Futures down, product up

Markets
Dec 1, 2012
by WLJ

Some cash trade developed on Monday to the tune of a couple thousand head of cattle selling live in Texas at $128. This would be steady with the week prior. These cattle reportedly went to JBS and were thought to be effectively cleanup trade from the week before where they found themselves short bought.

This early trade sparked hopes of active, early-week trade across the board, but that did not happen after all. By Thursday, no trend-setting sales had happened besides the aforementioned Monday trade. Small batches of cattle sold to regional packers in Nebraska on Wednesday at $202 dressed. Bids were limited and trailed the asking prices of $128-130 live and $203-205 dressed by $3-9.

Analyst expectations were for a week of cash trade steady to higher than the preceding week on post- Thanksgiving fill-in business. That said, expectations of lower prices this week and in the near future also existed.

“[T]he further we get into the month of December it is expected that we will see more fed cattle available to the market and with heavy carcass weights and the prospects of beef demand slowing going into the end of the year holidays the market could start to underperform in a week or two,” predicted Troy Vetterkind of Vetterkind Cattle Brokerage.

“[…W]e could be dealing with a mid-lower $120s fed cattle market by the middle of January as opposed to a lower $130s market, which February live is suggesting right now,” he continued, referencing the play between the cash and futures markets.

By Thursday afternoon, no additional trade had developed sufficient to set a market trend.

Both live cattle and feeder futures saw a steady decline all of last week up until Thursday. Thursday’s uptrend wasn’t enough to reverse the damage done to near-term futures contracts during the first half of the week, however.

Compared to the $128.95 for December and $132.73 for February close on Friday of the prior week, those two contracts had lost 82 and 63 cents, respectively, at $128.13 and $132.10. This was a far sight better than the lows seen earlier in the week on Wednesday.

Product values were high last week despite some fluctuations. Choice and Select cutout values ended the prior week at $196.33 and $174.17, respectively. By Thursday, the USDA morning product estimates placed those numbers at $196.96 and $175.37, a weekly gain of 63 cents and $1.20, respectively. The spread Thursday morning was $21.59, down from the week’s high of $22.08.

“In all, the beef market feels to be in good shape,” opined Vetterkind. “[B]ut upside potential remains limited going into the middle of December and unless we see some unexpected business develop, have to assume the $200 are basis the Choice cutout is going to be a huge barrier to get through by years end.”

Choice ribs, peeled Choice tenderloins, and other Choice middle meats to a lesser extent were the top performers last week in terms of cut-specific movement. The aforementioned cuts traded higher each day throughout the week as retailers sought product ahead of Dec. 1 and preholiday interests.

Chuck and end meats were mostly steady last week though turned soft towards the end as supply started to outstrip demand. This is a concerning situation for packers considering they have already cut production significantly and are pricing product for manageable movement.

Ground beef, trim and boneless beef for grinding were generally steady with the items fluctuating between steady-soft and steady-firm from day to day. East Coast demand is said to be picking up and a tight supply of boneless beef both here and abroad is holding prices well.

With predictions of a downturn in domestic beef demand going into December, export sales last week were disappointing. With 11,800 metric tons sold, exports were down 23 percent compared to the prior week and down 22 percent from the four-week average. The bulk of exported beef by volume went to South Korea, Mexico, Canada, Japan and Hong Kong. Feeder cattle “The cash feeder cattle market [was] where all the fireworks [were last] week with higher to sharply higher prices being reported across much of the country,” reported Vetterkind.

In Oklahoma’s El Reno feeder cattle sale, feeder steers and heifers sold up $2-4. Calves sold anywhere from $4-8 higher, with preference given to long-weaned calves who’d been vaccinated. Demand was called good for all cattle save bawling calves. A batch of 157 head of average 763-pound yearling steers sold for $145.

Montana´s Public Auction Yards of Billings saw a very light test on yearling feeders. Slaughter cows sold steady to down $2 while slaughter bulls sold up $3. There were no 750-pound yearling steers offered to gauge a trend. Most noncow or bull feeder animals offered were less than 650 pounds.

In Kansas’ Winter Livestock Feeder Cattle Auction, heavy-weight steers and heifers sold up $3-4, with all other weights steady with the prior week. Trade was very active and demand was excellent for true yearling cattle. Eight head of average 781-pound yearling steers sold for $153.35.

In Missouri, there were far more yearlings available than in previous weeks. True yearling steers sold steady to up $5 for mid- and heavyweight cattle, to steady to down $5 for lightweights. Steer calves followed this trend. Benchmark yearling steers sold anywhere from $136-150, with most in the upper $130s to lower $140s.

Heifers saw a good deal of volatility with steady to up $5 for mid- and heavyweights, to down as much as $12 for lightweights. Heifer calves were even more all over the place. While in St. Joseph Feeder Cattle Auction, newly or un-weaned heifer calves sold down as much as $12, at the Farmington Livestock Auction, lightweight heifer calves sold up $13.

Slaughter cows and bulls were not overly abundant. They sold generally steady with the prior week with some slaughter cows selling up $1-2.

Feeder futures followed the same trend as live cattle contracts. By Wednesday, both near-term futures had lost roughly $1.50 compared to their prior week close. By Thursday afternoon, January feeders stood at $146.95 and March contracts were at $149.65.

Andrew Gottschalk of Hedgers Edge attributed the futures behavior to the market being in an overbought condition.

“A brief period of price consolidation or modest decline is likely before additional gains are scored,” he said of both futures markets.

Futures behavior seen last week also had something to do with the corn markets. Having closed the prior week at $7.45’4/bu for December corn and $7.49’6/ bu for March, word of poor growing conditions around the world for staple grains saw increases in corn futures.

“It is too wet in Argentina, and too dry in Southern Brazil, Russia’s main wheat growing region and the HRW area in the U.S.,” said Gottschalk. “As other export sources of corn and wheat are depleted buyers will increasingly come to the U.S. to source their needs. China has reported record grain production for this year. This is still insufficient to meet their rising demand needs.”

By Thursday afternoon, near-term corn futures stood at $7.52’6/bu for December and $7.58’4/bu for March. This was a decline following Wednesday’s highs which saw both contracts trading over $7.60/bu. — WLJ

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