Product values reverse, begin up again

Markets
Sep 7, 2012
by WLJ

No relevant trade developed last week up to midday Thursday. Bids of $120 live surfaced in Texas on Wednesday, but no trade developed as cattle feeders stuck to their offers of $125-126 live and $193-194 dressed. Trade was expected to crop up late in the week at steady to higher prices compared to the prior week’s $122-123 live and $188-190 dressed.

“Our tightest numbers of fed cattle for the fall will be from now until the end of October so the market isn’t expected to set back all that much due to a seasonal increase in beef demand and usage as the weather cools going into fall,” said Troy Vetterkind of Vetterkind Cattle Brokerage.

Near-term fed cattle futures saw some nice highs throughout the week last week but did not hold onto them by midday Thursday. After closing the previous week at $126.02 for October and $128.65 for December, the contracts reached a high of $126.60 and $129.27, respectively, on Wednesday morning. By Thursday midday, futures had settled back down to $126.15—a gain of only 13 cents—and $129.13 with a slightly more respectable gain of 48 cents.

Near-term futures are expected to remain supported in the next few weeks or more as expectations of limited fed cattle supplies are forcing packers to accept higher offers.

Cutout values bucked their earlier slow downward movement last week by gaining well over $2 by midday Thursday. Choice cutout closed the prior week at $189.62 and Select closed at $179.46. By Thursday last week, Choice stood at $192.25—a gain of $2.63—and Select gained $3.14 to stand at $182.60. The value spread between the two shrank from $10.16 at the close of the previous week to $9.65 as of Thursday morning last week.

The growth in product value has been attributed in part to the strengthening fed and feeder cattle prices as well as decent movement of inventory and expectations of seasonal increased retail demand as the heat of summer gives way to fall.

Throughout last week, retail demand for beef was mixed, but with hints of a steady to higher feel in the near future. Demand for loins and ground formulations was said to be under some pressure earlier in the week, but ribs stayed steady. Chuck and end meats saw good support in anticipation of fall stewing/roasting behavior and ground found some support and traded higher later on in the week. Expectations for continued strength in the chuck and end meats exist for the near future. Export as well as domestic demand for these cuts are expected to keep them trading well.

The most recent available export data pegged beef exports at 15,600 metric tons, up 6 percent from the previous week but down 11 percent from the four-week average. Major destinations of U.S. beef were Mexico, Japan, Canada, Vietnam and South Korea. Analysts expect export interest will pick up in the near future, barring major increases in the strength of the dollar.

Trim values grew modestly over last week given the mixed influences of retail demand for ground formulations and fluctuating slaughter cow markets. Trim closed the prior week with 90 percent at $215.53 and 50 percent at $58.93. By Thursday, 90 percent had gained $1.03 to stand at $216.56 and 50 percent trim gained $1.90 at $60.83.

Slaughter estimates for last week’s short production week started at 570,000 head, but were reduced to 550,000 to 560,000 head later in the week. Showlists were small and are predicted to remain so in the near future. With packer margins flirting with the red despite the slowly growing product value, production could be restricted in the effort to maintain profits and manageable supplies.

Early analyst and industry estimates for the upcoming Cattle on Feed and Supply/Demand report are beginning to surface. Andrew Gottschalk of Hedgers Edge estimates Cattle on Feed numbers will be 100 percent (head on feed), 93.7 percent (placements) and 98.4 percent (marketings) relative to the same time last year.

Corn crop estimates so far range from 9.95 billion bushels to 10.6 billion bushels. Despite the exact estimate, the consensus is that USDA still has over-estimated the crop and further reductions in the official estimate will be seen. Around the world, Russia and the Ukraine have been reducing their crop estimates recently, prompting calls for export restrictions and rationing to maintain pipeline supplies.

Feeder cattle

Overall, feeder cattle were mostly up, with preference still showing for lighter animals, though earlier extremes were not in evidence as much as in the recent past.

Winter Livestock Feeder Cattle Auction of Dodge City, KS, saw steer calves up $2-3 compared to the prior week. Feeder steers were mostly steady to $1 higher in places. Heifer calves were down $1- 3 on a light test, and feeder heifers held steady. Slaughter cows were steady to up $1 and slaughter bulls were mostly steady on a limited test. A 750-pound steer went for $140-146.

The Clovis Livestock Auction of New Mexico saw feeder steers steady to up $3, with particularly lightweight calves trading up $2-6.Heifer calves sold up $6. Slaughter cows and bulls were steady to up on active trade with good demand. A group of 779-pound steers sold for $132.50 At the El Reno Livestock Market in Oklahoma, feeder steers and heifers were called steady to up $2. Calves were not well tested but showed a higher undertone. Several loads of reputation calves sold readily.

Demand was called good overall. Some evening rains have boosted spirits despite the heat. A 750-pound yearling steer ran the gamut of $142.50-147.

In Missouri, weight and geography ruled the prices. Steers sold mostly steady with instances of up as much as $7 compared to the prior week. Heifers were mixed, in some places down as much as $5 while up as much as $7 in others. Light steer calves sold up $5-10, and heifer calves sold mostly steady to up $5 with some instances of down $2. Slaughter bulls were called steady and slaughter cows were up $3-5. A 750-pound steer sold for anywhere from $135-158.

Rain resulting from Isaac’s close pass raised spirits in many areas of Missouri. The rainfall wasn’t enough to fill ponds, but hope exists that it will help the germination of rye and wheat crops recently sown.

Near-term feeder cattle futures were mixed over the course of last week. September feeder cattle futures gained 15 cents by midday Thursday at $144.75 compared to the prior week’s close. In the meantime, October feeder futures saw a 37-cent loss at $146.3. Both of these late-week prices were well below highs posted earlier in the week.

Vetterkind opined September feeder futures will be hard put to breech the $146 resistance level given the shortness of the contract and the fact current future prices for that contract are well above the CME feeder index. October futures, however, look a bit more promising.

“Holding October feeders above $146, though, keeps a positive spin on the market and keeps the door open for a quick trade up to $150, which is likely going to cap rallies in both Oct and Nov feeders.”

Several factors are supporting feeder values, both cash and futures, but recent precipitation is a big one lately. The rains brought into a number of cattle feeding areas by hurricane/tropical storm Isaac have been a boon to several areas. Wheat pastures stand a lot to gain by this rain. Said Gottschalk:

“This should lead to increased buyer interest for light weight cattle. Additionally, demand for calves and light feeders should receive additional support from a significant increase in corn acres cut for silage.”

As has been said frequently in the past, the anticipated tight supplies of feeders in the near future are propping up values and keeping them strong.

“An early peak in seasonal feeder and calf receipts is expected this fall,” said Gottschalk. “The ‘supply’ side of the feeder and calf market remains ‘bullish’ and will limit downside pressure amidst record feedgrain prices.” — WLJ

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