Product values break

Nov 2, 2012
by WLJ

Live and fed cattle markets were performing mixed last week. Cash trade developed earlier than expected, but at lower prices than seen the week before. The futures markets performed well, but faltered midweek. Even though they were still in the black at the time of reporting late in the week, their gains were not what they had been.

Cash trade developed early in the week last week in defiance of analysts’ early predictions of trade being put off until Friday. The bulk of the Southern Plains trade occurred on Tuesday with Kansas live cattle selling at $126 and $127 in Texas. Dressed cattle in Kansas brought $200. In Kansas, the live prices are down $1 from the prior week and down $1-2 on a dressed basis.

Very little trade had developed in the mid-level states by Thursday midday, but the Corn Belt saw light trade at $126 live and $195-197 dressed. Analysts expected, however, that prices in those areas might increase as the week came to a close. Rumors of a short bought packer in Colorado and bids of $195 dressed later being passed over led to predictions of final prices being in the $127-128 live and $196-$197 dressed area.

Last week saw the October live cattle futures fall off the board as the contract ended. After having closed the prior week at $125.50, the October contract gained $1.25 to ultimately close at $126.75.

The new near-term live cattle futures—December and February—didn’t fare quite as well. Though by Thursday afternoon they were still in the black compared to their prior week close, their gains were nothing like what they had been earlier in the week. By Thursday afternoon, December live cattle contracts stood at $125.50 and February was $129.25.

Troy Vetterkind of Vetterkind Cattle Brokerage opined that the break in the futures values were largely the fault of the rally in corn futures which happened late Tuesday and continued Wednesday. However, it is likely the behavior of product values also had something to do with it. CME analysts also commented on the ties between live cattle futures and cutout values.

“February 2013 live cattle are currently priced at around $130/cwt. We would need to see the Choice cutout hold around $205/cwt for those kind of cattle prices to hold.”

Whether or not product prices will get there in the near future is uncertain, particularly given the break in Choice seen last week.

After the prior week seeing the Choice cutout up at $199.58, last week opened lower at $197.61. But Choice values tried to regain their prior highs, climbing to just above $198 on Tuesday. Despite the attempt, that level couldn’t be held and by Thursday afternoon, it was back down to $193.50 after breaking on Wednesday.

“Market participants appear to be split in their views as to the reason for the recent break,” said CME in its market commentary. “Some argue that the pullback is largely a by-product of the disruptions caused by Hurricane Sandy, which caused widespread transportation backups and also forced foodservice operators, food retailers and processors to delay deliveries due to the storm.”

CME analysts’ other proposed reason for the break in Choice product values was an older one; things are just too expensive.

“While some see the break in beef prices recently as related to the storm in the East Coast, others remain unconvinced. Rather, for them the recent sharp break is another indication that wholesale beef prices may have gotten somewhat ahead of themselves. Wholesale beef values moved counter-seasonally higher in September and October.”

Select product also dropped in comparison to what its prior week close had been—from $179.70 on Friday of the prior week to $176.30 on Thursday afternoon of last week—but its decline was more gradual and did not see the break that Choice suffered. By Thursday, the spread stood at $17.20. This spread was up slightly from the prior week’s close spread of $17.12, but down from the high spread of $20.29 seen on Tuesday.

Cut-specific prices dropped for the most part compared to past weeks. The almost immediate destruction of retail demand for beef on the East Coast due to Hurricane Sandy had a lot of packers trying to keep product moving and not allow it to pile up until more is known of how long that demand hole will last. This resulted in packers giving discounts on cuts which have recently been seeing high prices, such as chucks and end meats. Demand for flat and thin meats remained lackluster and demand for Choice middle meats petered out as most retail buyers have collected stores for later holiday needs.

For more detailed information on the effects Hurricane Sandy will have in future beef markets, see Traci Eatherton’s story on the front cover of this week’s issue of WLJ.

Boneless beef and trim was, however, the counter point in the story of cut discounts.

“One beef item that has performed well so far is the price of fat beef trimmings,” reported CME. “While still off by more than 43 percent from last year, the price of fat beef trimmings is currently hovering near 70 cents per pound. Only a few weeks ago, fat trim was priced some 20 cents lower than current levels. It remains to be seen how long fat beef trim values will be able to provide this kind of support.”

While other cuts were discounted, trim values stayed roughly steady with last week with a bit of upward movement. Compared to the prior week’s Friday close at $203.66 for 90 percent and $67.11 for 50 percent, Thursday afternoon saw those prices at $204.05 and $68.28, respectively.

Feeder cattle

Like the live and fed cattle markets, feeder markets were mixed. Cash trade was mostly up but differences and inconsistencies existed based on location. Futures were notably down compared to the prior week and much of this had to do with the midweek corn rally.

In the El Reno sale of western Oklahoma, feeder steers sold steady to $2 up higher compared to the previous week. Feeder heifers were up $1-3 and feeder calves sold steady to $4 higher with higher prices going up depending on the length of time the calves had been weaned. A 750-pound yearling steer sold from $141-148.25.

At the Clovis Livestock Auction in New Mexico, feeder steers were unevenly tested with lightweights selling steady with the prior week, midweights steady to $2 lower, and heavier cattle selling steady. Feeder heifers ran steady to up $4 with interest increasing with their weight. Slaughter cows were down $2-3 and bulls were steady to up $2, but the quality of the offering was more attractive than in prior weeks. A yearling 750-pound steer could fetch $130-137.

In Dodge City’s Winter Livestock Feeder Cattle Auction, buyers were aggressive in their desire to own cattle. All weights of feeders sold steady to $2 up with trade very active on the relatively limited options. Slaughter cows brought $1-3 less than the prior week and there were not enough slaughter bulls to set a trend, though weak undertones were observed. A lot of 11 head of 749-pound yearling steers sold at $146.

In the Colorado sales—the Sterling Livestock Commission Company sale in Sterling, and the La Junta Livestock Commission Company in La Junta—feeder steers sold steady to up $3 with the exception of light steers weighing less than 500 pounds, which sold $3-5 down. Feeder heifers were called firm but heifer calves saw sales of up $1 in some cases. Prices for slaughter cows and bulls were steady. Availability of yearling feeder steers was light, but a 750-pound steer fetched anywhere from $138-146.

In the numerous Missouri feeder sales, trade was very mixed on true yearling steers and heifers with difficulty in determining trends due to the limited availability. Both sexes of yearlings ran the gamut of up $5 to down $5 depending on location, weight and condition. That said, there was very little consistency across the different sales, with some seeing discounts going to light animals and other sales seeing lights going for premiums. Very few sales posted receipts for yearlings, but when they did, a 750-pound yearling steer sold for anywhere from $130-152.

Feeder calves were a different story in the Missouri sales. Almost across the board, calves sold up, with steer calves up $2-5 and heifer calves up $2-6. At the Green City Livestock Auction, the bulk of receipts were black hided calves with several large reputation strings available. Buyers were aggressive on the top quality calves, but were sensitive to the flesh condition and days weaned. The St. Joseph Stockyards were the one counterpoint to this, seeing heifer calves selling down $4-8 compared to their prior sale.

Slaughter cows and bulls were mixed right along with the yearlings, ranging from up $2 to down $2 for bulls and down $2 to up $3 for cows. A lot of bred cows were offered at the cow and bull sales and they reportedly sold well to those few who have grass or secure winter feed.

As with the live cattle futures, the October feeder cattle contract dropped off the board nicely in the black compared to its prior week close. Closing at $146.30 on Wednesday, the October contract had gained 97 cents over the course of the half week.

The new near-term contracts for feeders—November and January—suffered right along with their new live cattle futures counterparts. After closing Wednesday at $148.70 and $150.68, respectively, both contracts had lost over $2 by Thursday’s open. By Thursday afternoon, November feeder futures stood at $145.25 and the January contract was at $147.13.

As has been mentioned, the activities of corn had some impact on the beef world. After closing the prior week at just under $7.38/bu for December and $7.40/bu for March and staying there for the first half of last week, prices jumped almost 20 cents/bu by Wednesday’s close. The rally slacked off a bit late Thursday—with December at $7.50/bu and March at $7.52’4/bu—but it was still enough to get cattle traders’ attention.

“The grain complex continues to firm with December corn now trading above the major downtrend. In short, the base building period for corn has ended,” advised Andrew Gottschalk of Hedgers Edge. He also added:

“[Hurricane] Sandy most likely caused additional corn yield loss in Ohio and Pennsylvania with only 64 percent of their corn crop harvested while the national level is at 91 percent harvested.”

A few private crop estimate reports will come out ahead of the next World Agricultural Supply and Demand Estimates report. It is unclear if the reports will include potential damage caused by the hurricane. — WLJ