Cutouts pick up
No relevant trade had developed in the cash fed markets through the early part of the week. By midday Thursday, only a handful of regional trades had occurred, and none of them enough to set market trend. Bids of $113 live in the south and $180 dressed in the Corn Belt trailed asking prices by $3-5.
Analysts expected trade to develop later in the week at steady to higher prices ($116- 117 live and $181-183 dressed) compared to the prior week on rumors of short-bought major packers.
Despite a minor rally in late morning trading, live cattle futures did not hold onto their early week highs. Near-term futures opened Monday at $119.60 for August and $125.43 for October. After seeing intraweek highs of $120.03 and $126.38, respectively, on Monday, futures stood at $120.20 and $125.30, respectively, by midday Thursday.
Andrew Gottschalk of Hedger’s Edge predicted early in the week that the overbought status of futures would stall rallies, and that seems to play out as expected. Troy Vetterkind of Vetterkind Cattle Brokerage opined that live cattle futures either may have already or will soon set the seasonal floor for near term futures.
The cutout values gained modestly over the week, with Choice gaining $0.65 by Thursday morning over its Monday open of $176.94 and Select gaining $0.80 over its $170.03 open. The Choice- Select spread narrowed slightly over the week, from $6.91 on Monday to $6.86 on Thursday. Analysts call for product value gains in the near future on thoughts of a bottom having been realized for the season.
Cut-specific values were mixed, though mostly steady to slightly up overall. Middle meats, particularly short loins, strip loins and ribs, were a drag on the carcass value, but steady to higher trade elsewhere made up for it. Chuck, round and end meats continue to find unseasonal support domestically and for export. Tenderloins and Choice/Select ribeyes were mixed throughout last week, trading lower one day and higher the next.
Demand for ground product is starting to pick up and retail demand in general is expected to strengthen this week and in coming weeks.
“I would look for further strength in the grind market as buyers are calling around to get product in line for Labor Day,” said Vetterkind. “The same should be said for the boneless processing beef market as both 90 percent cow beef and 50 percent fed cattle trim were higher [Tuesday] as processors were getting inventory around them to grind for the last summer holiday of the year.”
Prices for trim did indeed rally on Tuesday of last week, but did not maintain those levels to Thursday. Monday saw 90 percent trim at $207.68 and 50 percent at $44.85. Tuesday’s rally peaked with 90 percent at $209.35 and 50 percent at $45.66. Fifty percent held its gains better than did 90 percent, seeing Thursday morning at $45.04. Ninety percent, however, lost all of its headway, standing $0.03 below its week-open value of $207.68.
Some of the drop in the value of 90 percent trim can be attributed to the overabundance of cull dairy cows for slaughter. With corn prices hovering indecisively around $8/bushel, the pressure for dairymen to reduce herds is significant. The availability of dairy cow beef is offsetting the reduced imports of boneless beef from Australia and New Zealand and even the slowing growing demand for ground formulations.
Export demand was also up a bit last week. At 15,800 metric tons, exports were up 8 percent from the prior week, but still down 6 percent from the four-week average. Despite the weekspecific good news, concerns exist for the future of two of the U.S.’ primary beef trade destinations.
Though up in its imports of U.S. beef for the week, trade data on South Korea shows that its year-to-date imports are down 8.8 percent compared to 2011. Concerns have also been raised about Mexico’s continued ability to import U.S. beef at usual levels. With the peso weakened on the global market for fears of political instability, the growing value of the dollar is threatening to curtail Mexican ability to buy U.S. beef.
Overall, the feeder markets were up last week with most regional sales calling the trade up to sharply up. Few sales reported lower prices on animals compared to the previous week, with most reporting even less than desirable animals were selling higher. Expectation of tight supplies of feeders in the future were likely fueling these gains. A 725-pound feeder steer sold in the St. Joseph Missouri Stockyards for roughly $139.50.
In the Ozark Regional Stockyards of Missouri, steers under 700 pounds were steady to $3 higher, with lighter animals (500- 550 lbs.) fully $5 higher. Heifers were $2-6 higher. Heavier animals were not well tested. Demand was especially good for weaned and respiratory-vaccinated calves/yearlings of thin condition. Buyers commented that dust is joining the high heat as a stress factor.
Elsewhere in the Missouri regional auctions at the Cuba-Interstate Regional Stockyards, everything offered was trading higher. Light feeder steers (under 550 lbs.) were called $6-12 higher while heifers of the same class were $7-14 higher. Heavier feeder animals were trading $2-6 higher. Slaughter cows, which made up 27 percent of the offering, were $2-4 higher. Earlier sale times to help avoid the heat were said to improve demand.
In the St. Joseph Missouri Stockyards, trade was generally steady to weak in all categories with limited sales for market tests. Despite this, trade was called moderate on good demand. Hot, dry conditions continue to weigh on producers as any type of forage is getting hard to find.
At the Public Auction Yards of Billings, MT, slaughter cows and bulls traded on a light test with moderate to good demand. Cows sold $2-6 higher and slaughter bulls traded steady with the prior week. Slaughter cows and bulls at the Union Livestock Market of McAlester, OK, reported similar results. Cows traded $4-6 higher and bulls were up $3.
Feeder futures had a good week last week. By midday Thursday, near-term feeder futures stood at $140.35 for August and $141.38 for September, up $4.35 and $2.48, respectively, from their week-open values, this in spite of corn prices hovering indecisively around the $8/ bushel mark.
“The feeder cattle had a nice rally [Wednesday] with the August leading the board higher. I think August feeder cattle will continue to gain on the rest of the board given the strengthening cash market and a corn market that is acting a little tired,” commented Vetterkind of the situation.
Corn prices (electronic December futures) opened last week at $7.964 on Monday then proceeded to rabbit about between the low $7.90s/bu to $8.15/bu throughout the remainder of the week. By midday Thursday, December’s electronic corn futures stood at $7.98/bu.
Expectations regarding corn involve continued reduced yield estimates and reduced harvestable acres. This has led several analysts to predict rationing as a matter of course to protect minimum pipeline stocks.
“There is currently a race to the bottom with yield and production forecasts continuing to decline,” said Gottschalk earlier last week. “Given current yield and production expectations within the trade, serious demand rationing must occur for corn and soybeans to allow for minimum pipeline supplies. Imports of corn are expected to gain momentum with ethanol imports also expected to increase.”
He also commented the likelihood of the much-requested government action on the ethanol mandate is remote ahead of the election. — WLJ