Short week; COF favors futures

Markets
Nov 23, 2012
by WLJ

Last week was short two days for Thanksgiving. CME and other markets, as well as auctions and usual cattle sale venues, were closed Thursday with some closures or limited operation Friday.

Despite the reportedly shortbought nature of many packers the week before, and the full production week expected this week, packers were not particularly quick to buy cattle during last week’s short window of purchasing opportunity. By Wednesday morning, no sales had been reported and very few bids had been placed.

Asking prices were $127-129 live and $198-200 dressed. A few confirmed bids surfaced late Tuesday at $122-123 live in the South Plains and $126 live in Texas on Wednesday morning, but no sales were seen. Expectations were that cattle feeders would get most of their asking prices with situationnecessitated trade developing at $127 live and $198 dressed.

By close of trade Wednesday, sales had been light on moderate demand. Despite the crunch caused by the short week, past buying behavior and this week’s needs, not enough sales developed to return a market trend.

The short week was a good one for cattle futures, both live and feeders. By midday Wednesday, near term live cattle futures had gained well over $1.50 each compared to their prior week close. On the Friday afternoon of the preceding week, December live cattle contracts closed at $126.15 and at $130.03 for February. By Wednesday, however, December was up $2.10 at $128.25 and February live cattle were up $1.67 at $131.70.

“[Monday’s] closing values for December cattle futures turned the trend ‘up.’ Deferred futures are challenging downtrend resistance,” opined Andrew Gottschalk of Hedgers Edge.

Looking out to the deferred months, April live cattle look to offer hedging opportunities given the current price ($135.58 when written) and the expectations of short supply of slaughter-ready cattle given the recent Cattle on Feed report. See coverage of the most recent report in today’s cover story.

In the course of the short week, cutout values gained steadily,  Select more so than Choice. Compared to the prior week, which saw Choice close at $193.02 and Select at $173.08, product values had gained $1.61 ($194.63) and $1.93 ($175.01,) respectively. The spread saw a high of $21.20 on Tuesday’s close, but was a still-respectable $19.62 by Wednesday.

The negative side effects of high retail beef are slowly losing ground to recent cuts in production and loss pressures faced by feeders and packers. Expectations exist for product value gains of $3-5 in the coming weeks. Last week, the production rate was estimated at anywhere from 555,000 head to 570,000 head due to the holiday. This week is expected to be a normal production week relative to production cuts.

While consumers had their minds on turkey last week, retailers returned attention to beef to procure preferred cuts ahead of the upcoming spate of winter holidays. Chuck and round saw improvements in prices as demand from the Sandyhit northeast began to pick up and export interest increased. Choice middle meats also got a boost from the pre-holiday stocking efforts. Ground and boneless beef was steady with the prior week’s higher prices.

“The beef market feels like we are seeing an increase in business both in domestic and international markets,” remarked Troy Vetterkind of Vetterkind Cattle Brokerage. “I think demand has picked up in particular in the northeast in the wake of hurricane Sandy. There was also a pickup in forward sales as well as export sales last week per the comprehensive boxed beef report.”

Feeder cattle

In the Oklahoma National Stockyards of Oklahoma City, feeder cattle and calves were lightly tested but the few offerings sold steady with the prior week. Demand was very good for the limited numbers of longweaned calves and moderate for other classes of feeders. A 94-head lot of yearling steers averaging 771 pounds sold at $141.59.

At Woodward, OK’s, Woodward Livestock Market, slaughter cows and bulls sold $2 higher with packer demand described as good before the Thanksgiving holiday.

La Junta, CO’s, Winter Livestock Auction saw lightweight steer calves sell steady with the prior week, and all other steer calves sell down $3-5. Heifer calves were steady to down $3. Yearling feeders sold steady when available. Slaughter cows were steady to up $1 while slaughter bulls were steady.

In Missouri’s many auctions, supply was generally light with frequent difficulties in determining market tests. The one mention of slaughter bulls called them steady, and the few mentions of slaughter cows agreed they were up $2-3. Feeder calves were poorly tested but mostly steady at best to down $5. One exception was made for midweight heifer calves at steady to up $2, but all other reports put them down. Preference was given to weaned calves.

True yearlings were hard to come by as has been the case lately. When they did appear, yearlings ran the gamut of up $4 to down $4 based on weight and condition. Preference was given to midwieght yearlings. Of those quoted sales anywhere near the 750-pound yearling steer benchmark, prices ran from $137 for fleshy offerings to $148.75.

Like their live cattle compatriots, feeder futures saw a strong rally midweek last week. Compared to the prior week’s close of $145.60 for January feeder contracts and $148.13 for March, midday Wednesday saw them at $147.40 and $149.93, respectively. Most of this $1.80 gain each contract saw happened in Wednesday morning trades.

“January feeders need a close over $147.50 to reverse their downtrend,” commented Gottschalk earlier in the week. At least by Wednesday afternoon it appeared that reverse was likely. Deferred feeder cattle futures were all in the green Wednesday with gains of over $1 in most months from now to September 2013.

Outside markets were mixed last week with the Dow, NASDAQ and S&P 500 trading gains and losses. Various sources pointed to different reasons for various moves, but everyone seemed to agree the market was buoyed by Federal Reserve Chairman Ben Bernanke’s Tuesday appeal to Congress to act on the Fiscal Cliff.

Corn markets gained last week. From the prior week’s close of $7.27/bu for December and $7.31/bu for March, Wednesday afternoon saw the contracts at $7.38’6/bu and $7.43/bu, respectively. Gottschalk attributed this increase to talk on the world corn market.

“Talk of a possible cut of more than 10 MMT [million metric tons] of world corn production in the next Supply/Demand report is bolstering support. The macro picture has more buyers sourcing corn and wheat from the U.S. as other ex portable supplies are depleted. This condition should emerge as the major force supporting a recovery in grain prices going forward. Soybeans are benefiting from greater demand than expected from China. A close over $7.58 basis March corn would confirm a trend reversal.” — WLJ

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