher.

Corn prices have moved higher in eight consecutive trading sessions, according to analysts. Prices have moved almost 70 cents per bushel higher.

Feeder cattle

Stocker and feeder cattle were quiet last week. Feeder cattle prices were called steady to $2 lower in the national weekly summary. Stocker prices were uneven, with light-weight calves still making a pretty strong showing while prices on middle-weights generally slipped $3 or $4.

Kansas Weighted Average Report for the three feeder cattle auctions (Dodge City, Pratt and Salina) totaled 2,851 head, including 2,723 head of feeder cattle and calves. Weighted average based on 2,361 head or about 87 percent of the total feeders. Approximately 83 percent of the feeders were 600 lbs. and over. Feeder supply 64 percent steers and 36 percent heifers. There were to be no auctions for week of Dec. 26 thru Dec. 30.

In the Northwest direct feeder cattle area, compared to the previous week, there were not enough of any one class of stocker or feeder cattle for accurate trends. Trade was at a near standstill as most feedlots are at capacity levels. Feeders were 100 percent of the supply. The feeder supply included 57 percent steers and 43 percent heifers. Near 71 percent of the supply weighed over 600 lbs.

In Kearney, NE, compared to last week, on a light test, steers sold steady to $4 higher. Heifers under 600 lbs. sold steady with weights over 600 lbs. trending $3 to $5 higher. Buyers were aggressive on a light supply of calves and feeders on the pre-holiday week. It was noted at most auctions, large crowds of buyers filled the seats and bidding was also active on the internet. Slaughter cattle sold sharply higher in Nebraska; live sales sold $6.50-7 higher from $125-126.50 and dressed sales sold $8 higher at mostly $202. Of the feeders: steers comprised 64 percent of the run, heifers 35 percent, with the balance on bull calves with 62 percent offerings over 600 lbs.

In Texas, the Christmas holiday coupled with winter storms blanketing most of the southern Plains dramatically decreased livestock auction receipts for the week. Prices reported are from the last available market two weeks ago. Hay moving into the state was also delayed due to a large number of highway and road closings. Moisture from these storms was welcome and came in the form of rain and snow mixes. Texas High Plains cash grain markets closed with wheat 30-36 cents higher, soybeans not established, and corn 26-37 cents higher compared to a week ago. — WLJ