Futures fluctuate with outside markets

Markets
Jun 8, 2012
by WLJ

Cash fed cattle buyers were slow to action last week, with no bids offered until late Tuesday. Even then, they were sporadic and poorly defined. By Wednesday, bids and asking prices were again separated by $5-7 dollars with bids of $118 live in the Southern Plains in the face of $123 offers. Asking prices in the Corn Belt were $196- $197 dressed with spotty bids of $190-192 by Thursday morning.

Analysts projected late Thursday and Friday buying as several packers were short bought with large pre-sold orders—both domestic and for export—to fill.

Near term live cattle futures bounced around throughout last week, opening Monday at $117.70 for June and $119.53 for August, then falling to a week low of $117.12 and $119.20 on Tuesday close, respectively. By midday Thursday, however, both June and August futures had regained all of the week’s open levels and more to stand at $118.83 and $120.33.

Some analysts attributed futures behavior to the moves of the outside markets. For instance, Monday’s near-term futures rose as word of European discussion on dealing with their financial woes surfaced. On Tuesday, however, futures tumbled as the subject of Quantitative Easing 3 was broached in Washington. The Dow jumped up on Wednesday, with the highest one-day gain for 2012, bringing other markets up with it. Thursday morning brought continued strong optimism with news of China’s interest rate cut.

Cutout values did not see the spectacular movement seen in the futures, but stayed overall steady throughout last week with Choice seeing a slight gain and Select seeing a slight loss.

Choice cutout ended the prior week at $197.25 and Select at $185.36. By midday Thursday morning, Choice had gained 54 cents to stand at $197.79 with a week high of $197.95 Tuesday morning. Select ultimately lost 58 cents to stand at $184.78 midday Thursday.

Analysts again predicted a topping out of product prices, anticipating decreasing boxed beef values in the near future.

“I would say that once we get a week down the road, and past Father’s Day, that beef markets will start to falter, especially considering that most of the July 4th business will be done,” commented Troy Vetterkind of Vetterkind Cattle Brokerage. “I doubt we go into free fall… but I think it’s safe to say that a $197 Choice cutout is going to be hard to maintain.”

Packer income indexes remained strongly in the black last week at $21.40- 28.75 a head. The margins, coupled with packers’ shortbought status and the reported high orders to fill, suggest packer willingness to buy more cattle will develop in the next few weeks.

Beef export for last week stood at 18,100 metric tons, down 11 percent from the prior week, but up 3 percent from the four-week average. Countries which increased their imports of U.S. beef were Vietnam, Japan, Mexico, Canada and Hong Kong.

As mentioned above, export orders for packers are up.

Last week started with most cuts seeing steady to higher trade, with particular demand for middle meats, ribs and loins. But as the week progressed, discounting of first rounds, then boneless beef, expanded into the entire carcass with discounts seen in most all cuts save for Choice/Select ribs and Choice loins.

The industry estimated a 645,000-head production week last week in keeping with analysts’ earlier expectations. Beef sales volume was moderate to good throughout the week with an average of 255 loads sold per day in the first half of the week.

Trim values remained fairly steady throughout the week with a slight decline later on due to packer discounting of boneless beef and ground formulations. Ninety percent trim started the week at $231.31 and dropped down to $228.77 by Thursday. Fifty percent trim lost less overall—going from $51.96 at the beginning of the week to $51.53 by Thursday—but had greater intra-week fluctuation than 90 percent. Despite this, 50 percent trim was far less volatile last week than it has been recently.

Feeder cattle

The CME Feeder Cattle contract recently moved from the May to the August spot month which left about a $6 gap between the current cash index and the nearest available futures quote, according to reports. Seasonally light sales volume and rabid demand for yearling feeders could allow the index to catch up quickly, especially on Fridays when the direct sales information is entered.

“Feeders broke late in the session [Wednesday] on rumors that 5 Rivers Cattle Feeders were going to step out of the cash feeder cattle market in an attempt to get flat price cash feeders to break and fat cattle/feeder cattle spreads back in line. I don’t know how much they are going to break the cash feeder cattle market because numbers aren’t burdensome enough to do so, especially going forward, and they aren’t the only feeding company in the industry that buys feeder cattle,” Vetterkind said.

Cash feeder cattle sales (especially on a direct basis) have been about the only element of the commercial cattle arena that has reacted appropriately to May’s bullish cattle on feed report, according to analysts. Data from the report also suggested that there will be significantly heavier supplies of market-ready cattle through the first part of the summer. Plus, weights of finished cattle have been heavy for this time of year which has partially made up for tighter numbers and smaller harvest.

Replacement feedlot cattle are hard to find and many cattle feeders are taking a different route, putting extra pounds on those already owned. Outstanding performance and the use of finishing feed additives (Zilmax) have improved feed efficiency and dressing percentages to add an extra 15-18 pounds per carcass.

Northern feedlots and independent farmer feeders are battling each other for the light offerings of available feeder cattle. At the United Producers Inc. Maryville market in extreme northwestern Missouri, a load of 915-pound steers brought $150.25, followed by a load weighing 950 pounds at $146.25, and another tipping the scales at 1,040 pounds that sold for $137. Feedlots sold mostly steady from $121-122 this week but were able to stick about a $4 basis in their pocket from the lagging Board.

In Washington, stocker cattle finished the previous week steady to $1 higher. Not enough feeder cattle this week for accurate trends. The feeder supply included 53 percent steers and 47 percent heifers. Near 47 percent of the run weighed over 600 pounds.

In Wyoming, compared to the previous week’s thin test, steers and heifers sold fully steady to $2 higher. Demand was good for feedlot placements. Supply included 88 percent steers with 100 percent over 600 pounds. — WLJ

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