Holiday week impacts trade

Markets
Dec 28, 2012
by WLJ

The Christmas holiday disrupted cattle markets all around last week. Production was expected to be down, so the urge to buy fed cattle was low on that front. On the other side, however, the fact packers are running out of contract cattle put some pressure on them to buy negotiated fed cattle.

Bids developed sporadically on Thursday at $124 in Kansas and $196-198 in the Corn Belt, though there was no trade. Asking prices had been firm at $129-130 live and $204-206 dressed earlier in the week with analysts expecting trade to take place at steady to slightly lower than the prior week’s $126-127 live and $200-202 dressed.

In the course of the short week, near-term live cattle futures didn’t move much, though what movement it did have was downward. From Monday to midday Thursday, futures slid to $128.75 for December live cattle and $133.13 for February contracts, a loss of 43 cents and 10 cents, respectively, compared to Monday’s close.

Some of the pullback in the futures could be attributed to the bearish Cattle on Feed report released the prior Friday. See coverage of the report in this issue’s cover story.

“In all I don’t think the futures market is done going up yet,” said Troy Vetterkind of Vetterkind Cattle Brokerage. “The next couple of weeks are going to be choppy due to slow holiday trade. We can rally a little and we can break a little but when it’s all said and done I don’t think we do much until January.”

Cutout values started off slow gained slightly through the few days following the holiday. Monday closed seeing the Choice cutout at $193.09 and Select at $177.79, and by Thursday, the values had risen slightly to $194.31 and $179.23, respectively.

Cutout values could continue some upward movement this week and perhaps into the next few weeks as a result of the restricted slaughter rates last week and projected for this week. Last week opened with a production rate of 470,000- 480,000 head and this week is expected to reach 585,000 head at best. Expectations for the first weeks of January place production rates at around 620,000 per week.

This restricted flow of cattle should produce sufficient supply shortages to drive cutout values up in the near term. But as Andrew Gottschalk of Hedgers Edge has warned in previous weeks, one should not confuse supply-driven price increases with increased demand.

As demand for Choice middle meats for holiday buying has long since finished and chuck and end meats are now the star players in the beef complex, the Choice/Select spread has begun to narrow.

“Packers do have a lot of chuck and round meat sold out in front of them that they have to start delivering on after the first of January and this is going to be a positive for the market in my opinion due to the next couple weeks of slower production,” said Vetterkind.

Trim prices remained fairly steady with the prior week for the first part of last week, but then dipped on Thursday. After remaining in the upper $206s for 90 percent trim and low $75s for 50 percent, Thursday saw the two fall to $204.88 and $67.58, respectively. No real indication of why the drop at the time aside from perhaps the fall in the futures that day.

Feeder cattle

Many cattle sales were closed for the holiday week and/or had their final sale of the year the week before, so there were no feeder sales to report. Given the lack of sales during last and this week, it was expected buyers of cull cows for boneless beef will be hardpressed for cattle to buy.

Those with open markets could expect to see steady or firm markets for cows.

Feeder cattle futures similarly saw some slight contraction last week. Compared to Monday’s close of $151.50 for January feeders and $154.28 for the March contract, Thursday afternoon saw the two near-term months trading at a slight loss of 15 cents at $151.35 and 23 cents at $154.05, respectively.

Though feeder futures lost some value last week, the dips in the value of corn futures may have mitigated greater losses. Both the March and May corn contracts lost about 14 cents by Thursday afternoon compared to Monday’s close of 7.04’2/bu and 7.06’6/bu, respectively.

“Technically the grain complex remains in an ‘oversold’ condition,” commented Gottschalk on Thursday. “The failure to rally is not a good signal to future market action. Weaker than expected export demand continues to undermine the corn market while wheat exports are gaining some traction. U.S wheat prices are now undercutting competitors.”

Cold storage

Along with its most recent Cattle on Feed report, USDA released its Cold Storage report on Friday, Dec. 21. Stocks of meat and poultry (beef, pork, veal, lamb, mutton, other red meat and chicken, turkeys and ducks) in all warehouses stood at 1.96 billion pounds (bp) as of Nov. 30. This was an 8 percent increase over the same time in 2011, where 1.81 bp of meat and poultry were in cold storage.

Beef in cold storage at the end of November this year stood at 441.04 million pounds (mp), which was down 1 percent from the same date the year before. Also worth noting is that beef’s representation in the overall stored meat and poultry declined from November of 2011 to November of 2012. On Nov. 30, 2011, cold stored beef represented 24.5 percent of all stored products and 46.2 percent of all stored red meat. In this most recent Cold Storage report, however, beef only represented 22.5 percent of the overall meat and poultry stored, and only 43.2 percent of red meat.

Month-to-month comparisons of November to October, however, were a different story. CME explains:

“Beef inventories were slightly higher after the big drop we have seen since April. That drop, of course, has been from inventory levels that were swelled by a significant amount of 50CL (the CL stands for Chem Lean) trimmings that backed up during the lean finely-textured beef smear campaign last spring.”

Compared to November’s 441.04 mp of beef, October had only 430.34 mp. This was a month-to-month increase of 2.5 percent. — WLJ

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