Boxed beef prices trend lower

Jan 20, 2012
by WLJ

With packer margins remaining deep in the red due to sluggish beef prices last week, poor margins could be seen as a limiting force for the cash cattle market during the weeks ahead.

The basic supply and demand rules seemed to be off last week. Beef is typically pulled by demand, and buyers compete with each other, pushing boxed prices higher and sending packers looking for cattle, creating a demand-driven rally, but packers continue to lose money, and despite high feed costs and feeders losing money, both are at a standoff, unwilling to make price concessions.

Cash cattle markets remained quiet most of the week with the exception of a few sales reported to USDA in Texas at $1.86 dressed and in Iowa at $115 live. There were no packer bids published by midweek, with most feedlots pricing smaller showlists at $125 live in the south and $2.03-2.05 dressed in the north.

The prior week, a few cattle in the Southern

Plains sold at $123. In Nebraska, live sales sold at $124 and dressed sales at $198. In Colorado, live sales ranged from $123-124. In the western Corn Belt live sales sold from $123-124 and dressed sales at $198.

“Beef markets remain under pressure; however, it is thought that prices there could stabilize by the end of the week. The cash feeder cattle market continues to show strength with most markets [Wednesday] being called steady/$2 higher. Demand for feeders remains active as buyers scramble to get inventory around them,” according to Troy Vetterkind with Vetterkind Cattle Brokerage.

Show lists were little changed from the previous week. Packers continued their trend of waiting until late week, hoping to see the futures move downward. Asking prices in the south were mostly at $125.

With one day less, December marketings are expected to be down nearly 3 percent from last year.

Futures closed mixed, up 10 to off 32, midweek. Although sellers and profit takers kept live contracts under significant pressure for most of the trading day, late buying and short covering helped the pit settle no worse than mixed. The recent display of impressive feedlot leverage is keeping would-be sellers cautious, according to analysts.

The sluggish beef market was expected by some analysts to leave futures vulnerable to a downside correction ahead of the USDA Cattle on Feed report The puzzle of the current market last week was the slaughter number. Packers killed more cattle than the prior year in the face of what seem to be large processing losses. This either means they aren’t losing as much as reports show or cutbacks in slaughter are on the front burner.

The total slaughter by midweek was 387,000 head, unchanged from the prior week at the same time but up from 377,000 head from a year ago.

“The weekly kill is running 3,000 head above last week’s pace with the industry looking for a slight pull back in production to the 645,000 head level,” Vetterkind said.

Packers are still losing money and seemed to be waiting until the last possible moment on Friday afternoon to convince sellers to lower prices.

The weakness in beef does not bode well for the packers’ ability to pay up for live inventory.

Higher cash prices combined with the lower beef market of the past week has forced packer margins deep into the red, reaching close to $60 per head.

“Product markets continue to post sloppiness. Margins for meat sellers, retail or wholesale, are devastatingly negative. The only viable relief would come from a spark from the consumer that would allow for higher retail prices,” according to Andy Gottschalk with Hedg

According to analysts, it is unusual for boxed beef products to sell $5 lower for the week while live cash prices jump $2 higher. The boxed prices are the most obvious and direct reflection of demand for beef in the marketplace, analysts say.

Seasonal patterns normally see boxed prices rally following the first of the year.

While there has been a rally in some of the end cuts, the overall cutout has not moved higher.

Boxed beef cutout values were unchanged at midweek and closed 37 cents lower at $182.53. This was down from $188.97 the prior week and is the lowest beef market since Sept. 30.

Ground beef markets were a little lower midweek, which pressured some of the thin meats, but boneless cow beef was higher, analysts said. Middle meats continue lower. “One bright note to the beef market is that a lot of the negotiations on end meats in forward delivery slots takes place at higher money than the current spot market,” according to Vetterkind.

The latest USDA forecasts for U.S. beef, pork and poultry supplies in 2012 predicts that U.S. meat supplies will be tighter than last year. Analysts said the forecast will support “firm” meat prices, particularly given forecasts of strong exports for all three main species.

The decline in meat supplies is due to smaller beef and broiler production. Pork production is expected to increase for the second consecutive year but the pace of the increase has so far been relatively modest.

Total beef production for 2012 is now forecast at 25.075 billion pounds, some 1.22 billion pounds or 4.6 percent lower than in 2011. If this forecast for beef production materializes, it would represent the smallest output number since 2005. Grain prices have fallen recently but this will do little to increase beef production this year, analysts said.

Feeder cattle

Trading in replacement cattle was steady to firm. The cash index hovered just above $150. Most buyers are cautious with one eye on cash fed prices and the other on grain futures. Short wheat forced many cattle from the few wheat fields occupied with cattle. The National Weather Service announced a forecast continuing the drought in the Southwest. New Mexico reported the smallest numbers of cattle in a quarter of a century. A 750 pound feeder steer was selling for $150 on the south Plains.

Calf prices continued the upward climb, but the trajectory of the gains was no ticeably

flatter. Feeder calves sold firm to $5 higher than the previous week’s sharp gains with instances of $10 higher in some classes, including top quality 6 weight heifers that continue to find increased competition from replacement buyers, and steers under 550 pounds.

Many major auction markets were just getting back into the swing of things, following the holidays, and fully realizing the New Year gains that mid- to late-week markets noted the previous week. Hence, some individual auction trends were more sharply higher than the nationwide trend that already accounted for the market improvement during the first full week of 2012.

In fact, there were actually signs of weakness noted at some late week sales— especially on the droves of heavier calves (over 700 pounds) that were supplemented and carrying excess flesh due to the lack of wintry weather during this mild start to the winter season. A midweek cold snap did come down from Canada to remind the Midwest and Northern Plains of the calendar with sharply lower temperatures.

Much of Texas received much needed moisture last week with Midland/Odessa posting 10 inches of snow and heavy rains in south Texas.

Cattle feeders are going to need input cost relief somewhere if recent purchases stand a chance of holding their money together. Feeder cattle prices are at their highest point, yet feedlots are working to fill needs as supplies are bound to become tighter than in recent years.

Nebraska prices continue be out-front with orders pouring in for replacement quality heifers, which, consequently, improves the demand for both heifers and steers of similar weights. Several consignments of 600-850 pound heifers were sold for keepers in Bassett, NE, the previous Wednesday including a load weighing 612 pounds at $212 and another pot load of 840 pound fancy girls at $177. The next day in Valentine, NE, the weighted average price on over 330 head of top quality 500-550 pound steers officially broke $2/ pound, which many consider to be a major breaking of a resistance point on the benchmark calf class. — WLJ