Fed cattle, cutouts falter

Markets
Aug 31, 2012
by WLJ

No real market trend was evident in the cash fed cattle trade by midday Thursday last week. Bids trailed asking prices by $2-3. Offers of $122- 123 live were seen in the South Plains and $188-190 dressed in the Corn Belt, with some even as high as $192.

Spotty trade developed in Nebraska and Iowa Wednesday at $186-187 dressed, but it was insufficient to determine a trend. Steady to lower negotiated prices for fed cattle relative to the previous week’s $120-121 live and $188 dressed levels were deemed likely.

The fed cattle futures saw August drop off the board Friday and December step into the near-term scope. By midday Thursday, August futures had lost 27 cents at $119.60 compared to its prior week close. October and December fed futures gained over the same span, however, up $1.18 at $125.63 and up 63 cents at $128.50, respectively.

Troy Vetterkind of Vetterkind Cattle Brokerage lamented some of the inexplicable movement of October futures throughout the week.

“I have been talking the last couple of days about all the buying that has taken place in October live cattle between $123.50-124 and that same type of buying was in the market [Wednesday] before the market shot higher and have to assume it was fund buying because there really wasn’t any news out yesterday to propel the market that much higher. Regardless, near term fundamentals probably don’t mean that much now in the cattle because if managed money wants to own some cattle, the market is going to move higher.”

True to analyst expectations, cutout values continued their downward movement begun in the previous week. Compared to the previous week where Choice was in the $193 area and Select was up as high as $185, last week values opened at $192.55 and $182.89, respectively. By Thursday morning, values had slipped to $190.86 and $179.97, respectively. Analysts expect by the end of this week, Choice might shed as much as $6 from the aforementioned high.

As the boxed beef values slide and the holiday demand is gone, there was wide discounting across the entire beef complex. On a day-to-day basis, cuts held steady at best, but most cuts—particularly loins and end meat—saw sharp discounting. Ground held its value best, but only time will tell what retail demand will look like following the last traditional grilling holiday of the year.

As opposed to the overall cutout and cut-specific prices, trim values last week improved based on the position Monday. By Thursday, 90 percent trim stood at $216.44 and 50 percent was $58.84 as compared to the week-open of $213.80 and $58.51, respectively.

Last week, the slaughter estimate of the prior week was corrected up 13,000 head, to 653,000. That adjusted kill count wasn’t something last week could follow, having a hard time reaching its expected 640,000-head production week. Day-to-day, last week’s production rate was lower to occasionally steady with both the prior week and the same time last year.

Packers remain in the black as far as per-head profits, to the tune of mid- $20s for most of last week. But continuing pressure has analysts predicting they will be aggressive in preserving that margin with such possibilities as reduced kills.

Corn was fairly choppy last week, yo-yoing between days, losing one day while gaining the next. Across the week, September corn had gained 9 cents to stand at $8.15/bu by midday Thursday and to at least momentarily eclipse December corn, which only netted a cent and a half gain at $8.14’4/bu.

Expectations of Russia and the Ukraine cutting their corn harvest projections and the likely possibility they will restrict some or all of their corn export is weighing on the market. The likely potential U.S. production estimates will be cut are similarly concerning many. Andrew Gottschalk of Hedgers Edge predicts the choppy behavior will continue until at least half of this year’s crop is brought in.

Feeder cattle

In Colorado, feeder steer calves were selling steady to $3 higher. Light heifer calves were $3-5 higher, and slaughter cows and bulls were steady to $2 lower. Demand was called moderate to good.

Kansas’ Winter Livestock Feeder Cattle Auction in Dodge City saw feeder calves selling steady to up $3. Feeder steers were steady to $4 higher and feeder heifers were steady to $2 higher. Trade was very active and demand was good for all the offered cattle. A 750-pound steer was selling for $140.5-146.75.

In Billings, MT, at the Public Auction Yards, a higher undertone was noted on feeder cattle, though there weren’t enough sales to establish a trend. Slaughter cows sold up $2 for boners, steady on breakers, and down $2-4 on lean cows. Demand was called good.

At the El Reno Livestock Market in El Reno, OK, feeder steers sold mostly $2-4 higher and as much as $6 higher for heavier steers. Heifers were steady to up $2. Calves were steady to $3 up. Recent rain was said to boost local spirits and demand was good.

The numerous Missouri feeder cattle sales were seeing ready demand for lighter calves, both steer and heifer, trading anywhere from steady to up $5, and this after the previous week was seeing some areas sell up as high as $10.

Feeder steers traded generally steady to a few dollars up, with the extremes of down $2 and up $7. Feeder heifers sold for generally steady money. The price for a 750-pound steer varied from sale to sale, but most were in the low- to mid- $140s with a range of $132- 149.

Despite the lack of feed, backgrounders are buying lightweights on ideas that calves will be worth more and harder to buy down the road. The fact the fall calf run is smaller and going to market early at lighter weights due to the extreme drought is only reinforcing these motivations.

Much like their fed cattle brethren, near-term feeder cattle futures saw August losing at the close of the week, while September and October gained. August feeder cattle futures fell off the board at close of market Thursday. By midday the contract had lost 25 cents at $140.25 compared to its prior week close. September feeder futures gained $1.16 by midday Thursday to stand at $143.55 and October feeders gained 61 cents at $145.03.

Vetterkind commented that while there had been some choppy activity in feeder futures due to the upward midweek movement of corn, the overall corn market and the strength in the cash feeder trade would be a benefit.

“Don’t get me wrong, I think corn can go a lot higher from here but it probably doesn’t happen until after the first of the year, which near term is going to be supportive to the feeder trade.” — WLJ

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