Cutout values continue up on increased demand

Markets
Aug 10, 2012
by WLJ

Very little relevant trade developed in the cash fed markets last week with most activity expected to develop late Thursday and Friday. Markets were inactive through early Wednesday whereupon some slight trade occurred in Iowa at $185 dressed. Bids were slow to come in the first half of the week, but trailed asking prices of $121 live in the south Plains and $188-191 dressed in the Corn Belt by $3-8 when they showed up.

Expectations for late-week trade were steady to $1-2 higher than the prior week, roughly $119-120 live and $186-188 dressed. Rumors of at least one short-bought large packer and expectation of growing consumer demand ahead of the Labor Day holiday likely have a hand in the firming of the cash markets.

Near-term fed cattle futures saw some strong rallies on Wednesday of last week, buoyed on hopes of developing strength in domestic beef demand. August futures gained $1.55 and October futures gained $1.32 in that one day alone.

Over the course of the week, however, gains were not as spectacular though still in the black.

As of midday Thursday, August fed cattle futures gained $1.68 over its Monday open of $120, and October futures gained $1.32 from Monday to stand at $125.80. Analysts have voiced thoughts that futures may continue their upward trend into this week and possibly beyond.

Cutout values climbed significantly over the week. Choice cutout, which stood at $182.70 as of midday Thursday, gained $4.56 from its Monday morning level. The Select cutout gained even more—up $5.24 from the beginning of the week to stand at $176.87 Thursday—and tightened the spread to a week average of $6.02.

The gains in product value were largely attributed to rising consumer demand for beef and the strengthening feeder and fed markets. Greater retail demand for all cuts across the carcass last week also had a large hand in the situation.

“The boxed beef market doesn’t look like it’s going to back off anytime soon,” said Troy Vetterkind of Vetterkind Cattle Brokerage.

“Near term beef demand seems to have picked up and cattle supplies are going to continue to get tighter moving forward, all of which is going to support the market.”

Cut-specific values were almost unanimously higher with the previous week with a few instances of steady. No discounting reported. There is reportedly good domestic procurement of end meat for grinding and export demand from Russia for round and chuck.

Exports were sharply higher last week at 18,500 metric tons, this being up 17 percent from both the previous week and the fourweek average. Increased exports were reported going to Vietnam, Mexico, Japan, Canada and Hong Kong.

Domestic slaughter cow availability was down last week, as well as imports of boneless beef from Oceania, both of which lent support to domestic boneless beef and trim values. Over the course of the week, 90 percent trim gained $1.74 to stand at $208.05 Thursday morning. Fifty percent trim also gained, but not as impressively at up $0.60 to $42.75 Thursday morning.

Last week was estimated as a 640,000-head production week. Day-to-day processing rate comparisons vacillated between being up and down, but by Thursday morning, the week-todate kill was estimated at 381,000 head, 5,000 head above the same time the prior week.

Vetterkind reported some talk about packers reducing processing rates as their margins have slipped back into the red. On average, packers lost about $18.75 a head last week.

“Packer margins took a pretty good hit last week and they will either get beef sold higher to compensate for higher live costs or cut some kills, likely both transpire by the end of the week.”

Feeder cattle

The cash feeder cattle markets started the week last week mixed but later strengthened to higher to sharply higher as the week wore on. Despite rising corn prices, cash feeder sales were strong.

In Dodge City, KS, feeder steers sold $2-4 higher than the previous week and feeder heifers were steady to $1 higher. Calves were not tested well enough for a true market trend, but an extremely higher undertone was noted. Trade was very active and demand very good as cattle continue to move off of droughtstressed pastures. Slaughter cows and bulls made up 12 percent of the offering and were also up modestly, from $1-3 higher. A 750-pound steer sold for a weighted average of $139.01.

In the Nebraska auctions—the Bassett Livestock Auction and the Huss Platte Valley Auction— feeder steers traded up, ranging from $6-11 in Bassett and $2-8 in Huss Platte. Good quality calves sold sharply up compared to the previous week with gains of $10-15. Slaughter cows and bulls were also up. Cooler weather was credited with improved demand. Feeder steers at 750 pounds sold in the lower $140s.

The Union Livestock Market in McAlester, OK, saw spectacularly higher prices for feeder steer calves, up $10-24. Slaughter cows were up modestly except for boner cows. Slaughter bulls were down slightly. Minimal receipts for 750-pound feeder steers on light demand came to a weighted average of $125.16.

For the first half of the week, feeder futures gained well in spite of value gains in corn futures on Wednesday.

“Feeders put in a pretty strong performance [Wednesday] given the midday rally in the corn market with values there settling $0.16 per bushel higher,” commented Vetterkind. “This may be a feature in the feeder cattle futures for a moment as it appears the desire to procure inventory is outweighing nervousness over escalating feed grain prices.”

The strength of that desire was later as near-term corn futures gained significantly in early trading Thursday morning. After having posted day-gains of $1.07 for August feeder futures and $0.70 for September on Wednesday, near term futures proceeded down Thursday. By midday, August futures stood at $139.30 and $139.75 for September, down $0.58 and $0.15, respectively, from Monday’s open.

Andrew Gottschalk of Hedgers Edge opined ahead of the release of Friday’s USDA World Agricultural Supply and Demand Estimate (WASDE) report that corn prices had yet to post their contract highs.

“We do not believe this report will show the full extent of yield and lost acres. It is unlikely that final production will exceed 10.5 billion bushels. Extreme rationing will be required to provide for minimum ending stocks for corn and soybeans.”

What impact the report will have on cattle futures has yet to be seen. Several have pointed out that expected tight supplies of feeders in the near future will offset some corn-related potential downturns.

The WASDE report will be covered in next week’s issue of Western Livestock Journal. — WLJ

{rating_box}