Product gains

Mar 8, 2013
by WLJ

Cash fed cattle trade developed sporadically throughout the week, starting on Monday with a few loads sold in Texas at $128 live. This was called too small to set the market and perhaps was cleanup trade from the prior week. Offers started the week at $130 live and $206-207 dressed. By Thursday, trade had developed in the Corn Belt at $203-204 to a regional packer, $203 to a major packer in Nebraska, and $128 live in the south Plains.

While there was good news in the cutout last week, live cattle futures took a beating. Early in the week, Troy Vetterkind of Vetterkind Cattle Brokerage opined that the April contract would need to maintain its $129.50-130 resistance point, but—at least by Thursday afternoon—it had not. Compared to its prior Friday close of $129.95, the April contract lost $1.60 at $128.35 by Thursday afternoon. Similarly, the June contract lost 87 cents with $124.23. Andrew Gottschalk of Hedgers Edge suggested this move will result in “sideways market action” until supplies decrease further or until demand picks up.

As mentioned, product value advanced faster last week than it has in several months. Compared to the prior Friday’s close of $188.10 Choice and $185.81 Select, by Thursday afternoon, the values had jumped to $196.90 and $195.09, respectively. Beef supply is likely the biggest contributor to this rapid price increase as domestic demand is still faltering.

The prior week’s production rate was recalculated last week to 563,000 head, down from that week’s estimate of around 570,000 head. The 563,000-head production rate of two weeks ago was 9 percent lower than the same time the prior year and down 1.8 percent from the prior week. Last week, the industry estimate was no more than a 575,000-head production week. Continued cuts to production will very likely hold up the value of the cutout, but demand is still going to be an issue for some weeks going forward.

“Previous rallies into the $196-$200 level have turned off product buyers sending product values lower,” reminded Gottschalk. “A similar situation is expected again as the month of March is a weak demand month. Beef demand is not likely to show much improvement until the second-half of April. The May-June period remains the best demand period of the year for beef. The higher retail price versus the prior year aids the retail margin but the higher price is the very factor that is pricing some additional consumers out of the market.”

Gottschalk attributed a lot of non-beef price-related consumer pullback against beef at the meat case to the weight of increased taxes in the form of payroll taxes, gas prices, and uncertainty over things like ObamaCare. Vetterkind suggested concerns over the effects of the sequester might be having an effect on consumer sentiment, and it is possible the looming repeat of the debt ceiling “discussions” coming at the end of this month are playing a similar role.

Export consumer demand has also been impacted by our economic goings on in outside markets. Steve Meyer and Len Steiner of CME’s Daily Livestock Report pointed out the negative effects the stronger U.S. dollar has been having on our meat trade.

“One factor that requires particular attention is the value of the US currency and the impact this has on the competitiveness of US meat products in world markets. In the past, the devaluation of the dollar has helped offset some of the negative inflationary effect of record high feed costs. Indeed, even as US beef and pork prices hit record highs in some years, world buyers did not feel the full impact of such increases due to the effect of a weaker US dollar.

“More recently, however, the pendulum has swung in the other direction for the US dollar. Nowhere is this more evident than in the sharp depreciation in the value of the Japanese currency vs. the US currency.

Japan is our most important meat trading partner, purchasing a little over $3 billion worth of beef and pork in 2012.”

They went on to note that several of our global meat trade competitors, particularly Brazil, Canada and Australia, have reaped the benefits of our strengthening dollar. The key meat import market of Japan has seen a weakening of its currency which has made U.S. beef less attractive when the effects of high prices plus a strong dollar are brought into the equation.

Despite these considerations, the most recent export data was encouraging compared to the abysmal numbers of the recent past. Net sales of beef stood at 15,400 metric tons, this being up 43 percent from the four-week average. Increases were noted for Japan, Mexico, Canada, South Korea and Taiwan.

Feeder cattle

Cash feeder sales were mixed last week across the country, but better volume was noted now that the bulk of the storms had passed.

Slaughter cows were still unanimously up where they were reported.

California: In California’s markets, the Turlock Livestock Market saw a dispersal of a local Jersey/Holstein dairy, but no steers to report. In the Escalon Livestock Market, beef steers of the large and medium 1 class saw sales around $135, which would be steady with last week. Holstein steers over 600 pounds sold for between $80-100.

Colorado: The La Junta Livestock Commission Company saw steers under 700 pounds sell steady to up $1 with instances of up $5. All other steers were steady to down $1. Heifers were called mostly steady. Slaughter cows sold $2-3 higher and slaughter bulls were steady. Holstein steers sold, but in too few numbers for reporting.

Kansas: Kansas’ Winter Livestock Feeder Cattle Auction saw a limited supply of feeder cattle. Steers 700 pounds and over were $2-4 lower and heifers of the same weight groups were down $3-5. Lighter animals were too few to set a market trend. Yearling steers near 750 pounds sold for between $135.50-139.50.

Missouri: In Missouri’s many sales, the effects of the blizzard were still being felt and there were light tests of yearling feeders too small to determine market tests in most auctions. The few places they were quoted, feeders sold steady to up $5 with instances of up $7-10. Calves were more abundant and sold up $5-10 for lightweights and up $5-8 for midweights in both sexes.

Slaughter cows were up almost unanimously $2-3 and the few places quoting bulls saw them up $3-4.

Montana: Sales were held at the Public Auction Yards in Billings, but offerings and receipts of feeder cattle and slaughter bulls were too light to set a trend. Slaughter cows sold steady to up $2.

Demand was called moderate to good.

Nebraska: Feeder steers and heifers sold steady to down $2 in the Huss Platte Valley Auction last week. The sale was called good with a large crowd and several strings and packages of good calves were offered. A collection of 171 yearling steers of the target size and weight sold from $140.92- 143.15.

New Mexico: At the Clovis Livestock Auction, Holstein steers were too few for a market test while beef steers and heifers sold steady to $1 higher for lightweights and down $1-3 for other weights. Slaughter cows and bulls were up $2. Small numbers of benchmark steers sold for between $136-141.21.

Oklahoma: Feeder steers and heifers in Oklahoma’s sales saw very mixed sales depending on size and location with some (light calves) selling down $5-10. Most sales reported lower prices for all classes of feeders, with the exception of the Union Livestock Market which saw light heifers sell up $1-3. Slaughter cows and bulls sold up $2-3 and up $4, respectively. Benchmark steers sold from $128.46 (Union Livestock Market) to $142.47 (Oklahoma National Stockyards).

Wyoming: The Torrington Livestock Commission Co. saw light steers trading $3-6 lower while heavier steers traded steady to down $3. Light heifers traded steady to $3 down, but heavier heifers traded steady to up $3.

Large and medium 1 yearling steers around the 750-pound mark sold for between $138-139.50 Feeder cattle futures were similarly depressed last week along with live cattle futures. Compared to the prior Friday’s close of $141.55 for March and $144.15 for April, the contracts lost over $1 each at $140.40 and $142.38, respectively.

A good portion of the downward movement in feeder futures could be attributable to the sudden upward movement of corn futures last week. By Tuesday’s close, near-term corn futures stood at $7.32/bu for March and $7.08/bu for May. By Thursday afternoon, however, the prices had retreated back to $7.11’6/bu and $6.91/bu, respectively. — WLJ