Market movement slow post holidays
The new year has started off slow in the fed cattle arena, seeing very little movement last week, with inactive to light demand in the southern and northern Plains, as well as the western Corn Belt. The previous week’s market saw sales at $122 in the Texas Panhandle, and in Kansas and Colorado, live sales traded at $121.
Nebraska saw live sales from $122-123, with dressed sales $200- 202. Live sales traded in the western Corn Belt the previous week at $124-126, with dressed sales from $200-202.
Cash cattle were bid at $119 last week in the southern Plains, with offers at $124-125. The estimated cattle slaughter came in at 131,000 head last Wednesday. This brought the total at midweek to 269,000 head, up from 262,000 head the previous week at the same time but down from 367,000 head at the same time a year ago.
The cash fed cattle market likely continues to hold some downside risk into the middle/latter part of February, where it will probably fall back down to the middle “teens,” according to Troy Vetterkind with Vetterkind Cattle Brokerage.
Packers are finally back to purchasing for a full slaughter week, but packer bids of $119-120 continue to be refused, with asking prices remaining at $124 on the southern Plains and higher in the north, according to analysts. Cattle owners have watched average carcass weights continue to drop under last year as some evidence of the current state of the offerings.
“Southern packers seem to be fairly well supplied with cattle, especially considering we are only going to see a 560,000-head kill for this week,” said Vetterkind.
Boxed prices were flat at midweek. Retailers should be turning their attention to restocking meat shelves soon and will become more active in the market, according to analysts. The Choice cutout was quoted at $194 and Select at $180. The spread narrowed to $14.
Time will tell if consumer demand will hold at these prices.
“The burden of proof as this New Year begins will be with the consumer. Per capita beef and meat production is set to decline. Exports are projected to increase, but at a much slower pace than last year. As such, their positive price impact will be significantly less than the previous two years,” according to Andy Gottschalk with HedgersEdge.com.
“Maintaining domestic beef demand will play a much larger role in determining the average fed cattle price this year.
We continue to contend the data on the U.S. economy is encouraging, although growth is less than we would all like to see,” he said.
“Most domestic buyers seem content with where they are inventory wise and feel there is downside risk to the current price structure of the beef market. There is still some near term interest in ground beef and a few end meats, but middle meats continue to be a drag on the cutout complex and this likely continues going forward,” Vetterkind said.
February cattle traded slightly higher by midweek. Ideas that the market will need to absorb declining supply ahead helped to support the market, according to CME reports. Sideways action in the beef market over the past week has helped to keep trading choppy as meat markets are sensitive to economic conditions in the U.S. and abroad, and a more positive outlook for the global economy for 2012 may help to provide some underlying longer-term support.
The supply situation still looks supportive for 2012 and if a more positive demand tone emerges early this year, the tightening supply should continue to strengthen an uptrend in the cash market, CME reports said.
The primary driver of markets in 2011 was exports, according to CME’s Steve Meyer and Len Steiner. Those exports were fueled by three major factors: A weak U.S. dollar, last spring’s foot and mouth disease outbreak in South Korea, and a surge in pork purchases by China late in the year.
U.S. beef exports for the first nine months of 2011 were 27 percent above the previous year, with exports to Japan and South Korea up 36 percent and 47 percent, respectively. Despite a projected 5 percent decline in U.S. beef output in 2012, exports are expected to hold at or above 2011 levels due to strong Asian demand and favorable exchange rates, according to analysts.
Vetterkind expects to see a pickup in export business in the coming weeks, which could be supportive to the markets. “But until that happens or weather returns to cattle feeding country, I think beef markets will drift lower,” he said.
Feeder cattle demand came through the year-end holiday weeks seemingly unscathed and perhaps a bit emboldened.
The bright spot in the cattle market last week was in the feeder cattle trade, where feedlot replacement buyers came back from two holiday-shortened marketing weeks and couldn’t seem to spend enough money for cattle, according to Vetterkind. “Many of the sales canvassed through the first half of [last] week have cattle anywhere from $5 to as much as $10/cwt. higher compared to the week before Christmas,” Vetterkind said.
“Everyone keeps wanting to tout the “supply” story in the cattle market and until some of these cattle start to lose money because “demand” doesn’t live up to expectations, expect to see further strength in the cash feeder trade,” Vetterkind added.
Pre-holiday snowstorms in the southern Plains had curbed feeder marketing before Christmas and there was little push to do much business before the end of the year. However, northern Plains’ cattlemen were not going to let the holidays interfere with early winter runs and brisk demand from diversified producers looking to make purchases before the end of the 2011 tax season.
Nebraska saw the most activity, with several auction markets holding specials to take advantage of the increased year-end demand. A few days before Christmas, Valentine sold a load of fancy 533 lb. steers for $190 and a few days after Christmas, the Ericson/Spalding Livestock Auction was selling spring calving bred heifers up to $2,150 a piece.
Weather patterns across much of country ended the year unseasonably mild, with northern producers basking in the sunshine and southern folks savoring the snow melt with relatively no runoff reported.
Feedlots negotiated hard to keep fed cattle closeouts near record highs to finish the year. Outlooks continue bright for the beginning of 2012 with no foreseeable fundamental hurdles and the entire industry on the watch for any food safety or consumer perception concerns.
The combined two week reported auction volume included 47 percent over 600 lbs. and 44 percent heifers. — WLJ