Export news moves markets

Markets
Feb 1, 2013
by WLJ

Cash fed cattle trade developed slowly by midweek last week. Small showlists and strength in the futures inspired some hope for the cash trade prices. The South Plains saw live trade on Wednesday at $124-125 and dressed at $197 but on light numbers. Bids were placed at $125 live in the Corn Belt but no trade had occurred. By Thursday afternoon, very little trade occurred, though what took place was consistent with trade earlier in the week “Cattle futures settled sharply higher yesterday in response to the bullish cattle on feed, news of Japan allowing imports of beef from cattle up to 30 months of age, and ideas [that] last week was the low week in the cash fed cattle market for late winter/early spring,” said Troy Vetterkind of Vetterkind Cattle Brokerage on Tuesday.

And they did indeed settle higher following the long-anticipated news from Japan. Compared to their close the prior Friday, on Monday, near-term contracts closed up $2.65 at $128.95 for February and $133.40 for April. By Thursday afternoon, however, the futures had retreated back from this high with February at $127.80 and April at $132.88, an overall gain of $1.15 and $2.13, respectively, compared to the prior week’s close.

Concerns persist on the matter of domestic consumer demand. Production rates continue to outstrip demand needs and packers are still losing money per head with current cattle prices versus product value.

“It will take weekly production at or below 600,000 head per week to advance product values,” said Andrew Gottschalk of Hedgers Edge. “The sooner the adjustment is made the sooner the bleeding stops. More time at current production levels will not solve their problem.”

Last week was estimated as a 620,000-head production week with thoughts that production might retreat to the needed 600,000-head level in February/March.

Current economics weigh heavily on consumer demand, as well as the cheaper alternatives of chicken and pork at the meat case. The fallout of the half-way fiscal cliff agreements is being felt by consumers.

“Product continues to struggle as consumers find their paychecks being short changed due to the increase in payroll taxes,” Gottschalk pointed out.

“A just released report from the NY Fed suggests that the positive impact from the payroll tax cut in 2011 provided more of a boost to the economy than previously expected. The multiplier effect may have been pronounced since consumers were strapped and spent rather than saved any of the gain from the tax cut. This would also imply the recent resumption of the full payroll tax will have a more negative impact on consumer spending than many might suggest.”

Product values continued to disappoint as well. Compared to the prior Friday’s USDA afternoon cutout estimates of $187.44 for Choice and $181.86 for Select, by Thursday afternoon, product values had declined $2.12 and $1.61, respectively. With Choice at $185.32 and Select at $180.25, the spread was barely above $5. But there is a silver lining to this downside.

“Product values are at levels which should encourage some additional buying by retailers,” said Gottschalk.

And cut-specific values do seem like they are due for a reversal. Last week, just about every cut saw discounting, in some cases sharply lowered prices, after the week before saw much of the same. Chucks and rounds were specifically hard-hit as Russia announced they will be halting imports of U.S. beef and pork on ractopamine concerns. Russia, which has been a large consumer of round meat recently, says it will not resume importation of American beef and pork until USDA can verify levels of ractopamine in the meat.

Despite this unfortunate move in the beef trade world, Japan’s announcement of easing its age restrictions came right at the same time. Short rib sales did see some action late in the week, which suggests it might be moving upwards. With that cut being a favorite in Asian markets, it is possible the two conflicting trade moves will balance each other out.

For last week, 12,100 metric tons of beef were sold to export markets. The majority of sales went to Mexico, Canada, South Korea, Vietnam and Japan.

Feeder cattle

Last week it was the supporting cast of the beef world—cull cows and bulls—who saw the most attention. They were almost unanimously up compared to the prior week while the usual players of yearling steers and heifers didn’t fare so well.

At the Union Livestock Market of McAlester, OK, light feeder steers sold $1-4 lower while heavier steers sold $3-4 lower. Heifers sold steady to up $4. Slaughter cows and bulls sold up, $3 and $1, respectively. Small packages of benchmark yearling steers sold from $137-142.

In western Oklahoma’s El Reno sale, feeder steers were up $4-6 while feeder heifers sold up $3-5. Feeder steer calves and most heifer calves sold up $3-5 with especially light heifer calves selling up $10-12 on a limited test. Slightly over 500 yearling steers ranging from 722-780 pounds brought in $146-150.

In New Mexico’s Clovis Livestock Auction, both feeder steers and heifers were $2-5 higher. Slaughter cows were called $2-4 higher, but there were too few bulls offered for an accurate test. Thirty-one head of yearling steers averaging 761 pounds sold for $144.83.

In Missouri, slaughter cows and bulls took center stage, selling steady at worst. Cows sold anywhere from up $1-5 with most sales quoted being in the up $3 area. Slaughter bulls were up in the same range and area. Calves, on the other hand, were generally down, with lightweight calves of both sexes trading down $5.

Yearling feeder steers and heifers were mixed and uneven, trading the fullest range of up $5 and down $7 at a single sale. Most were quoted as steady, however. Benchmark yearling steers were hard to come by at many sales with very few quotes given. For those that did show up, there was more than a $20 spread between the low of $131 for some 784-pound steers at the Farmington Livestock Auction and the high of $151.50 at the St. Joseph auction for 101 734-pound steers.

Feeder futures also saw the boon that was the good news of Japan’s decision. Compared to the prior week’s close at $144.70 for January feeders and $147.95 for March, by Thursday afternoon, those contracts had gained over $1.50 with $146.33 and $149.70, respectively. Even the more deferred contract of May gained 88 cents at $155.20. The January feeder contract expired Thursday at noon.

One topic of economic and general cattlemen’s concern of note in recent weeks is the results of the USDA hay stocks report. Though hay stocks on Dec. 1 in 2012 versus 2011 were very different cross the states, the Great Plains saw some of the worst declines with an area decline of 29 percent. South Dakota had the largest state-specific year-to-year Dec. 1 hay stocks decline at 49 percent. The country’s overall hay stocks stood at 119.9 million tons, a 9 percent decline from Dec. 1, 2011, and 16 percent below the five-year average.

This has negative implications for beef and dairy producers going into spring. CME analysts called the current hay situation, coupled with the likely potential for continued drought, one where “the margin for error is close to zero.”

“There are fewer cows today than 10 years ago so not as many hay acres are needed. On the other hand, with grain prices at record highs, it is more important than ever for producers to put weight on animals before they go into feedlots.”

They pointed out that the cow stocks to hay stocks ratio as of this most recent report stands at 0.52, compared a ratio of 0.44 last year and an average ratio below 0.40 the last 10 years.

“The higher ratio basically means that more cows are competing for a given stock of feed. The next question, however, is whether the increase in the cow inventory to the hay stock ratio impacts the number of cows coming to market. On that count, there is no clear answer.”

They went on to point out that in some years of high cow-to-hay ratios, there was an increase in cow slaughter, but that was not the case enough of the time to tie the two together causally. Ultimately, other factors such as calf prices, pasture availability and the good old trump card of Nature’s whims impact the number of cows coming to market more so than hay availability. — WLJ

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