Choice cutout flirts with $200

Markets
Oct 26, 2012
by WLJ

Cash trade developed sporadically throughout last week. Small batches of sales cropped up each day through the first half of the week, but by Wednesday, the volumes were too low to establish a reliable trend. Monday and Tuesday saw small batches sell in Iowa at $125.50 live. The one Kansas feedlot which sells on dressed basis reportedly sold its showlist at $202 on Wednesday.

By Thursday morning, wider trade had developed. In the south Plains, fed cattle were selling at $127 live and some Nebraska cattle were selling at $127.50 live and $196-200 dressed. Analysts expected the majority of necessary trade would be put off until Friday with prices around $127-128 live and $198-200 dressed.

Near-term fed cattle futures weren’t too spectacular most of the week, being called “anemic” and unimpressive by Troy Vetterkind of Vetterkind Cattle Brokerage. After starting last week on the prior week’s close of $126.30 for October and $127. 28 for December, and the arguably friendly cattle on feed report, futures broke slightly midweek as predicted. By midday Thursday, October fed cattle futures stood at $125.98 and December took the bigger hit at $125.80. Andrew Gottschalk of Hedgers Edge repeatedly called futures overbought throughout the week.

Compared to the Friday close of the prior week, last week’s cutout values gained nicely, bringing Choice ever closer to the mythical $200 area. As of midday Thursday, the Choice cutout stood at $199.58, up $2.90 from the prior Friday. Select had similarly grown, up $2.37 at $183.02, making the spread $16.56.

Analysts Gottschalk and Vetterkind have opined that the Choice values seen last week have likely topped and will trend down slightly in the near future. If not, the risk exists of stalling out the markets and halting any demand growth might occur.

Rumors of packers cutting production in an effort to shore up prices aren’t rumors anymore. Last weeks expected production rate was initially estimated at 635,000 head, but as the week progressed, it became clear packers would be hard-pressed to reach 630,000. This is both keeping product values high and inventory moving smoothly. Packer margins are still in the red, but trading ranges from the upper teens to lower 20s in terms of per-head losses.

Cut specific demand was good last week with tight supplies and slowly growing demand, and this helped cutout and trim values. Just about every cut and primal area in the carcass traded up with the exception of thin meats. Ribs and middle meats are getting attention ahead of the holidays as retailers are looking to get stock for expected consumer interest. End meats and chuck are still in very tight supply and in demand domestically for roasting and for export.

Trim values got a boost from short supplies of boneless beef for grinding. Over the course of last week, 90 percent trim gained 65 cents to stand at $203.11 as of midday Thursday. Fifty percent trim saw a larger gain at $66.23, up $4.07 from the prior Friday’s close. According to CME, the situation is inviting plenty of imports, particularly from Australia.

“Tight supplies and record high prices for lean grinding beef in the U.S. have supported a notable increase in U.S. beef imports so far this year. Beef imports from Australia (based on Customs data through Oct. 22) are up some 52,000 MT [metric tons] or 45 percent compared to the comparable period a year ago.”

Export demand was up last week, despite product values flirting with record highs. At 16,600 metric tons, export sales were up 15 percent compared to the prior week and up 20 percent compared to the four-week average. The usual destinations of Mexico, Canada, Japan and Vietnam saw the majority of the exports. Russia was also a big destination last week as well, ousting South Korea which usually sees a lot of U.S. beef imports.

Feeder cattle

In the Missouri auctions, things were not as rosy as they have been, with most classes of feeders and replacements down. Yearling feeder heifers and steers were mostly down in the auctions compared to the prior week, with discounting ranging from $1-5. Some instances saw some gains in feeder prices, in one case as high as $10 for particularly light yearling steers. In most cases, yearling feeders weren’t available or the pickings weren’t particularly attractive. Calves were abundantly available, but buyers were wary of bawling calves given the anticipated drop in temperatures and attendant health concerns. With the exception of light heifer calves trading $3-7 up compared to the prior week, calves sold $3-5 down.

Slaughter bulls and slaughter cows were mixed but shallow in their movements. Cows were steady to up $1-2 compared to the prior week. Slaughter bulls ran the gamut of up $2 to down $2.

In the Huss Platte Valley Auction, Kearney, NE, steers calves under 500 pounds sold steady to up $2 while those over and heifer calves sold steady. Most calves came preconditioned with shots and some were weaned. Yearling feeders sold steady but were short on supply. Of the thin test on yearling steers, 47 steers averaging 770 pounds sold for $149.24.

At the Public Auction Yards of Billings, MT, stocker cattle sold steady to $2 lower on limited comparable sales with yearlings not well tested. Slaughter cows and bulls sold steady to $2 higher with bulls on a light test. There were no 750-pound yearling steers or close comparison.

The relatively large numbers of calves on the market lately, coupled with feed price concerns, weather-related illness worries, and the condition of most of the available calves (unweaned and some unconditioned) is expected to keep feeder auctions soft in the near future. The pull will come between that and the eventual need to prepare cattle for later. As winter comes and necessitates feeding, more pressures might come into play to impact the current situation.

Feeder cattle futures were similarly depressed as were the fed cattle futures. Compared to the prior week’s close at $146.15 for October feeders and $148.38 on the November contract, the near-term futures stance by midday Thursday was slightly discouraging. The October contract lost 92 cents with $145.23 and November feeders lost $2.32 at $146.05.

The corn market last week brought some good news to cattle feeders. After closing the previous week with December corn at $7.61’4/bu and the March contract at $7.59’4/bu, the contracts had shed some noteworthy cents. By midday Thursday, December had lost almost 20 cents/bu at $7.41’6/bu and March had lost 16 cents at $7.43’4/bu. Most of this drop came Thursday morning as both contracts had hovered in the $7.56/bu region most of the week.

Other outside markets also didn’t fare too well. Following less than welcomed low third quarter earnings reports early in the week, the Dow lost roughly 268 points to sit at 13,075.08 by midday Thursday. The NASDAQ and the S&P 500 were similarly down for the week. — WLJ

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