Market may have seen seasonal lows pass

Jul 27, 2012

Cattle feeders and packers played chicken with each other on prices most of last week. Packer bids trailed behind offers by $3-6 live in the Southern Plains and $5-10 dressed.

Feeders, knowing show lists were small last week and on rumor that at least one of the major packers was short bought, held staunchly to asking prices of $116- 118 live in the South and $187-188 dressed in the Corn Belt. Regional packers in the North reportedly were bidding up to $183 dressed, but all expectations were of trade being forced Friday.

Near term fed cattle futures did a bit of intra-week rollercoastering. August fed futures opened last week on Monday at $117.80. August futures then saw a high of $118.93 midday Tuesday, a low of $117.47 early Thursday morning, and stood at $118.20 as of Thursday afternoon.

October fed cattle futures also saw some movement, but had not recaptured early week highs by Thursday afternoon. October fed futures opened Monday of last week at $123, peaked at $123.70 later that day, and stood at $123.10 by Thursday afternoon after a low of $122.44 earlier that morning.

Troy Vetterkind of Vetterkind Cattle Brokerage predicted near term live cattle futures will find some support soon as thoughts of the season´s lows being set the week prior at $113 circulate.

“The August futures are going to encounter some near term resistance at $119.50 and the October at $124.50 but I think any near term breaks back into $116 basis August and $121-120 in the October are going to find good buyer support.”

Fed cattle futures weren’t the only thing imitating amusement rides last week. Outside markets, fueled largely on schizophrenic news regarding Eurozone issues and domestic economic concerns, fluctuated wildly. The Dow in particular lost and gained in the triple digits from day to day, shedding over 100 points on Monday and Thursday, then gaining slightly on Wednesday, then gaining over 210 points by Thursday afternoon.

Andrew Gottschalk of Hedger’s Edge gave an entertaining overview of events spurring Thursday’s market surge.

“The President of the European Central Bank gave an upbeat press conference, claiming the ECB is ready to do whatever necessary to maintain the integrity of the Eurocurrency—so for today, Europe is once again saved. Tune in tomorrow.”

Corn also played a major role in the activities of futures markets, but with greatest effect on feeder futures. More on that in the feeder section.

Last week saw industry expectations of a 640,000slaughter week. Early estimates of day-to-day processing were reduced, and processing rates were consistently steady to lower than the prior week and the prior year.

“Meat sales are slow enough that production cutbacks are surfacing, with some smaller operations reducing hours for the weekend,” commented Gottschalk. “There is some thought that bigger operators are considering the same for next week” Choice and Select cutout values had market minds of their own last week, moving in generally opposite directions. Choice slipped from the prior week’s close of $179.31 to $178.77 on Monday morning. For the remainder of the week it bounced around in the $178 range with minimal day-to-day movements, seeing Thursday afternoon at $178.39. Select, on the other hand, gained modestly, going from $170.69 Monday morning to $171.44 Thursday. Analysts have speculated that cutout prices have or will bottom soon.

Retail demand for beef is still shaky as the continued heat keeps consumers inside rather than out at the grill. Over the week, cutspecific values were mixed.

Ground formulations saw support and traded higher than the prior week, though this has been attributed to wise preparatory procurement.

Middle meats were generally weak and saw widespread discounting. Choice loins and ribs were particularly hard hit. Chucks and rounds have seen seasonally-unusual support and movement, trading higher throughout the week. An unusually high quote on Choice boneless ribeyes was noted by Vetterkind midweek.

Boneless beef was mixed throughout the week, starting out weak and under pressure from increased domestic cow slaughter. However, Australia and New Zealand have decreased cow slaughter and export, which may serve to stabilize the boneless beef trade here at home. Trim values decreased throughout the week despite the strength in ground. Ninety percent trim lost the most, going from $211.54 at the prior week’s close to $207.74 by Thursday. Fifty percent trim dipped from $47.01 to $46.49 in the same time span.

Export markets continue their downward trend from the prior weeks. Last week, beef export was 14,600 metric tons, down 6 percent from the week prior and down 18 percent from the four-week average.

Feeder cattle

Feeder cattle activity was led by the nose by corn and the results of the midyear cattle inventory report.

“The latest mid-year inventory showed feeders and calves outside feed yards down 1.2 million head from year ago levels. This drop in supplies only reinforces the long term ‘bullish’ supply outlook for feeders and calves.”

In Amarillo, TX, feeder steers and heifers traded mostly steady to weak on limited comparable sales. Trade was light to moderate on moderate demand with offerings including a load of uniform 8-weight steers. A lower undertone was noted on slaughter cows and bulls, which made up 11 percent of the offering. Feeder supply consisted of 52 percent steers and bulls, 48 percent heifers. Approximately 68 percent of the offering weighed over 600 lbs.

At regional auctions in Nebraska, steers traded $5-10 lower and heifers traded $7-10 lower, but were considered too light a test for an adequate market test. Demand for feeders was moderate to good, but not many buyers were in the seats. Several strings of lightly-fleshed, highquality yearling cattle were in the offering as cattle continue to come off of short, dry pastures. Trade consisted of 40 percent steers, 60 percent heifers, with 92 percent weighing over 600 pounds.

Early week activity in Oklahoma City saw a different story. Steers traded for $6-12 higher, with most advance on lighter weights. Feeder heifers were $4-7 higher. Demand was very good for all classes offered. The offering was made up of 33 percent over 600 pounds and 45 percent heifers. Slaughter cows traded up $1-3, except for breakers which were $3 lower. Slaughter bulls were $1 lower. Packer demand was called moderate to good for the light receipts. A total of 140 cows and bulls sold with 68 percent going to packers.

A spike in corn prices Wednesday wreaked havoc on feeder futures which, at one point, was limit down for August feeders. Last week opened with August feeder futures at $136.33 and September feeders at $138.43. By Thursday afternoon, Wednesday’s August losses hadn’t been recouped with futures standing at $135.98 and $138.78, respectively.

“We’ll have to keep a close eye on the $8 resistance level in December corn,” said Vetterkind. “If we start closing above that level I would have to assume that we are going to make another leg down in the feeder futures. But another leg down in feeder futures is something I think the long hedger will be willing to buy.”

Beef in cold storage up record on year-to-year basis

Among two other cattlerelated reports, Friday, July 20 saw the release of USDA’s Cold Storage report. In the meats and poultry sector, red meat was down in June as compared to May, but up compared to June 2011, while poultry saw a reversed situation.

Total red meat—including beef, veal, pork and mutton—in storage as of June 30 was 1.09 billion pounds. This was down 6 percent compared to May’s 1.16 billion pounds, but up 15 percent from June 2011’s 949.38 million pounds which CME called “bad news.” Total poultry— chickens, turkeys and ducks—in storage as of June 30 was 1.07 billion pounds, up 5 percent from May’s figures and down 6 percent from last year.

Beef in cold storage by the end of June fell 5 percent compared with the end of May, from 497.9 million pounds to 470.83 million pounds. This decline was led by stocks of boneless beef which fell 6 percent, which dropped 24.37 million pounds to 402.46 million pounds. Beef cuts saw a smaller decline of 4 percent, but with more modest stock numbers from the outset, falling from 71.06 million pounds in May to 68.37 million pounds in June.

When comparing year-toyear amounts, however, beef in cold storage in June 2012 is up compared to 2011, and a record high for the month of June. Last year, June beef in storage stood at 432.76 million pounds. This year’s addition of 38.07 million pounds of stored beef represents a 9 percent increase over June 2011. As with red meat overall, this large and year-to-year growing supply is called bad news by CME which suggests it shows weakening demand for U.S. beef.

The increases over 2011’s overall beef stocks were led by beef cuts in storage, which increased 19 percent, up 10.92 million pounds. June 2012’s stock of boneless beef as compared to 2011 was less dramatic at a 7 percent increase, representing 27.14 million pounds more this year.

Pork in cold storage in June was also down when compared to May’s inventories. June’s stored pork supplies stood at 591.69 million pounds, down 7 percent from May’s 636.02 million pounds. On a year-toyear basis, however, pork saw the largest increase in stored product. This June’s pork numbers are 20 percent above last June’s 495.06 million pounds.—– WLJ