Winter weather impacts cattle trade

Markets
Feb 22, 2013
by WLJ

The cash fed cattle market was slow to develop last week. The first sales surfaced on Wednesday in the South Plains at $123 live and some very light trade took place in the Corn Belt at $122 live and $194-196 dressed. Analysts were unwilling to call that either a trend to too light for a trend, but predicted the winter storm which rolled through the country last week would hamper some trade activity, possibly putting off more until the end of the week.

Midweek forecasts for the storm placed snow totals at 6-12 inches from Dodge City, KS, up through Omaha, NE, with high winds. By Thursday, Kansas was said to be blanketed in 5-16 inches of snow, and feeder auction reports in Iowa and Missouri were non-existent, citing weather problems. Troy Vetterkind of Vetterkind Cattle Brokerage opined that while the weather might delay fed cattle sales, it might work out in cattle feeders’ favor.

“Heavy snow and high winds could be enough for feedlots to command a little premium on the rest of this week’s cash trade,” he said Thursday. “I wouldn’t doubt we could see a few cattle finish selling this week at $124/$1.98 in that regard.”

By Thursday afternoon, a little more trade developed at $123 live in the Texas Panhandle and Nebraska.

Both futures markets took a beating last week, though feeder futures more so than live cattle futures. Compared to their prior-week close, February live contracts lost $1.47 at $125.03 by Thursday afternoon, and April contracts had lost $2.80 at $127.65. Some of this loss was attributed to word of China potentially following Russia’s example and halting shipments of U.S. beef and pork on ractopamine concerns.

Product values continued to remain low, relative to projected needs and semi-recent highs. Compared to the prior week’s close at $181.95 for Choice and $180.40 for Select, by Thursday afternoon, cutout values had only gained 40 cents for Choice and lost 20 cents for Select at $182.35 and $180.20, respectively. The spread has remained nearly razor-thin at an average of $2.15 last week, but it has widened slightly compared to the prior Friday’s spread of $1.55.

Andrew Gottschalk of Hedgers Edge made a point of including a bit of an econ lesson in one of his daily comments on the topic of consumer demand.

“Statistically, measuring demand on a current basis does not provide a true picture of real world events.

Accurate measurements must take into the account the lag impact which is often overlooked by most analysts. The higher prices which are undermining consumer demand are used to justify a ‘good’ demand call; although it is misleading. Accurate demand changes can only be achieved after the fact and accurate measured changes may have a 1-2 quarter lag.”

Steve Meyer and Len Steiner of CME’s Daily Livestock Report also had some details to share on the finer points of the demand and price relationship relative to the current situation. They said the point of focus needs to be how high retail prices for beef and other meats are negatively impacting the quantity consumers are willing to purchase.

“The problem is that as retailers and foodservice operators raise prices, the consumers will demand less of the product offered to them. This is fine as long as supplies are indeed limited. However, when retailers are doing one thing (rising prices) but packers are doing another (producing more), a backlog of product develops which requires significantly lower prices to clear the market.”

Packers are reportedly continuing and possibly deepening their production cutbacks in an effort to correct this latter issue. Last week had an industry estimate of being a 580,000- to 590,000-head week, following the prior week which turned out to be a 596,000-head week. On the short term, the tactic reportedly served them well for moving product.

“With lighter slaughter levels the last two weeks and expectations for more of the same this week, packers indicate that they have a better feeling about being able to sell beef at higher money,” said Vetterkind.

The downside is that as carcass weights continue to run high and feed efficiency in the feedlots is ever improving, the cuts to kill rates are not necessarily having the effect of cutting production. According to CME, beef output for the past six weeks prior to last week has been up 2 percent compared to the same time last year.

Speaking of cutbacks, the specter of spending cuts to governmental programs and agencies—including USDA—has caused some concern and issues among the cattle, beef and related markets.

“There continues to be ongoing conversation among market participants about the potential impact that an 8.2 percent cut on USDA’s budget could have on the ability of USDA to properly inspect processing plants,” reported Meyer and Steiner.

“USDA officials have said that under sequestration they will have no choice but to furlough food safety inspectors. With no inspector present, a plant would not be allowed to run. However, in a letter to USDA, AMI pointed out that USDA ‘has a legal obligation to provide meat inspection even under sequestration,’ a position echoed by NCBA.”

Vetterkind, too, had some choice words on the issue of the sequester.

“When I first heard about this a couple weeks ago I shrugged it off and thought it was nothing more than political wrangling between the two parties in Washington D.C. And the reason I thought this was that in my opinion it is insane to even imagine the government shutting down the U.S. meat industry because they can’t come to an agreement over spending cuts. But the Administration and Secretary of Agriculture continue to tout this story around the country, likely as a scare tactic but nonetheless could be having some minor market impact in the process.

“My understanding is that USDA will give employees a 30 day notice before furloughs take effect and none have been issued yet. I believe the government has a deadline of March 1 before spending cuts would take effect. Absolutely incomprehensible that something like this could happen, in terms of using the nation’s food supply as a bargaining chip, but anymore I guess I’ll believe that just about anything can happen.”

Feeder cattle

Many auctions last week, particularly in the central and Midwestern states, were shut down or saw too little activity to report on due to the winter storm that swept across most of cattle country last week. Kansas and Wyoming sales were particularly hard hit by this. The weather and anticipation of it is credited with having affected buying willingness and price levels in more ways than simply physical attendance issues.

Compared to the prior week, steers and heifers at the Torrington Livestock Commission Co. in Wyoming sold $3 lower, with the exception of the far ends of the spectrum; the lightest animals sold up $3 and the heaviest animals sold up $4. A 320-head collection of yearling steers averaging 738 pounds sold for $142.53. In Oklahoma’s Union Livestock Market in McAlester, lightweight steer calves sold steady to $5 lower while others sold up $2-6. Heifer calves were lightly tested, but the few lightweights sold down $4- 10 while, again, all others were up $2-10. Slaughter cows and bulls were down $4. Yearling steers not well tested.

The El Reno sale in western Oklahoma saw feeder steers steady with improved demand compared to the prior week’s lower market. Feeder heifers were down $3-5, steer calves up $2-4 and heifer calves were up $1-2. Demand was called good on calves and dual-purpose type cattle that could either go directly to the feed yard or return to pastures. Some 761-pound yearling steers sold for $138.05.

Kearney, NE’s, Huss Platte Valley Auction saw uneven trade on yearling steers and heifers though demand from the small crowd willing to brave the then-impending storm was said to be good. Yearling steers in the mid-700 pounds area sold for between $141.88-143.13.

In Missouri’s many sales, like around the rest of cattle country, the concerns over and the impact of the storm stifled a lot of sale activity. Yearling feeders, both steers and heifers, were not readily available, with many sales being unable to offer comparisons given too-light tests. Where they sold, however, they were mostly down to the tune of $3-10.

Keep in mind most auction reports quoted their comparisons of last week against not the prior week, but the week before that. The prior week was abysmally low due to a number of outside factors, which prompted many to toss it out as unrepresentative. Those sales which did quote last week versus the prior week, however, called sales up around $3-5.

Smallish groups of mid- 700s yearling steers sold in a few Missouri markets though prices varied greatly. The Vienna South-Central Stockyards saw the lowest prices at $125.91 for a handful of 752-pound steers while the St. Joseph Stockyards saw the highest prices at $145.72 for 67 725-pound steers.

Calves were mixed across Missouri sales with calves of both sexes being generally steady to down $2 with instances of $6. But lightweight calves of both sexes were in demand, going for up $9. Slaughter cows and bulls were generally up $2- 4, with occasional instances of steady to down $1.

As mentioned, feeder futures were in a bad way last week with some days seeing limit down trade, though luckily it didn’t stick. In the course of the week, compared to the prior week’s close, near-term feeder futures had lost several dollars in value. The March contract shed $2.80 in the course of the week with $140.58 by Thursday afternoon, and the April contract lost $3.35 with $143.28. Even the deferred contract of August was hard hit, losing $3.47 with $153.43.

In addition to the possibilities regarding China impacting futures, rumors of a large hedge fund in the U.K. blowing out of energy, metal, and meat futures positions likely had a hand in sending feeder futures into a tailspin. — WLJ

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