Early week futures rally

Markets
Dec 21, 2012
by WLJ

The cash fed cattle trade was slow to develop again last week, though not as slow as in recent prior weeks. Throughout the first half of the week, trade was nonexistent. Cattle feeders were asking $128-130 live and $202- 205 dressed and ignored the offers of $123 live in the Southern Plains and the $195 dressed bids. By Thursday, however, some trade emerged in Kansas and the northern Texas Panhandle at $126 live in keeping with analyst expectations.

The most recent Cattle on Feed report came out Friday of last week, which was thought to have held up some cash buying earlier in the week. Given the timing of the report’s release, see coverage and analysis of it on the front page of next week’s issue of WLJ.

Live cattle futures, particularly December contracts, saw a surprising rally on Monday last week, following unexpected high cash fed sales which happened the prior Friday. Troy Vetterkind of Vetterkind Cattle Brokerage attributed some of the rally to the early-week expectations of the snowy weather that hit good chunks of cattle country last week.

Compared to the prior Friday’s close at $126.90 for December cattle contracts, and $132.60 for February, Monday closed at $129 and $133.5, respectively. The futures broke on Tuesday on what Vetterkind speculated was possibly a profit-taking situation. But by Thursday morning, things were above Monday’s rallied close, only to trickle down after opening. Thursday afternoon saw near-term contracts at $128.65 and $133.33, respectively.

Choice product values slipped last week compared to their prior week close at $194.69 for Choice and $175.34 for Select. By Thursday, the cutouts stood at $191.98 and Select had gained nicely at $177.24. This tightened up the spread to $14.74 compared to the $19.35 it had been on the previous Friday.

The holiday buying of Choice and Select ribs, tenderloins and other middle meats had long since ended by last week. Overall product value was propped up largely through higher to sharply higher prices on end meats and chuck as retailers look to provide stewing cuts to consumers for those incoming cold winter evenings after the holidays. Reportedly, some packers are sold out on end meats for delivery in the New Year, which will keep them from cutting kills as much as they’d probably like to to recover some losses.

Export interest in end and chuck also helped keep cutout values from tumbling as much as slacking domestic demand would have otherwise caused. The U.S. is poised to see some export interest increase into the future as the fallout from Brazil’s recently reported BSE incident sees more countries dropping their Brazilian beef imports.

Last week’s beef exports were up 3 percent compared to the prior week, at 13,100 metric tons, though this was down 3 percent from the four-week average. The majority of export sales for delivery in 2013 were to Asia, going to Japan, South Korea, Taiwan and Vietnam. Of those, at least Japan dropped all its beef imports from Brazil.

While some factors are working in favor of U.S. beef export—such as Brazil’s misfortune—other factors are projected which could negatively impact export demand.

As is no surprise at this point, packers are projected to further cut production rates in the coming weeks. This week of Christmas and next week which sees the New Year’s holiday will both be reduced kill-weeks with this week projected at 480,000-500,000 head processed and next week at under 585,000 head.

“Look for a late month and early January surge in product values reflecting the sharp cuts in production,” said Andrew Gottschalk of Hedgers Edge, following up with a warning. “Do not confuse such a gain with better demand. Higher prices do not equate to better demand if the advance is the sole result of a sharp cut in production.”

Increased product values could further hamper domestic demand as well as export trade. Though what the fiscal cliff could do to the value of the dollar—and thereby a good portion of the relative attractiveness of our exports—after the first of the New Year is anyone’s guess.

Feeder cattle

The Clovis Livestock Auction in New Mexico saw feeder steers trade steady to $2 higher. Light heifers were called steady to up $1, and mid- to heavyweights sold $4-5. Slaughter cows and bulls were up $1. Trade was active and demand was said to be good. Yearling cattle ranging from 700-800 pounds sold for $141.50- 148.00.

In Oklahoma’s El Reno feeder cattle sale, feeder steers traded steady while feeder heifers sold steady to up $3. Both sexes of calves brought in steady money with cases of $6 over the previous week. Demand was good in all classes for the attractive, quality offering. A group of 91 yearling steers averaging 720 pounds sold for $149.55 while 210 head averaging 761 pounds sold for $145.18.

Elsewhere in Oklahoma, the Union Livestock Market saw its last sale of the year. There, steer calves sold $2-8 higher with heifer calves seeing a $3-8 increase. The calf offering was called average to attractive with most being attractive. Slaughter cows traded steady to up $5 and bulls were $6 higher. Small groups of yearling steers sold with one group averaging 711 pounds selling for $142.48 and another averaging 785 pounds at $131.39.

In Missouri’s sales, concerns over the incoming snow storm—called by some as having blizzard potential—dampened buying interest and sale participation. There were several sales which didn’t see any benchmark yearling steers and many others which saw only small clutches of them. Where they sold, yearling steers around 750 pounds fetched between $146.50-149.

Yearling feeder steers and heifers sold mixed, with some places calling them steady, others calling them up as much as $5, and others calling them down as much as $3. Overall offerings were slim and several sales cited issues of too few cattle to judge a market trend. Feeder calves were similarly hard to test, but with most sales calling them steady at best with instances of down $5 on lightweights.

Slaughter cows and bulls were the stars of Missouri’s sales last week. All sales reporting on them called them up, mostly in the $3-5 range, but with some instances of up $8-9 on high dressing cows specifically. This is likely due to the declines in boneless beef imports from Australia and New Zealand.

Feeder cattle futures saw a slight rally on Monday to go along with the live cattle futures, but it was not as spectacular for feeders nor were they able to hold onto those gains. After closing Friday at $153.08 for January feeder contracts and $155.03 for March, Monday closed at $154.25 and $156.25, respectively. However, by Thursday afternoon, those numbers had slipped to $152.48 and $154.9, a net loss for the week.

Last week, CME in one of its daily reports pointed out some interesting things about overall meat production in the U.S. The report pointed out that meat (beef, pork and chicken) production is roughly level with year-ago levels despite fluctuations in actual slaughter rates. Beef and chicken production are up despite reduced kills in both species.

This comes from improved feed efficiencies.

“The increase in weights reflects efforts on the part of producers to improve productivity and lower marginal costs.“Given such lofty goals, producers need to use the best science that money can buy so as to meet society’s requirements. They have done a pretty darn good job at that.” — WLJ

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