Seasonal beef demand softens

Jul 6, 2012
by WLJ

There wasn’t much good news in the cattle markets last week.

The live cattle cash trade was nonexistent with bids trailing asking prices by $6 and more. In the Southern Plains, packers hoping to regain some lost margins bid $114 but were ignored by feeders who held firm at $120 live asking prices. In the Northern Plains, asking prices were $190 dressed. Trade was put off until late Thursday and Friday.

The bullishness of cattle feeders’ asking prices came from the shortbought status of many packers and the extreme and continued losses cattle feeders are suffering. More on the plight of cattle feeders in the feeder section.

Live cattle futures have faired better than their feeder cattle counterparts. August futures opened the week at $120.30. After a bit of rollercoastering—seeing a low of $118.80 on Tuesday morning—midday Thursday saw August futures at $119.08. October live cattle futures followed a similar trend, starting the week at $124.30, dipping to $122.50 Tuesday morning, and seeing midday Thursday at $123.15.

Last week saw the June futures drop off the board, making October the new near term month. Deferred futures have followed a similar up and down trend with near terms, but close-up deferred futures have been progressively decreasing since April. Farther out deferred futures have been mixed but somewhat trending up.

The long-predicted drop in cutout values is finally happening.

Midweek in the prior week, the Choice cutout stood at $197.93 and Select stood at $180.32. It fell to $194.63 and $177.61, respectively, at last week’s open. And by midday Thursday, it stood at $193.77 and $176.15, respectively.

Faltering boxed beef values, in part, have motivated packers to seek cheaper cattle. Reduced margins also play a role in their desire to underbid asking prices. Though reduced from recent levels, packers are still making roughly $58 a head.

Consumer demand for beef over the Independence Day holiday was depressed from recent years. Hot, dry weather and abundant fires in many areas of the country, along with the storms on the East Coast, have been credited with stymieing usual holiday activities and thereby curtailing demand.

Consumers’ taste for beef seasonally softens after the July 4 holiday. Weather and regional hardships combined with still-high retail prices and general economic sluggishness may sharpen this usual trend.

Retail demand was down for almost all cuts in the beef carcass. Middle meats and ground were trading lower to sharply lower. Chuck and end meats were lower as well on the domestic market, which is in keeping with seasonal trends. Export demand for chuck and round held those areas mostly steady with the prior week.

Overall, however, the decreased seasonal demand coupled with external factors (i.e. weather and natural disasters, and the economy) is expected to further drive down the cutout values in the near future. Troy Vetterkind of Vetterkind Cattle Brokerage suggested the Choice cutout will likely dip into the mid-$180s in the coming weeks because of softening demand.

Industry estimates placed last week’s slaughter volume at 580,000 head due to the shortened processing week. Day-to-day processing volume was steady with the prior week.

As with the decline in demand for muscle cuts, demand and prices for ground formulations have dipped. As of Thursday, 50 percent trim had a weighted average price of $50.73. Ninety percent trim was $122.92 and the cow beef cutout $172.24.

Feeder Cattle

Compared to the previous week, feeder steers and heifers weighing over 650 pounds continued their downward spiral, selling $4 -8 lower, with some instances as much as $12 lower, especially in the Northern Plains.

Calves under 650 pounds traded $5 -15 lower, with the driest areas quoting lightweights as much as $20 lower and the popular 500-pound calf seeing the full decline.

Dry weather concerns are to blame for the lion’s share of the extreme downside pressure that has culminated over the past two to three weeks with 72 percent of the continental U.S. now rated abnormally dry or worse, compared to just 32 percent last year when the Southwest underwent their historical herd sell-off.

This summer, the drought sales are happening all over the Atlas and despite a considerable effort to retain replacement quality heifers last fall and this spring, herd rebuilding will have to wait for at least another year. Top quality cow/calf pairs and fall-calving bred cows are flooding parched markets out west and down in the Ozarks, but buyers are running out of addresses to send these displaced replacements.

Dry, hot weather is also forcing feeder cattle to market; the Eastern Missouri Commission Company near the Illinois line in Bowling Green, MO, received a 700-head consignment from two hours south of St. Louis a week ago. These cattle were mostly black with a medium backgrounding-lot flesh condition and good enough to put on a Nebraska/ Iowa order; a load of steers weighing 665 pounds sold at $151.25, while 435 head of similar heifers averaging 707 pounds sold at $138.10.

As mentioned earlier, the continued losses of cattle feeders are spurring bullishness in asking prices.

“Cattle feeders are deep in the red,” said Jim Robb of the Livestock Marketing Information Center. He estimated cattle feeders lost $260 a head for a steer in June, the largest monthly loss on record, and pointed out last week was the 14th consecutive week of cattle feeder losses. It seems unlikely cattle feeders will see black ink anytime soon.

The curled-up condition of the corn across most of the Midwest sent CBOT contracts soaring, while CME feeder cattle futures plummeted. The previous week, feeder contracts regained some of their loss but cash corn prices still topped $7 in Kansas City and Omaha. However, several analysts predicted that the $145.50 seen the prior week for August feeder cattle futures was likely the season’s low.

USDA’s planted corn acreage estimate was increased about a half million acres from late March prospective plantings to 96.41 million acres. Early this past spring, analysts thought that anything over 90 million acres would give us all the corn we would ever need, but evaporating crop conditions have lowered yield expectations and this year’s harvested acres were adjusted down to 88.9 million acres, with some likely to be abandoned and much expected to be cut for silage.

According to CME, current July weather forecasts will push the national yield down to nearly 145 bushels per acre. That would be over 2 bushels lower than last year. This all comes on the heels of the prior week’s 8 percent drop in the proportion of acres rated in either good or excellent condition.

But despite all the doom and gloom, there are fields that look really good, according to reports. Certainly, most of farm and ranch country needs moisture, but a good soaking rain in downtown Chicago could also help. Let’s not forget we just had the smallest calf crop in 60 years and beef is still a popular menu item for summer cookouts.

Superior Video’s Week in the Rockies offered 230,000 head and it was tough sledding early in the sale but demand seemed to improve as they went. The Clear Creek Cattle Company near Casper, WY, sold nearly 1,000 head of fancy Charolais steer calves with a base weight of 440 pounds at $225 for October delivery so maybe the world’s not coming to an end. — WLJ