Futures rally on exports

Jun 29, 2012
by WLJ

Fed cattle markets were slow to develop following USDA’s Cattle on Feed report. Packers were offering $112 live and feeders were asking $116-117, $2 lower than the previous week’s live trade. Carcass weight data continues to show sufficient supplies of marketable fed cattle.

Superior Livestock held their annual Week in the Rockies video sale last week and, overall, there was a lower undertone noted on their yearling cattle. During Tuesday’s sale, the northern yearling cattle traded in the upper $140s to lower $150s with the southern yearling cattle bringing $5-8 below that.

Chicago Mercantile Exchange live cattle contracts settled 10 to 207 points higher on Thursday. Cattle futures rallied most of Thursday’s session as traders focused on other livestock markets and ever shrinking grain supplies. June settled 0.1 higher at 116.50, with August up the most at 118.32, a gain of 2.07.

Analysts credit strong export demand and short covering despite minimal cash trade movement and mixed beef prices. USDA reported beef export sales at 18,400 metric tons, up 3,400 metric tons higher than the previous week, giving market prices an extra boost.

Packers have filled their holiday orders and are down to the fill-in trade. However, they have been making around $90 per head. Feeders would certainly like to get some of that money to heal their balance sheets a bit.

Boxed beef prices flattened out in late week trading. The Choice cutout was quoted at $198 and Select at $180. The Choice/Select spread was at $18. The Choice/ Select spread continues to widen as USDA reports 2 percent fewer Choice cattle than the prior year.

“The USDA had their beef cutouts higher [Tuesday] but private sources would suggest that the market was actually a little lower,” said Troy Vetterkind with Vetterkind Cattle Brokerage. “Choice ribs held mostly steady [Tuesday] but Choice loins started to find some buyer resistance and traded a little lower. The end meats complex continues under seasonal pressure with many chuck and round items trading lower as well. Buyer demand for beef coming into the 4th of July holiday is a little subdued as most are comfortable with current inventories and there is some concern about how the extreme heat will affect beef demand in the coming days,” he added.

Slaughter levels have moved much higher and we’re starting to see weekly slaughter levels in the 650,000 level, a solid level for summer trade. But once the 4th of July is over, we could see slaughter levels return to the lower end of 600,000 head.

Beef production year to date was down 2.8 percent from the prior year while slaughter was down 4.6 percent.

The rise in corn prices has moved fast. New crop corn threatened to fall under $5 earlier last week, but it followed with corn prices skyrocketing almost $1.50 a bushel. If rain doesn’t come soon, there will be no pollination, and the crops will be lost.


Yearling feeder cattle continued their downward trend, selling $2-4 lower in the auctions with direct sales very limited due to the sharp losses on the CME cattle futures over the last couple of weeks. Steer and heifer calves traded $3-7 lower with additional seasonal pressure from the approach of the triple-digit temperatures and rapidly diminishing forage.

Feeder futures did rally on Thursday with sharp gains of 147 to 220 higher despite light activity. August settled 1.60 higher at 145.45, and September was up 1.47 at 153.37.

But dry conditions across the majority of the U.S. have sharply lowered expectations for this year’s corn and soybean crop and, subsequently, new-crop grain prices have soared and the demand for feeder cattle has weakened.

“Feeder cattle are a mess and until the buying subsides in the corn market, the August contract looks like it could trade down to the $140 level,” said Vetterkind.

This year’s drought is not getting near the publicity, at least not yet, of the record dry spell across the Southwest a year ago. But, the lack of rain is currently much more wide spread and includes some of the country’s most productive farm land. Out west and in the mountain states, producers are being forced to early-wean calves and sell off a dramatic percentage of their cow herd.

The Torrington, WY, Livestock Market has seen record receipts for this time of year, with a high percentage of cows/pairs, and is already holding weekly feeder specials which normally don’t start until September.

Corn plants are entering their all-important silking stage and many of the soybean fields have hardly received any rain since they were planted, which is especially hard on the no-till crops that must be sprayed for weeds. Midwestern pastures are dominated by cool season grasses that have mostly gone dormant and won’t see any regrowth until temperatures ease in the fall.

High production areas of the Eastern Corn Belt may be the driest from Illinois to Ohio where crop destruction is normally due to flooding. Despite this, farmer feeder buying was prevalent at Green City, MO, the previous week with over 600 head of top quality 800-900 pound steers selling with an average weight of 845 pounds and price of $154.27. — WLJ