Packer margins, cutout values and trim prices improve

Apr 20, 2012
by WLJ

Trading in cash fed cattle was slow to start up last week. Some interest developed late Wednesday and progressed into Thursday morning. Southern Plains trade was light to moderate at mostly $121-122, but with the bulk at $122, steady with last week. In the North Plains and Corn Belt regions, trade was mostly inactive until Thursday’s morning trading with some cattle selling at $123 in Nebraska. Dressed bids were steady at $196 with a Nebraska regional packer paying $198.

Near-term futures danced about most of the week. April futures didn’t stray too far from that mid-$120 area. June futures, however, took an almost $1.50 hit, going into Thursday at $115.70.

“A close over $122 basis April futures would confirm a trend reversal ‘up’. The trend change level of June cattle futures is $118,” according to Andrew Gottschalk and Bob Wilson of Hedgers Edge. Neither near-term contract saw those prices.

Cutout prices, cut-specific values, consumer beef demand, and packer margins were the bright spots in last week’s markets. Choice cutout started the week at $178.51 and did nothing but go up all week, seeing midday Thursday values at $186.87. Select cutout similarly went from $177.33 to $184.28. These best-in-months gains have been attributed to the prior week’s light slaughter numbers and improved near-term beef interest in consumers.

Particularly good news for packers has been the precipitous drop in how much they lose per head. Coming off of the previous week, packers were losing just under $100 per head. By midday Thursday, packer margins had improved, now only losing $30 per head. Though they are still in the red, this drastic change is a welcomed reprieve from extended periods of high losses.

As mentioned, near-term consumer demand is picking up slightly. This mild uptick has been attributed to usual seasonal beef interest, the optimistic speculation the scandal over lean finely textured beef (LFTB) is fading from consumer consciousness, the tightening supply of ground beef, and modest increases in recent consumer spending.

Exports, however, were down 12 percent at 20,700 metric tons last week as compared to the prior week. Despite the week-toweek drop in exports, last week’s numbers are still 5 percent higher than the four-week average. Export increases were reported to South Korea, Mexico, Japan, Canada and Russia.

Cut-specific prices were strong across the board on most domestic meats. Chuck, round, loins, thin meat items and even ground beef formulations saw steady to strong—and in some places, sharply higher—prices. The only items which were not selling well were briskets and all imported boneless items, both of which saw some discounting by the end of the week.

Sale volumes of beef were called moderate to good throughout the week. The number of loads sold at the beginning of the week outstripped the prior week’s numbers, then backed off by midweek. Despite the week-to-week dip in sales volumes, analysts were still optimistic about the situation.

Industry expectations for last week’s slaughter numbers stood at 600,000 head, though analysts thought it unlikely the number would be achieved. In keeping with the trends in the beef loads sold, the week started with more cattle processed than the prior week, leveled out as steady, then dipped below the prior week’s numbers by the close of the week.

A significant bright spot in last week’s markets was the rally in 50 percent lean trim prices. In the span of the week, the price of 50 percent trim went up over $10, starting the week at $55.62 (an almost $5 jump from the prior week’s close) and was $66.97 by Thursday morning. Ninety percent lean trim saw a modest price increase over the week, going from $221.27 to $222.63.

The fading impact of the LFTB consumer outcry, a light supply of lean slaughter cows, and a growing demand for lean ground beef have supported the trim prices and cow beef prices. Dressed cow beef remained steady throughout last week at $126.

Feeder cattle

The much anticipated shortfall of replacement cattle is at hand, according to analysts. The USDA national feeder cattle summary for last week listed transactions from auctions, direct trade and internet sales of 250,000 cattle, down from 386,000 cattle the previous year at the same time.

Oklahoma City auction results last Monday confirmed the trend, reporting 5,400 cattle for sale compared to 12,700 last year. The squeeze is on and some markets saw $3-6 higher across all classes of cattle.

Midweek sales saw a mixture of continued pressure and recovery as places like Colorado saw moderate market loss while just across the line in Kansas, the major yearling auction markets regained a large portion of the previous week’s sharply lower price levels with gains of as much as $6.

“Both May and August feeder cattle ran into 50 percent retracement levels of the March break at $155 and $157 respectively. With weakness in the fat cattle and hogs overriding everything right now, we could very easily see feeders settle back to recent lows,” says Troy Vetterkind with Vetterkind Cattle Brokerage.

Kansas Flint Hill pastures have mostly been burned off and new arrivals of stockers are unloaded daily to feast on fresh bluestem growth. Soon, grass pastures across the U.S. will be fully stocked and the grazing rush is mostly over for this year, with the exception of a few small-acreage weekend warriors. Up north in the Dakotas, demand is still rampant for open replacement heifers with a large portion of the top quality girls still heading back to the country from area feeder auctions. Feeder cattle marketing is easing into the warm weather lull that should last until the late summer yearlings hit the market.

Compared to the previous week’s lower market, feeder cattle sold unevenly steady with varying trends depending on what part of the week the sales occurred, what part of the country they were sold, and the severity of last week’s losses in that particular area.

Calves sold steady to $3 lower with new crops making up a larger percentage of offerings and waning demand from dwindling grass orders.

Amarillo, TX, saw a very light test of feeder steers and heifers with no comparable sales for an adequate market trend. The bulk of the feeder offering included steers and heifers weighing over 750 lbs. Slaughter cows sold $2 -3 higher on a light test with a higher undertone noted on slaughter bulls. Slaughter cows consisted of 9 percent of the offering, slaughter bulls less than 1 percent, replacement cows 15 percent, and 75 percent feeders. Feeder supply included 38 percent steers and bulls, 62 percent feeder heifers. Approximately 79 percent of the run weighed over 600 lbs.

In the Northwest, stocker cattle and feeder cattle sold steady to weak. Trade was slow to moderate as video sales dominated the trade. Demand was light to moderate. The feeder supply included 75 percent steers and 25 percent heifers. Near 29 percent of the supply weighed over 600 lbs.

Kearney, NE, saw limited comparable sales of feeder steers and heifers selling steady to weak with the previous week. Trade and demand was slow. Supply included near 27 percent steers with 100 percent over 600 lbs. — WLJ