Cutouts pass resistance, move higher

Markets
Oct 19, 2012
by WLJ

The cash trade for fed cattle was basically nonexistent last week by midday Thursday. One load sold Tuesday in Iowa at $192 dressed, but that was insufficient to determine a market trend. For the most part, cattle feeders passed over offers of $122 live and $191-193 dressed, asking $126-127 live and $194-196 dressed. Analysts predicted throughout last week that cattle feeders would likely get their asking prices.

“I still think we have some cash strength ahead of us for another couple of weeks so I view any near setbacks in the futures market as something to buy not sell,” opined Troy Vetterkind of Vetterkind Cattle Brokerage.

Fed cattle futures posted strong gains last week.

After closing the prior week at $123.90 for October cattle and $125.50 for December, prices rallied to $125.75 and $127.85, respectively.

“In the fat cattle, I think the rally continues until we see some sort of weakness develop in the cash market,” said Vetterkind. “And there is noth ing to suggest that cash fat cattle aren’t going to be higher this week or even next week.”

Last week, product values breeched the $195 resistance level for Choice predicted a few weeks ago. With that resistance level exceeded, the next is set at $198, according to Andy Gottschalk of Hedgers Edge.

“In the last year, these price levels for the Choice cutout have slowed wholesale activity significantly, and that pattern is emerging again. Reported volume this week has dropped well below the same timeframe just a week ago. Nonetheless, product prices should continue their advance in the short run.”

Compared to their close at $191.67 for Choice and $177.04 for Select on Friday of the previous week, last week’s cutout values surged. As of Thursday midday, Choice was valued at $196.84 and $181.06 for Select, a gain of $5.17 and $5.02, respectively. The spread advanced to $15.78, one of the largest spreads in recent months.

The growth in cutout values, along with tight supplies, has had a beneficial effect on cut-specific values. All notable cuts were up or at least steady throughout last week. End meats were particularly impressive on price increases as demand at home and abroad is going up for these items. Chucks also were doing well, trading at the highest point they have for a year. Even demand for ground formulations and boneless beef for grinding has been up, supported by demand from fast food interests.
Vetterkind commented on the situation with imported beef.

“Imported processing beef values were trading higher again [Wednesday] as supplies from overseas aren’t meeting the current level of demand from processors here in the country.”

Grinding beef from Australia and New Zealand has slacked lately and a large portion of the beef which used to come from Canada has been stopped in wake of the XL Foods recall. For a timeline of the events leading up to and following the Canadian recall, see the front page story by Kerry Halladay.

Trim prices fared well last week considering the tightening supplies of both domestic and imported boneless beef. After closing the prior week at $201.16 for 90 percent and $53.73 for 50 percent, trim values moved to $204.05 and $62.98, respectively.
Beef exports last week were doing well. Despite being down 4 percent compared to the prior week’s export sales, the 14,500 metric tons of beef sold abroad last week was 12 percent above the four-week average. Additionally, word of impressive forward sales from international customers suggests exports will improve in the near future.

Feeder cattle

Feeder cattle were mostly trading up last week, buoyed by the strength in other areas of the cattle and beef markets.
In New Mexico’s Clovis Livestock Auction, yearling feeder steers sold $1-4 higher, except for steers between 400-500 lbs, which sold up $10. Heifers were mostly steady with lightweights being $4 up, and slaughter cows and bulls were steady to $1 lower. A 750-pound steer traded for $141-145.

At the Winter Livestock Feeder Cattle Auction in Dodge City, KS, heavy feeder steers were mostly steady with some instances of selling $2 higher. Heavy steer calves were $1-2.50 higher. Yearling heifers were steady while light heifer calves sold up $5 on a light test. A 750-pound yearling steer sold anywhere from $145-151, with higher prices going for some of the string of attractive, well-backgrounded yearlings that showed up.

In Colorado at the La Junta Livestock Commission Company, feeder calves sold steady to up $1-3. There were not enough yearling feeders to derive a comparison. Slaughter cows were called steady with slaughter bulls $2 higher.

Missouri’s many auctions saw most classes of cattle trading up. Yearling feeder steers were steady to up $2-6 based on location and quality. One errant example for yearling steers was at the Vienna auction where lightweights sold down as much as $10. Yearling heifers, too, were generally steady to up $2-6, with lighter heifers more likely to bring higher prices.

Calves were mixed, with steer calves trading steady and heifer calves trading down $3-6. Reportedly, cattle feeders are keeping their ears out for newly or improperly weaned calves, or completely unweaned calves which have been showing up in auction barns frequently as feeder supplies get tight. Slaughter bulls in Missouri’s sales were unanimously steady with last week while slaughter cows ran the gamut of up $3 to down $3.

Like fed cattle futures, feeder contracts gained a lot of value in the near term last week. Sitting at $146.80 for October and $149.10 for November by midday Thursday, near-term futures gained $3.70 and $4.88, respectively, over their prior-week close.

Feeder futures didn’t appear to notice corn’s slight advance last week. Compared to the prior week’s Friday close, December corn contracts gained 7 cents/bu to sit at $7.60’4/bu as of midday Thursday, and March corn gained 6 cents/bu at $7.59/bu. Though this gain seems small, it was the wash of some considerably lower prices posted earlier in the week which hovered around the $7.38/bu range most of the early week.

Regarding the upswing in corn prices, Gottschalk had this to say:

“From a fundamental standpoint, the current prices do little to ration usage. The tightrope of smaller ending stocks continues, balancing a trust in next year’s production versus current supplies. The next 60 days could be a roller-coaster of switches and turns, given that very little data is scheduled to be released during that time. The most likely result is broad trading range, with most traders believing the levels the last few days to be at the lower end of that range.” — WLJ

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