Flagging demand, product prices worrisome

Markets
Dec 7, 2012
by WLJ

The cash fed cattle trade was reticent to develop last week.

Larger showlists, the expectation of more slaughter-ready cattle coming available in the short term due to limited feeding options given wheat pasture situations, and in-the-red packing margins gave packers the power on prices last week. Expectations were for steady at best—but likely lower—than the prior week’s mostly $125-126 live and $199 dressed prices in late-week trade.

Throughout the first half of last week, very few bids surfaced.

Asking prices started out at $127-128 live and $200-202 dressed, but started declining when it became clear packers weren’t biting. A few smattered bids of $123 live in the Southern Plains and $196- 198 dressed showed up Wednesday, and minimal confirmed trade at $196 in the Corn Belt, but little else occurred. By Thursday afternoon no trade had developed, confirming early-week predictions trade would be put off until the last minute.

Near-term live cattle futures really didn’t seem to know what they wanted to do last week. After closing the prior week at $126.73 for December and $130.40 for February, Monday saw December contracts rally slightly to close at $127 and February gained 38 cents to close at $130.78, then Tuesday saw them both down close to the $126 and $130 marks. The rest of the week up to Thursday afternoon for the December contract was spent creeping along with only a 15-cent gain to show for it. February, on the other hand, was up at $131.15 by Thursday afternoon.

Troy Vetterkind of Vetterkind Cattle Brokerage opined the upward movement won’t last long, however.

“There is some near term support in the Dec live at $126 and in the Feb live at $130, which we obviously have bounced off all [last] week, but I believe it is only a matter of time before that support gets taken out and we trade Dec down to $124 and Feb down to $126.”

Product values took a hit last week compared to the values seen the week before. On Friday of the week prior, the Choice cutout value stood at $195.03 and Select was $174.20 with a spread of $20.83. But these prices could not be maintained despite continued cuts to production in an effort to prop up values. By Thursday, Choice had slipped to $194.32 and Select had dropped to $173.59, but generally maintained the spread at $20.73.

“The industry’s nemesis, resistance at $198-200, continues to be a formidable barrier to higher prices,” commented Andrew Gottschalk of Hedgers Edge. “Sustained production under 620,000 head per week will be required to effectively challenge the aforementioned resistance level.”

Production was expected to be 630,000-635,000 head last week.

Given predictions of more cattlemen needing to market cattle due to feed concerns, it is unlikely production rates will dip into that aforementioned 620,000-head benchmark soon, so cutout prices will likely remain lower than resistance levels. But even achieving that decreased production rate and corresponding increased cutout value is a doubleedged sword, as Gottschalk explained.

“Such a price response [Choice cutout at $198-200] will only have a short term positive outcome. Long term, beef will become less price competitive and the loss in market share to the competing meats will only accelerate. A similar condition developed following the record beef prices during the spring of 1979. Real consumer income has declined for three consecutive months. During this period meat prices have advanced.

“With the ongoing squeeze on real consumer incomes absolute price will continue to trump relative value with consumers. Beef continues to trade at the upper end of its historical relationship to the combined values of pork and chicken. Maintaining total beef demand in this environment will be the challenge as higher fed cattle prices force retailers to advance their prices reflecting the gain in beef product values.”

Retail demand following the Thanksgiving holiday and the first-of-the-month procurement was less than had been hoped. Reportedly, retail outlets are looking to restock warehouses with more turkey and ham rather than beef. Packers were forced to offer discounts on stored product to keep it from backing up.

Most cut-specific values were steady with weak undertones to lower last week.

Round, chuck, and even loin primals, started the week at a soft steady then proceeded to dip lower with discounts later on. The one bright spot was Choice and Select ribs which started out up and moved to steady as the week wore on. Reportedly, there is still some holiday demand for these cuts, but the possibility most procurement has been accomplished is likely.

Ground beef demand as well as boneless and cow beef markets were all fairly mixed last week. Demand for ground formulations is currently suspect and boneless and cow beef markets are seeing an odd exchange between imported and domestic. Domestic grinding beef is more readily available as herd liquidations continue and the availability versus lackluster demand is undercutting prices of imported cow beef from Australia and New Zealand.

Trim prices similarly jackrabbited midweek. After a fairly steady mid-$206s for 90 percent and $76s for 50 percent for the beginning of the week, 90 percent jumped $2.19 on Tuesday, then returned to earlier values on Wednesday when 50 percent plunged almost $10, only to return to its earlier values Thursday.

There was some good news in terms of demand last week in the form of export sales. With 14,000 metric tons sold, beef export trade was up 19 percent last week compared to the prior week, though it was down 3 percent from the four-week average. Mexico, South Korea, Canada, Japan and Hong Kong were the primary buyers last week. Sales for delivery in 2013 were recorded for Japan, Taiwan, South Korea, Hong Kong and Canada.

Feeder cattle

“Empty pen syndrome is infecting some buyer’s attitudes,” reported Gottschalk of the current feeder cattle atmosphere. And the outlook appears grim.

“There is no known vaccine for this condition.”

In Missouri’s auctions, yearling feeders were mostly up with steers trading steady to up $3 and heifers steady to up $6, but mostly in the up $2-3 area with one instance of lower trading for heavyweights. Prices for benchmark yearling steers ranged between $142-149.

Feeder calves were more erratic than yearlings with instances of up $3 and others of down $3. Preference went to light and value-added calves. Slaughter cows and bulls were down, with cows seeing discounting of up to $5, but mostly in the down $2-3 area, and bulls were steadfastly down $1.

At the El Reno Livestock Auction of Oklahoma, feeder steers steady to $1 lower with exception of particularly heavy cattle, which brought in $1-2 more than the prior week. Feeder heifers sold steady to up $2 with calves selling fully steady. Supply was heavy on attractive, well-backgrounded calves and other value-added offerings. Demand was called moderate for all classes with the value-added options seeing good demand. A 223-head lot of value-added yearling steers averaging 765 pounds sold for $148. Another group of 364 standard yearling steers averaging 782 pounds sold for $142.22.

The Winter Livestock Feeder Cattle Auction of Dodge City, KS, saw heavy yearling steers trade $2 down, with similarly weighted heifers called steady.

Mid- and lightweight feeders of both sexes sold steady with premiums paid for reputation strings. A group of 59 yearling steers averaging 773 pounds sold for $151, though whether they were reputation or otherwise was not indicated.

The Clovis Livestock Auction in New Mexico saw feeder steers mostly steady with midweights selling for $4 higher. The opposite was true of heifers where midweights saw discounting of up to $7. Slaughter cows and bulls traded lower at down $1 and $5, respectively, but the offering was described as unattractive. Few benchmark yearling steers sold to report, but an 11-head batch averaging 773 pounds fetched $144.

Feeder cattle futures were far more interesting last week than their live cattle analogues. The prior week closed on the near-term feeder contracts at $145.63 for January and $148.43 for March feeders. Monday and Tuesday saw the contracts keeping close to those numbers. Wednesday, however, saw nice value jumps just shy of $1 for both. Thursday also saw even larger jumps compared to Wednesday. By Thursday afternoon, January contracts were trading for $148.03 and March feeders were at $150.63, a weekly gain of $2.40 and $2.20, respectively. — WLJ

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