Cow beef, boneless prices supported

Markets
Nov 16, 2012
by WLJ

The cash fed cattle trade was particularly sluggish last week with only two loads of cattle selling to regional packers through the first half of the week. On Tuesday, one load sold in Iowa at $192 dressed, which would be below the prior week, and another sold Wednesday in Nebraska at $196 dressed, which would be steady with the prior week. Of course, neither of these were enough to set the markets in those areas.

Asking prices were set in the $126-127 live and $197-198 dressed levels. Packer bids were slow to develop and few and far between. Larger show lists due to the prior week’s limited kill and buying for the short kill week of Thanksgiving kept packers inactive. The few confirmed bids to develop on Wednesday and Thursday morning were at $192 dressed in Nebraska and $120-122 live in the south Plains.

By Thursday afternoon, nothing had developed. Analysts expected trade would develop late in the week and at steady to lower money compared to the prior week’s $125-126 live and $195-196 dressed levels.

Despite this otherwise negative cash fed cattle situation, Andrew Gottschalk of Hedgers Edge predicted there would be an upside.

“[Last] week’s trade should mark the low for this quarter provided there is no implosion in the outside markets.”

If accurate, having the quarterly low realized could offer hope for gains in the future.

Live cattle futures were fairly steady with slight losses last week compared to the prior week. After closing the previous week at $125.75 for December live cattle contracts and $129.35 for February, Thursday afternoon’s $125.60 and $129.30, respectively, represented only mild declines. Throughout the earlier week, little movement occurred.

“December live cattle will need to hold the $124-$125 price level to stave off a quick break down to $122,” opined Troy Vetterkind of Vetterkind Cattle Brokerage. “ [I] believe if Dec got down to $122 it would be undervalued and this is probably why we don’t break the market very hard. Lots of resistance remains above the December contract at $126-$126.50 and we need a close above that price level to extend up to $128-$129.”

Compared to the prior week, Choice cutout values gained last week while Select stayed relatively steady.

The Choice cutout closed the prior week Friday at $191.87 and Select stood at $173.56. By midday last Thursday, the cutouts were $193.03 and $173.15, respectively. The gains in Choice increased the spread to $19.88 compared to last week’s close spread of $18.31.

Continued and increased production cuts have been forecasted as necessary to regain the $200 Choice cutout almost seen several weeks ago. This level in turn has been estimated as necessary to hold up profitability in the beef chain.

“It will require sustained weekly production under 620,000 head to advance the cutout through resistance $198-$200,” said Gottschalk. Last week’s early-week industry expectations were for a 630,000-633,000 head kill week. This week’s production rate will be understandably less considering the short week from the Thanksgiving holiday.

Analysts expect a rally in cash fed cattle, cutout prices and demand following Thanksgiving.

“Beef demand, while no ball of fire was said to have improved slightly [Tuesday] for product to deliver after Thanksgiving,” said Vetterkind.

“This fits in with my ideas that we can see a mini rally in cash beef and cattle prices going into the first half of December as retail/wholesale buyers procure end meats to feature for the first of Dec and finish buying their middle meats for the end of year holidays.”

Gottschalk agreed. “Post Thanksgiving purchases, coupled with delayed supply replenishment from Sandy, should propel cutout values higher into December. That said, the competing meats are expected to continue to take market share from beef.”

Though it’s been known beef is losing market share to pork and poultry for a while now, numbers from the Pork Checkoff Program indicate average at-home consumption of pork in recent weeks has increased 10 percent above levels posted two years ago.

“This trend will accelerate next year,” opined Gottschalk, who added declining beef demand “is the greatest threat to the fed cattle price outlook next year.”

In addition to increased consumer interest in pork, the turkey-focused nature of meat demand lately and the continued interest in keeping product moving led to a lot of beef cuts seeing discounting. End meats and chucks were offered at discounts as were select middle meats. Some Choice middle meats traded up to sharply up, this seen as early winter-holiday procurement by retailers.

However, demand favored ground last week. Much of this is credited to the fledgling demand growth for ground in fast food service in the Sandy-wrecked northeast. Continuing and intensifying worries over the general economic state and concern over the fiscal cliff in particular were also cited as playing a potential role in demand growth for the inexpensive side of beef offerings.

“From a demand perspective, the slow economic recovery suggests that consumers will still favor hamburger and other processed beef items more than expensive loin cuts, which is ultimately supportive to slaughter cow prices,” said Darrell Mark of the South Dakota State University iGrow Extension.

Demand for ground product and flagging imports of grinding beef from Australia have resulted in a very supportive cow and boneless beef market. Mark explained that, on the domestic side, unusual cow culling behavior prompted by the drought and feed costs likely played a part in this.

“Even though prices usually decline during this time period, generally slaughter cow prices tend to bottom in November and December when most of the open cows are marketed. This year, however, producers have likely delivered some of these cows to market earlier to ease their feed costs.”

Feeder cattle

In the El Reno feeder sale in Oklahoma, feeder steers sold down $1-3 while heifers sold the same money higher. Ready supplies of reputation weaned calves were offered in the annual Red Angus program feeder calf sale and demand was very good for long-weaned, vaccinated calves especially.

Untreated bawling calves got a cool reception from buyers compared to their backgrounded counterparts. A lot of 155 average 739-pound yearling steers sold for $142.05.

At Kansas’ Winter Livestock Feeder Cattle Auction, mid- to heavyweight steers sold steady to up $1 while comparative heifers sold up $2.50-3.50 compared to the prior week. Lighter weight feeders sold steady. Demand was good for the true yearling cattle and moderate for calves with discounting for bawling or short-weaned calves. A lot of 39 yearling steers averaging 753 pounds sold for $150.25 while a lot of 46 fleshy yearling steers averaging 765 pounds brought $138.85.

In Missouri’s auctions, true yearlings were still in short supply, but well-received when available, selling at least steady with the prior week to up $6. Slaughter cows and bulls were steady at worst with frequent instances of up $2 as demand for trim and grinding meat increases. Quoted prices for the benchmark 750-pound yearling steer ranged from $134.50-153, with most prices being in the mid- to upper-$140s.

Calves were a landmine of volatility in the pricing from sale to sale in Missouri. In the St. Joseph Feeder Cattle Auction, light calves sold steady to up $5 with instances of up $10 compared to the prior week. Yet in the Farmington Livestock Auction, lightweight calves were selling down $12. Elsewhere, larger calves of mixed quality sold anywhere from up $2 to down $5 with discounting going to bawling calves.

Feeder cattle futures did not fare quite as well on the near term as did live cattle futures. Compared to the prior week’s close at $144.20 for November and $145.60 for January contracts, Thursday afternoon saw the November contracts at a 77-cent loss at $143.43. January feeders were only down 42 cents at $145.18.

Vetterkind also had support and resistance predictions for feeder cattle.

“January feeder cattle continue to respect support at $145, but if we see a break in the live cattle, feeders are going to break as well likely down to the $142.50 area... Resistance above the Jan feeders can be found at $147 and above that $150.” — WLJ

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