Increased production could impact prices

Markets
Mar 18, 2013
by WLJ

The cash fed cattle trade was slow to develop last week with only a few bids having been offered by Thursday. Asking prices from cattle feeders were decidedly at $130 live and $205 dressed with bids of $125 live being ignored. Analysts expected the bulk of trade would be pushed off to Friday as packers hoped to get cattle cheaper, expecting a larger buy than the prior week. A small and unrepresentative group of cattle sold in Iowa for $202 dressed but by Thursday, some few sales had been made, but not enough to set a trend.

Live cattle futures were disappointing last week. By Thursday afternoon, the April contract had gained over its prior Friday close, but only by 28 cents at $127.83. The June contract had lost 32 cents at $123.05, and the deferred contract of October saw a 9-cent loss with $128.38.

Troy Vetterkind of Vetterkind Cattle Brokerage was worried by this sort of behavior.

“April live cattle continues to respect near term support at $127,” he said early in the week. “But it really needs to get back above $129 this week in order to keep the market from selling off to $125. I think $125 would be a worst case scenario before we get to April and can’t rule that type of trade out, but if we were able to get a close above $129 that would change the near term trend from lower to higher.”

As of Thursday, April had not regained the $129 level and it remains to be seen what the futures markets do this week.

Contrary to the prior week’s expectations of a 575,000-head production rate, the numbers were revised to 595,000 head. Recent packer margins back in the black have reportedly encouraged packers to step up production again. Last week’s production estimates were for a 590,000- to just under 600,000-head production week. According to Andrew Gottschalk of Hedgers Edge, however, continued weeks of production under 580,000 are needed to keep product values from dipping.

Over the course of last week, cutout values moved slightly lower compared to their prior Friday close. By Thursday afternoon, Choice had fallen 96 cents to $196.32 while Select gained 20 cents at $195.13. This move brought the spread to $1.20, one of the narrowest in a long time.

Domestic retail demand is still a forefront concern. While there was good movement of briskets ahead of the St. Patrick’s Day demand for corned beef, beef is still expensive relative to pork and will likely limit beef features in the meat case and create additional consumer interest in pork. Beef demand is most sluggish in March and may begin to pick up in April.

Cut-specific movement was better on the spot market last week than in prior weeks, but there is still concern about packers being able to move inventory and backup. End meats are proving challenging for packers to move, though there has been some increased interest in middle meats.

Boneless beef for grinding is in tight supply as China continues to buy up Australian and Kiwi cow beef, meaning less of it is making it to the U.S. With ground demand fairly healthy and tight supplies of imported grinding beef, slaughter cow prices and domestic cow beef prices have been strong.

Ninety percent trim value increased $4.55 over the course of last week, settling at $220.88 by Thursday afternoon. Fifty percent trim, on the other hand, lost $2.54 compared to its prior Friday close with $87.08.

Despite problems with various export markets for U.S. beef, last week saw some impressive export numbers. Net sales of beef stood at 31,000 metric tons and posted a market-year high. This is also potentially driving packers’ increased kill count interest. Japan, Hong Kong, Mexico, South Korea and Canada were primary destinations.

While these numbers are hopeful and certainly a nice change from the recent past, more trouble looms on the horizon for trade with our closest beef trade partners: Canada and Mexico. CME’s Daily Livestock Report analysts Steve Meyer and Len Steiner explained how the impacts of the MCOOL proposal could be disastrous for U.S. meat exports.

“Regardless of your opinion of the value or need for origin labeling, the goal here must be to avoid retaliatory tariffs on U.S. products. Should the U.S. actions be deemed insufficient, Canada and Mexico will have great latitude in picking the retaliation targets and U.S. beef and pork are logical choices since those products a) are directly involved in the dispute, b) represent large values for U.S. producers and c) are represented by two pretty effective lobbies in Washington. There would be little point in picking on someone who cannot be of help in the policy battles so we think Canada will choose their targets carefully."

Canada and Mexico were the first and third markets for U.S. beef, respectively, last year, collectively representing a third of all U.S. exported beef.

According to Meyer and Steiner, “Any way you cut it, these two markets are critical for U.S. beef and pork shipments and, in spite of (or perhaps because of) USDA’s proposed rule change, are in grave danger.”

Read more about the MCOOL situation in today’s top story on the front page by Traci Eatherton.

Feeder cattle

As some areas are warming up and the promise of grass is blooming, demand for light feeders to turn out on pastures is high. Prices were strong for light feeders and calves and for just about every class of slaughter cow available.

California: At the Escalon Livestock Market, large and medium 1 steers weighted 600-800 pounds sold for between $115-135. Holstein steers of the same weight group sold for $80-100. And high-yielding slaughter cows sold for $72-80.

Colorado: Lightweight feeder steers and steer calves sold up $5 at the La Junta Livestock Commission Company Inc. Heifer calves were steady to $2. A half load of 760-pound steers sold for $134.50.

Kansas: Midweight steers sold firm to up $1 in the Winter Livestock Feeder Cattle Auction while heavyweights were weak to instances of $4 lower. Heifers followed suit with steers but with a low of $3. The limited supply of lightweight feeders sold readily on strong demand. Over 600 head of average 769-pound steers sold for $137.45.

Montana: The Public Auction Yards at Billings saw stocker and feeder cattle lightly tested last week so no trend was offered. Slaughter cows were steady to $2 up compared to the prior week. A handful of large and medium 1 class steers averaging 763 pounds sold for $131.75.

Nebraska: The Huss Platte Valley Auction saw uneven sales of feeder steers and heifers. Demand was called mostly moderate to good. Buyers were described as selective on fleshing of the offering, though quality trumped flesh when attractive offerings showed up. A lot of 57 head of 748-pound steers sold for $143.60.

Nevada: At the Fallon Livestock Exchange, feeder cattle sold $5-10 higher with strong buyer demand and desire for grass feeders. Good slaughter cows were selling $5-8 higher on similar strong demand. Large and medium 1 steers ranging in weight from 700-800 pounds sold for between $128-137.50.

New Mexico: Light steers were steady to up $3 in the Clovis Livestock Auction, and especially light “grass steers” and value-added feeders were going for as much as $9 higher. Heifers were called mostly steady with instances of up $1-2. Few 750-pound steers sold in the large and medium 1 class, but those that did were in the $133-134 area.

Oklahoma: Feeder steers and heifers were mostly steady in the El Reno auction.

Heavier feeders were down $2. Demand was called exceptionally good for grass calves due to recent moisture and warmer temperatures approaching. Quality was described as plain to attractive.

Large and medium 1 steers in the 750-pound area sold for $135-141.

South Dakota: In Hub City Livestock Auction, feeder steers and heifers were called steady to up $1 with 4,912 receipts. Four dozen 757-pound yearling valueadded steers sold for $140.

Wyoming: Steers were $4 lower at the Torrington Livestock Commission Co. compared to the prior week, except 700-750 pound steers were up $1. Heifers sold steady to down $3. Demand was called moderate to good. A group of 130 779-pound large and medium 1 yearling steers sold for an average of $134.93 while 55 value-added 722-pound steers of the same class sold for $149.50.

Feeder futures were generally the reverse of live cattle futures, with the closest contract losing value while farther-out contracts gained.

Compared to its prior Friday close, March feeder cattle had lost 94 cents by Thursday afternoon with $138.03. On the other hand, April feeders had gained 18 cents with $141.53, while August feeders had gained 45 cents with $151.

Vetterkind explained that near-term support for April feeders stands at $138-140 and if it can overcome that level, the next resistance would be at $145-147.

“Feeder cattle should continue to find some support at $140 in the April, but here too we need to see April feeders close above $143 in order to keep rally attempts alive.” — WLJ

{rating_box}