Rallies in cash and futures

Markets
Apr 13, 2012
by WLJ

The cash fed cattle gained $1-2 on a midweek rally supported by strong boxed beef trade. Futures saw a significant increase mid to late week and the overall tone was optimistic.

South Plains cattle started Wednesday steady at $119-120 but closed the day trading at $122. North Plains saw steady selling at $122 with Nebraska and Iowa seeing slightly higher live prices than the rest of the north, as high at $123.50, and dressed prices at $194-195 with a few instances of $196.

As with the cash fed markets, near-term futures started the week trending down, but rallied significantly by mid to late week. April futures started the week supported at $116.65, and June at $113.90, both trending down from the prior week. Throughout the week, the downward trend continued to midweek.

Wednesday afternoon and Thursday morning saw significant upward gains, however. Due largely to the larger volume of boxed beef sold, near-term futures went up roughly $1.50-2 to $118.37 for April and $115.05 for June by close on Wednesday.

Thursday saw even more dramatic increases. April and June futures opened at $120 and $116.23, respectively. By midday, both had increased spectacularly to $121.30 and $117.30, respectively. Deferred futures were also on the increase with August at $120.18, October at $126.48, and December $128.75.

Choice and Select cutout values were mixed and indecisive, but trending down from the prior week. Choice cutout started the week at $180.79 and declined throughout the week. Choice cutout fell below the Select cutout by midmorning Thursday, with Choice at $176.55 and Select at $176.86.

Packers were still losing money, currently at about $97 a head last week. Being somewhat short bought, however, played a part in the midweek price rally.

Domestic beef demand was still soft coming out of Easter, but some optimism existed for an increased demand for middle meats in the near future. Export sales of beef were up 79 percent from last week and up 46 percent from the four-week average. Several analysts credited the low beef prices for this increased interest abroad. Imports are having an effect on cow beef prices, but this will be addressed later.

According to Troy Vetterkind of Vetterkind Cattle Brokerage, earlier predictions of cheap muscle cuts going into ground have come to pass. “There were still some sporadic discounting in the rib, chuck, and round primal [Wednesday] but not only did we get many end meats cheap enough to fit into grinding formulations, but I think we also attracted some export business…” Slaughter volume expectations were 610,000 head last week, down from the prior week’s 622,000 head. This number is considerably down for the season. Each day’s numbers saw a decline as compared to the prior week’s numbers. Despite decreased slaughter rates, week-to-date negotiated sales (as of market close Wednesday) stood at 90,745 head, up almost 20,000 head from week-to-date numbers from the prior week, indicating larger slaughter numbers next week.

Considerable optimism came out of the movement of ground beef and 50 percent trim last Wednesday.

Almost double the loads of trim and grind were sold last week, Wednesday, as compared to the prior week and at a slightly increased price. The 50 percent trim market is still low at $53.58, but 90 percent trim is strong at $222.58.

There are expectations that lean cow beef prices will take a hit in the near future. Increased cow beef imports from Australia and New Zealand are expected to put pressure on domestic cow slaughter. Import increases from those areas were up 76 percent in March and up 70 percent for the first quarter as compared to 2011.

Lagging milk margins are also expected to make more cull dairy cows available to slaughter, which will likely drive lean cow beef prices lower in the near future.

Feeder cattle

Feeder cattle and calves sold $4 -8 lower with many instances of as much as $15 lower on calves under 500 lbs. The sharply lower trend initially sounds harsh, but recall how sharp the weekly advances were through the fall and winter months that enabled the all-time record levels that most all producers were able to enjoy at least a portion of. The events that released the trapdoor on the feeder markets centered around the USDA crop report that lowered quarterly corn stockpiles and the ensuing Chicago frenzy that sent nearby corn contracts up the limit and cattle futures down over $2.

The number of feeder cattle available in the country is still VERY LOW relative to history. The Livestock Marketing Information Center in Denver, CO, estimates, based on USDA’s Jan. 1 cattle inventory data, that there were 25.8 million head of feeder cattle outside of feedlots on Jan. 1 this year. That is 4 percent fewer than one year ago and nearly 7 percent fewer than on Jan. 1, 2010. This year marks the first time EVER that beginning-year feeder cattle numbers have been below 26 million head. And the trend will likely continue this year. The last time that a U.S. calf crop was larger than the preceding year was in 1995.

This, along with the general gloominess that has fallen over the beef industry since the sudden consumer distaste for LFTB (lean finely textured beef) was projected by mainstream media, has taken a toll on all classes of cattle.

The basis (difference between the cash price and the spot CME futures price) was the only thing that saved cattle feeders. Feedlot managers were working with a $4 -5 positive basis that helped make many of this week’s closeout pens reach their breakeven.

The problem is, the alleys are full of cattle that wash in the mid $130s and the hope of feed cost relief does not appear to be developing. The fastest way to improve breakevens is to pay less for feeder cattle.

Green City sold a load of 864 pound steers at $152, while Bassett featured a big load of thin-fleshed 710 pound steers at $179 and 46 head of 700 pound replacement quality heifers at $164.

In Oklahoma City, OK, receipts were reduced because of Easter and conditions that remained very wet and muddy in parts of the state. Feeder cattle were steady to $2 lower in a light test. Steer and heifer calves were mostly steady. It is important to note, comparing year ago averages, Easter week of this year did not fall on the same week as last year’s. Last year’s Easter holiday sale had receipts of just under 4,200 head. Supply included 78 percent over 600 pounds; 41 percent were heifers.

Amarillo, TX, saw an extremely limited test on feeder steers and heifers with not enough sales for an adequate market trend. Receipts in Texas were also curbed by the Easter holiday with only one load of steers available in the offering.

In the Northwest Direct Feeder Cattle area, a similar holiday trend emerged with not enough sales for an accurate trend. Trade was at a near standstill due to lower futures and live cattle markets. Demand was light to moderate as most feedlots in the trade area are full. The feeder supply included 33 percent steers and 67 percent heifers. Near 100 percent of the supply weighed over 600 lbs. Receipts were at 600, down from 2,100 the previous week, and up from 1,700 a year ago.

In Torrington, WY, compared to two weeks ago, feeder steers and heifers sold $3-6 lower. Demand was moderate to good. Extremely dry, windy weather prominent across the region is causing a very slow start to green grass, causing some concerns. Feeder supply was approximately 41 percent steers, 59 percent heifers, of which 49 percent weighed over 600 lbs. Of the total receipts, approximately 5,550 head were feeder steers and heifers. — WLJ

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