Product values up on production cuts, storm

Mar 1, 2013
by WLJ

Throughout last week, cash fed cattle sales were slow to develop, both on market and outside reasons. The storms caused some difficulty for feedlots around the country, and when dealing with the physical necessities of digging out and caring for the cattle, sales become hard things to do. Despite this, favorable live cattle futures markets and advancing product values from continued production cuts made cattle feeders stand firm on their offers which started the week at $126 live and $200 dressed. As the week progressed, so did the asking prices, up to $128 live and $201-204 dressed.

At these prices, bids were slow to develop and sales were even slower. A small string of cattle sold to a local packer in Iowa for $126, and by Thursday afternoon, cattle had begun to sell in Nebraska for $202-203 dressed.

Live cattle futures gained nicely last week after some less than encouraging prior weeks. The February live contracts closed at noon on Thursday at $129.30, a $2.95 gain compared to the prior week’s close. By Thursday afternoon, the April contract had gained $1.83 with $130.05. The more deferred contract of August also gained 48 cents with $125.83 by Thursday afternoon.

Product values finally began a noticeable increase last week. By Thursday afternoon, the Choice cutout had advanced to $186.16, a $3.27 increase from the prior Friday’s close. Similarly, the Select cutout had gained $5.57 over the previous Friday with $185.76. These gains have largely been attributed to the continued and sustained decline in production rates.

“After the last couple weeks of reduced slaughters and the storm in the south this week, packers were able to raise their offering prices on most beef items and achieve higher price points,” commented Troy Vetterkind of Vetterkind Cattle Brokerage. “I would probably look for a continuation of this for the balance of this week and into next as beef buyers come back into the market to cover first of the month needs.”

Andrew Gottschalk of Hedgers Edge had similar comments on the change. He also pointed out how the weather will likely continue the trend of reduced production.

“The adverse weather in the south plains has likely advanced the timing of reduced fed cattle supplies by several weeks… With production schedules curtailed, any recovery less than the low $190s for the Choice cutout should be viewed with disappointment.”

He said that once the weather gets better, “fires will be lit under calf and stocker prices as grass conditions improve.”

Last week’s industry-expected production rate was estimated at between 560,000-580,000 head. The prior week saw a 573,000-head kill-week. Added to this projection of continued reduced production weeks, the state of those feedlot cattle who survived in the states hard-hit by the storms will likely tip the carcass weight averages lower.

The fact some feedlots in areas not used to snow got snow plus high winds from the storm could mean a lot more dead feeder calves than usual. This could bolster deferred feeder futures.

Vetterkind was optimistic for the near future of product values given this decline in production.

“The beef market has likely turned the corner here for a minute and should trend higher going into March given the reduced production the last couple of weeks. I think this bodes well for cash fed cattle prices and they too should trend a little higher into March/April days.”

Even with the potential of a reduced beef supply helping prices, Gottschalk had warnings for the demand side of the equation.

“March is generally the weakest demand month of the year with recovery beginning in April and peak demand being realized during May. June continues to be a month of improving demand, a pattern gaining momentum in recent years, with retailers extending features into the July 4th holiday period.”

He also called this time a “discovery phase” for an appropriate production level given the opposing pulls of weak consumer demand and the economic necessities of the beef industry infrastructure. While packer losses have declined to around $30/ head recently, cattle feeders are still losing money, with Gottschalk saying unhedged fed cattle closeouts are losing $200/head.

As went the cutout values, so too did the cut-specific prices.

“After the last couple weeks of reduced slaughters and the storm in the south [last] week, packers were able to raise their offering prices on most beef items and achieve higher price points," said Vetterkind. “This was even true in the round complex, where packers have struggled moving round meat for the last three weeks.”

Trim values also advanced last week with nice gains made in both 90s and 50s. After several weeks of hovering in the $213 area, 90 percent trim had climbed to $216.33 by Thursday. Fifty percent trim had made a large jump earlier in the week, having gone from the upper $60s in the prior week to $74.55 by Thursday.

Feeder cattle

The storms have had an impact on many feeder auctions throughout cattle country with some shutting down entirely due to weather. Most, however, called cull cows and bulls up and yearling feeder steers and heifers light on availability and mostly up where there were buyers in the auction barns to look at them.

California: In the Turlock Livestock Market, there was too light a test on most classes of cattle to call a trend. Slaughter cows were up $2-3 and the market’s most recent special dairy replacement sale saw good volume, demand, and buyer activity. Holstein steers weighing 750 pounds sold for between $70- 97. At the Escalon Livestock Market, benchmark beef steers sold around $135 while similar heifers were around $125. Lightweight Holstein steer calves were going from $85-120.

Colorado: Light- and midweight steers and heifers were mostly steady with the prior week at the La Junta Livestock Commission Company, and heavyweights were too lightly tested for a trend quote. Slaughter cows and bulls were both steady. A 31-head package of 750-pound yearling steers sold for an average of $137.

Kansas: At the Winter Livestock Feeder Cattle Auction in Dodge City, there was a very limited test on most classes of cattle. Heavyweight steers were steady while heavy heifers were steady to up $2. Lighter weights of cattle were not available in enough numbers to set a trend. The trade was very active on good demand, but receipts were low due to the storms hitting the area. Two dozen head of yearling steers averaging 751 pounds brought in an average of $138.63.

Missouri: Missouri’s many sales were stifled by weather for the most part, with several quoting too few sales for market trends due to weather-impacted attendance and a few going so far as to cancel the sale on account of the snow. Feeder receipts were so sparse, few sales were willing to comment on a trend, though among the few who did, there were wild variations from down $10 to up $9. The one consensus was that slaughter cows, where available, were up anywhere from $2-6.

Nebraska: Kearney’s Huss Platte Valley Auction saw steers selling up $2-4 and heifers selling up $2-5. Demand was called very good with a large crowd of buyers, some of whom were noted as being new faces. Benchmark steers fetched nice prices with 325 head of 758-pound yearling steers bringing in $145.61.

New Mexico: Clovis’ Clovis Livestock Auction saw light steers and heifers sell for up $1-3 compared to the prior week. Slaughter cows and bulls were up again at $1-3 and steady to $2 higher, respectively. There were no Medium and Large 1-class yearling steers offered, but a half-dozen thin-fleshed yearling steers in the Medium and Large 1-2 class, averaging 765 pounds brought $137.

Oklahoma: At the Union Livestock Market in McAlester, OK, sales were limited due to weather. Calves were not well-tested though a lower undertone was noted even with average to attractive quality in what was offered. A half-dozen head of 755-pound yearling steers sold at an average of $134. In the El Reno sale, nearly two feet of snow hampered sales and made for poorly tested classes of cattle. Despite that, 160 head of benchmark steers sold for an average of $138.90.

South Dakota: Aberdeen’s Hub City Livestock Auction saw lightweight steers poorly tested, but all others selling for steady to $3 higher. Heifers followed suit, but only as high as up $2. It was noted that the majority of the sale was heavily-fleshed, though that did not result in discounts. Trade was active on good demand. A large group of 778-pound steers sold for $135.80 with a respectable group of fancy 759-pound steers selling for $143.

Like live cattle futures, feeder cattle futures advanced modestly, and this despite gains in the corn futures. Compared to the prior week close of $141.25 for March feeders and $143.77 for April feeders, those two near-term contracts were up with $142.18 and $145.10, respectively. The deferred contract of August again showed more restrained gains, but had increased 76 cents by Thursday afternoon with $155.03.

Vetterkind opined late in the week last week that April futures need to hold on to their $143 level “in order to stave off another leg down in the market.” At least by Thursday, they seemed well on their way to holding that line. — WLJ