Futures remain choppy
A weekend of winter weather delayed trade in some areas last week, with Midwest feedlot operators spending much of their time cleaning up after a heavy moisture front moved over the Rockies and onto the Plains, bringing with it heavy snows to the north and beneficial rain to the south. Along with the weather, other outside influences continue to impact cattle futures, but cash cattle prices are finally coming closer with a compromise as the bid/ask margin narrows.
Last week saw packers bidding $122 against $126-127 asking prices, while the cash fed cattle remained slow, with the best bids by midweek at $121 live going unmatched against feeder offering prices of $126-127 live and $2.03-2.05, according to Troy Vetterkind with Vetterkind Cattle Brokerage.
The last two weeks have seen the packing industry cutting kills and becoming more stubborn in the weekly haggle as they insist they can no longer pay over $200 for dressed carcasses when Choice boxes are valued just over $180.
April cattle closed slightly higher last Wednesday after choppy and two-sided trading as the market found support from higher beef prices this week, a lower U.S. dollar and economic optimism, according to Chicago Mercantile Exchange reports.
“Cattle futures settled mixed [Wednesday] but with a bullish bias. The bull spreads were performers yesterday with Feb/April and April/June leading the charge higher on good volume,” Vetterkind said. The reason for the advance included a cattle kill running 8,000 head above the previous week, he added.
“The beef has been higher all week but spot sales volumes remain light and probably won’t pick up until late in the week,” Vetterkind said, referring to last week’s markets on Thursday. “Unless the futures break hard today or tomorrow, which seems unlikely at this point, it looks like a steady/higher cash fed cattle trade is in the cards,” he added.
Boxed beef prices continued to work higher, with stronger middle meats dictating prices. The Choice cutout was quoted at $186.50 and Select at $181.50. The spread was quoted at $5.
Boxed beef cutout values were up 79 cents at midsession on Wednesday and closed 88 cents higher at $186.56. This was up from $184.27 from the prior week and is the highest beef market since Jan. 12.
“Spot sales volumes remain a little on the light side, but it does seem like there is some business being done forward. The undertone for end meats is a little sloppy yet as retail buyers don’t want to take on any extra inventory at current price levels. Boneless beef markets are mixed with higher cow 90’s and lower fed cattle 50’s. The 90’s are higher on lighter cow kills and the 50’s are steady/ softer on lighter grinding demand. I would still look for a firmer tone to the cash beef market going into [this] week with middle meat procurement coming into center stage,” Vetterkind said.
Beef packer margins were a negative $87.15 last Monday, down slightly from Friday’s negative $83.65 per head, but an improvement from a week ago’s negative $106.50, according to Hedgersedge.com.
“Packer margins are still in tough shape, but I don’t think that is going to matter as the market or “powers that be” smell the blood in the water and any hint that there is beef business being done, whether it’s here or abroad, and these guys are going to persistently run the futures higher and hurt those that are not hedged or don’t have coverage in the cash,” Vetterkind said.
Slaughter on Wednesday was 120,000 head, which was lower than market expectations. This brought the midweek total to 371,000 head, up from 363,000 the previous week at the same time but down from 373,000 a year ago.
“So with that said, you have to view the futures market from the long side, providing April live cattle hold above $128 and the April/June live spread holds above $1. It seems like the feeder market has calmed down a little bit in the cash and this is likely going to temper gains in the futures. We maybe just trade sideways in the feeder futures for a minute as opposed to rallying very hard or breaking very hard. That said, a March feeder cattle contract above $154 is still a positive market,” Vetterkind said.
Last week’s export sales rebounded to over 20,000 metrictons.
Lighter weight replacement feeder cattle are hot items, offering a variety of benefits. The cattle feed cheaper and are more reliable from a performance standpoint, according to analysts. They also deliver an important benefit of a reduced turnover. Light cattle will be in a pen for more days and will not require the feedlot operator to move back into the replacement market as often.
According to analysts, this has caused some feedlots to move into the Holstein feeding business purchasing a 300 pound calf and feeding the animal for over a year. This option may become more problematic with the rising price of lighter animals.
Feeder cattle settled 10 to 50 points lower despite the ability for the live cattle contracts to hold slight gains through much of the session. Traders remain concerned about the longer term trend in the cash cattle markets as well as a lack of renewed support as the outlook of lower overall cattle numbers and potentially tighter feeder supplies fades into the background. March settled 0.32 lower at 154.12, and April was down 0.47 at 156.55.
“Demand for feeders is still strong, however, buyers do seem like they are wanting to take it easy and trying to buy cattle a little more in line with breakevens,” Vetterkind said.
Recent rains across Texas, New Mexico, Oklahoma and Kansas may set the stage for a surge in replacement cattle, according to analysts.
Record-breaking prices have brought the cattle to market in January, threatening supplies down the road. Prices for lighter cattle climbed again, pushing many 400 pound steers up to $200-225. A 750 pound feeder steer was selling for $155 on the south Plains.
Feeder cattle receipts at the Oklahoma National Stockyards last Monday totaled 6,200 head. Compared to the prior week, feeder steers and heifers at midsession were steady. Steer calves traded $4-8 higher; heifer calves were steady to $2 higher. Feeder steers medium and large weighing 500 to 550 pounds traded from $184 -196.50. Heifers weighing 550 to 600 pounds brought $150.50- 163.50.
The previous week, feeder cattle over 750 lbs opened slightly lower but closed steady to $2 higher following a midweek rally in the CME cattle futures. Calves and short-yearling stockers sold $3-8 higher on their continued path to the moon as grass interests aggressively bid on cattle as if it were mid-March.
Buyers continue to place premiums on the thinfleshed calves even though the groundhog promised another six weeks of winter. So far, the winter of 2011- 2012 has been the mildest on record for many major cattle production areas, causing backgrounders to forget how miserable a snowstorm or blizzard can be on new purchases.
The full advance of the feeder market was noted on the females as the steer/ heifer discount has narrowed to its tightest point in recent memory, the result of steer buyers searching for ways to cheapen-up on the average to lower quality kinds and additional competition from replacement buyers on the highest quality offerings.
A fancy load of 575 pound girls in Valentine, NE, brought $189 on Thursday and 5 weight heifers sold as high as $175 as far south as San Angelo, TX.
One thing that’s guaranteed on the market roller coaster—change. In 1952, the number of people living within our borders was roughly half as large as today; a gallon of gas cost 20 cents; a pound of hamburger was 53 cents; and Elvis Presley was a high school student working part-time as a theater usher. — WLJ