Live cash and futures markets down

Markets
Sep 28, 2012

Trade for cash negotiated fed cattle developed earlier last week than often happens, but remained light. Tuesday afternoon saw some very light trade around cattle country at $192 dressed in Iowa and $194 in Nebraska. Wednesday saw trade develop in the south Plains at $123 live and $190-192 dressed in the Corn Belt. Analysts expected light trade to continue the rest of the week at $123 at best, despite early-week asking prices of $124-125 live.

Fed cattle futures last week took a hit in the near-term contracts, with both losing over $3 compared to their prior week closes. Compared to the $125.60 for October and the $128.45 for December the Friday before, by midday Thursday last week the contracts stood at $122.58 and $125.23, respectively. Some of this downward movement was blamed on the market being oversold and the depressed prices seen in the cash fed market.

Product values had a mixed week last week. At the close of the prior week, cutout values stood at $193.34 for Choice and $183.86 for Select. Product values then shed roughly $1 for Choice and $2 for Select early last week. By Thursday morning, Choice had all but regained its losses, reaching $193.30. The Select cutout value did not rally as well, however, and stood at $181.88, widening the spread to $11.42.

Retail demand is generally said to be waning, particularly with the increased price of beef for the consumer coupled with the lower cost of other proteins.

“Cash and cutout values have minimized retail beef margins,” explained Andrew Gottschalk of Hedgers Edge. “Retailers will respond by either raising prices or reducing beef features. The competing meats have a distinct retail pricing advantage versus beef with pork likely to see the most gain as production increases seasonally.”

Troy Vetterkind of Vetterkind Cattle Brokerage had similar comments on the state of the beef case.

“There remain more pork and poultry advertisements in many retail flyers and this is displacing higher priced beef ads and leading to lighter movement at the retail counter.”

Cut-specific demand is largely down with seasonal lulls between the grilling season and the colderweather beef season and with the high prices of beef. Middle and end meats were largely steady to down with short ribs being an exception. No-roll chucks were again the bright spot in the beef complex with supplies tighter than demand maintaining all-time trading highs seen for that cut.

Ground beef and boneless beef were depressed with flagging consumer demand for ground formulations and more cull cows coming into the slaughter market than demand necessitates. Though not mentioned by analysts, it’s hard to imagine the recent and fairly public recall of Canadian-sourced ground beef on E. coli concerns hasn’t had an impact on consumer interest in ground beef as well.

Trim values dipped last week as compared to the prior week. While the previous week closed at $206.12 for 90 percent trim and $51.71 for 50 percent, by midday Thursday, the values stood at $203.06 and $50.67, respectively. The aforementioned oversupply of slaughter cows beyond demand is expected to continue for some time into the future as mostly dairy herds are being reduced, if not outright liquidated.

To add to domestic consumer disinterest in beef, high prices are continuing their negative impact on export demand. Following in suit with the prior week’s extreme drop in exports, last week saw only 9,800 metric tons of beef exported, down 10 percent from the prior week and down 36 percent from the four-week average.

In the outside markets, the continued downward movement of corn was the biggest interest to the cattle world. After ending the prior week at $7.49/bu for December and $7.53/bu for March—and up roughly 35 cents in each contract the week before that—midday Thursday saw December corn at $7.16’6/bu and $7.20/bu in March. This is despite continued expectations of further reductions in the estimated U.S. corn harvest.

Feeder cattle

Though in some cases reports of feeder cattle sales place them up, most reports—particularly out of Missouri—make it seem like people got their fill of feeder calves in the week before.

Across the numerous Missouri feeder auctions, cattle sold mostly lower than the prior week. Considering the remarkable gains in some of the feeder cattle categories of that week, however, it seems last week’s feeder market returned to earlier levels. Steers were called steady to up or down $3 depending on quality in the midweights, down $4-12 for lightweights and down $2- 3 for heavyweights. Overall they were said to be only lightly tested on sporadic demand. Steers at 750 pounds were reportedly going for $135-137.

In feeder heifers in Missouri sales, lightweights were preferred, trading steady to up $6 compared to the prior week. Mid- and heavyweight feeder heifers were steady to down $12 with better prices going to lighter animals. Most of the sales reported calves brought to the barns were bawling and never worked, making them less than attractive compared to prior offerings. They traded down $4. Bulls were scarce and called steady while slaughter cows were down $1-3.

At the El Reno auction in Oklahoma, feeder steers and heifers were called unevenly mixed. Heavy steers and mid-weight heifers traded steady while the rest of the yearling offerings were steady to down $3. As with the Missouri sales, new-crop bawling calves were down $4, though weaned calves saw ready buyers. A 750-pound yearling steer ran between $141-145.50.

Feeder steers and heifers traded steady to $3 up in the Clovis Livestock auction in New Mexico. Slaughter cows traded down $3 while bulls were $5, though it was noted the quality was not comparable with the prior week’s offering. There was no price trend established on 750-pound yearling steers.

Despite the boost of the sharply lower corn prices at the end of Wednesday and going into Thursday, feeder cattle futures were sluggish. Much of the lack of activity was attributed to the impacts of fed cattle futures and cash prices rather than the impact of corn.

Near-term feeder cattle last week moved downwards compared to their prior week close of $143.85 for September and $147.15 for October. September feeders stood at $143.33 as of midday Thursday while October contracts stood at $146.25, a loss of 52 cents and 90 cents, respectively.

Vetterkind described a support-resistance range on feeder cattle futures for October being between $143-146.50, though he also called it a bad trade if the contract were to close below $146 in the near future. The short supply of feeders is still expected to hold up demand and the lower the price of corn, the better. — WLJ

{rating_box}