Product values up despite market break

Markets
Sep 21, 2012
by WLJ

Trade in the cash fed markets was inactive throughout the first half of last week. By midday Thursday, minimal trade had developed too light for a market test.

A few head sold early in the week in Iowa at $192 dressed, and sporadic trading developed Thursday at $126 live in Kansas and Texas, and at $195-197 dressed and $125 live in Nebraska to a major packer.

Very few bids were posted, none in the first half of the week, and those that surfaced later on were in the area of $122 live in the South Plains, and $192-194 in the Corn Belt with no takers. Asking prices were generally $126 live in the South Plains and $197-200 dressed in the Corn Belt. Analysts expected trade to be put off until late in the week and steady with the prior week’s prices of $126-127 live and $195-198.

Almost everything was down in the world of futures—both fed and feeder cattle—last week. By midday Thursday, both near term fed cattle futures contracts shed over a dollar. Compared to the prior week’s Friday close, October fed cattle lost $1.10 to stand at $125.95 and December fed cattle lost $1.56 to stand at $128.38. The drop in contract values largely happened Monday with the markets unable to recoup those losses throughout the rest of the week. Efforts were made midweek, but to little effect. Said Troy Vetterkind of Vetterkind Cattle Brokerage:

“The fact that October couldn’t get back above resistance at $127 and December above $130 keeps somewhat of a negative spin on the market. Another thing that concerns me is the fact that the boneless beef market broke hard [Wednesday] night and export sales were so much lower last week. I know cow beef doesn’t have a direct correlation to the fed cattle market but when any component of the beef market breaks that hard in one day it is a little concerning.”

More on the mentioned drop in the boneless beef market later.

Choice cutout gained $3.67 by Thursday morning, standing at $195.21, compared to the prior week’s Friday close. The Select cutout also gained nicely, up $3.94 at $184.62, making the spread $10.59.

Cutout values have been concerning. On the one hand, the move upwards is welcomed by many in the industry, but the very real concern exists that higher product values that remain in record high territories so consistently will drive more consumers to pork and chicken. What the tipping point is, and when it happens that the good of high product values shoots beef in the foot, is uncertain. Some claim it has already happened while others see it close on the horizon.

Some of the rise in product value has been attributed to the high demand for specific cuts which are getting hard to find. Chuck and shoulder clods, as well as rounds, saw strong domestic and international demand early in the week, resulting in all-time trading highs for those cuts.

Due to cuts in packer production, there just weren’t enough of these cuts to satisfy demand.

Middle meats such as ribs and loins were mostly steady last week with some discounting seen in the lower grade products. Ground beef struggled, starting the week steady with the prior week then steadily decreased as an overabundance of product coupled with light, at best, retail demand resulted in discounting.

For the aforementioned reasons, 90 percent trim saw a massive one-day drop in value last week. Between the USDA afternoon estimates of trim values on Tuesday and Wednesday, 90 percent lost almost $10, going from $213.16 Tuesday to $203.58 Wednesday. By Thursday, at $205.80, 90 percent tried to gain a little bit of what was lost, but had lost $6.97 over the span of the week. With cow kills up and consumer demand for ground down, it was not a good situation. Fifty percent trim was on the whole inactive, gaining a single cent by Thursday midday as compared to the prior week’s Friday close of $55.23.

Despite international demand for chucks driving up the prices and buying up a lot of product out of the domestic availability, recent export data was abysmal. At 10,900 metric tons, exports were 35 percent down from the prior week and 33 percent below the four-week average. The majority of exported beef went to the usual customers, Mexico, South Korea, Japan, Russia and Canada.

Reports on expected slaughter volume for last week were mixed, with some saying a 640,000-head week was expected while others were saying packers had announced cuts and were planning on a 620,000-head week at best.

Corn last week did an entertaining run to its limit down early in the week, posting an over-30 cent/bu loss in both near term contract—now December and March—during the day Monday. By midday Thursday, corn had continued downward despite earlier attempts at intraday rallies, at $7.44’2/bu and $7.47’6/bu, respectively.

Andrew Gottschalk of Hedgers Edge predicted there is little rally potential in corn until the harvest is over 60 percent complete and that at current “low” prices, corn use will be encouraged rather than limited, the latter being necessary for sufficient ending stock supplies. Despite this, he opined:

“We have no reason to expect any change in market behavior near term. Harvest is underway with producer selling more than adequate to meet current demand. Once harvest sales are completed we expect producers to throw the keys to storage facilities away and await higher prices.”

Feeder cattle

People apparently want to own cattle in Missouri. A survey of the state’s numerous sales showed most all feeder and slaughter cattle up, sometimes quite nicely up, with the exception of slaughter bulls. Light- and medium-weight steers and heifers were trading up $3- 10 in most areas, with preference to lighter animals.

Heavies were usually steady to down $3, with the spectacular exception of the Vienna-South Central Regional Stockyards which saw heavy feeder steers and heifers trade down $10-15. Calves were well received, trading up $5-7 with instances of up $10, again with preferences for lighter and value-added calves.

Slaughter cows were mixed, called steady, steady to up $2, and steady to down $2 depending upon area and type. Bulls weren’t seen much but the few which showed up in the Missouri auctions tended to trade lower, down $3-5.

A 750-pound yearling steer sold in Missouri anywhere from $133-155 with the majority of reportings putting them in the mid- to upper-140s range. The onset of fall is said to be making itself known on the area, bringing rains and cooler temperatures. Though many still are facing the reality of water and grass/hay shortages, those with seeded pastures are in good positions.

In other parts of the cattle trading country, similar trends could be seen. In El Reno, OK, feeder steers sold steady to $1 higher while feeder heifers were up $1-3.Calves were also in demand, up $2-6 with preference for steer calves. Demand was called especially good on attractive conditioned and/or weaned calves. Slaughter cows at the Union Livestock Market in Oklahoma were steady to up $1 while slaughter bulls languished at down $10. A 750-pound yearling steer fetched anywhere from $140-150.

New Mexico’s Clovis Livestock Auction followed suit with steers and heifers trading $1-4 higher than the prior week, with in stances of $10 higher on particularly nice light animals. There were no 750-pound yearling steers to determine a test.

Cattle sales picked up in Colorado with several auctions posting results last week. At the La Junta Livestock Commission Company, light feeder calves were up $2-5, and yearling feeders were a light test but called steady to up $2. A string of 771-pound yearling steers sold for $141. In Sterling, the story with calves was the same tune, but with more intensity. Steer and heifer calves saw trade prices up $3-10 with higher prices going to lighter animals. Yearlings didn’t fare as well, with mid-weight steers seeing $3-4 down and a light test of heifers steady.

Feeder cattle futures fared slightly better than fed cattle futures last week. At $144.33 and $146.88 for the September and October feeder contracts, respectively, the results were mixed. The September contract lost 67 cents as of Thursday midday as compared to the prior week’s Friday close, and the October contract gained 26 cents in the same period.

“The grain market feels like it has turned over for a little bit and I would probably look for hedge pressure in the corn and bean markets to keep rallies in check now,” commented Vetterkind. “This along with stronger cash feeder cattle markets is going to be supportive to the feeder futures. Near term I think October feeders are going to have good support at $145 and strong resistance at $150 and would trade them that way. Look for a higher early trade in the cattle futures market.” — WLJ

 

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