Product values reversed, demand questioned

Markets
Mar 25, 2013
by WLJ

Cash trade developed fairly early last week, with the majority of trade volume completed by Wednesday. Each day’s trade was individually said to be light, however. Though there were more regional differences than usual, live cattle traded mostly in the $124- 125 area and dressed trade was mostly $198 in the Corn Belt, with a few lower and higher dressed sales seen.

“Failure at $125 in April live takes the market down to weekly lows from back in February at $124.25 and below that probably $120,” worried Troy Vetterkind, of Vetterkind Cattle Brokerage. Over last week, the April live contracts flirted with the $125 threshold but rallied later in the week. By Thursday afternoon, April had recovered to $125.95, a razor-thin gain of 18 cents over the prior Friday’s close. June live cattle futures posted new lows during the week, but managed to come back slightly by Thursday afternoon with $121.55 and even saw a meager gain of 25 cents over its prior Friday close.

Andrew Gottschalk of Hedgers Edge had a bit of economic history to share on the issue of June contract lows posted in March.

“Since 1990 there have been only four years in which the June contract scored new contract lows during March. Those years were 2008, 2006, 1998 and 1995. In the two most recent years, 2008 and 2006, prices rebounded 17.1 percent and 16.6 percent from their respective March low into June.

“In 1998, the June contract low during March was followed by a rebound of 7.4 percent into early May, only to see the market fade and score new contract lows during June. In 1995, the June contract low during March was followed by a 7.2 percent rally into April, followed by new contract lows during early May. The May low for the June contract that year was then followed by an 11.0 percent rally into June.”

He did point out however, that in all the years where the June contracts scored lows in March a rally of 7 percent or better from that low developed. Only in 1998 “was the June low at expiration below its respective March low.”

Product values dipped last week as production grew. With packers

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Markets (from page 1) back in the black for a few days at the end of the prior week and into last week, production picked up. The prior week’s slaughter rate was readjusted up to 606,000 head and last week was running on industry estimates of a 595,000-600,000 production week. Cutout values fell $2.78 to $192.98 for Choice and 66 cents to $193.27 for Select, putting product values in that weird backwards arrangement where Select is more valuable than Choice. Gottschalk opined that product values have seen their recent high and will continue downwards.

Overall movement of specific cuts was sluggish last week as packers were eagerly getting rid of inventory held over from the prior week. Chucks, rounds and end meats were the most heavily discounted.

“Slack domestic and export demand is the culprit here and packers that carried over inventory of these cuts from last week are moving it this week at whatever money it takes,” said Vetterkind.

Middle meats were fairly lack-luster and remained steady throughout the week. Ground and boneless beef were similarly steady and showed some signs of strength, particularly as grinding beef is getting tight.

Trim values did well last week and Vetterkind pointed out how, almost a year following the lean fine-textured beef debacle, 50 percent trim is “back knocking on the door of $1/lbs.” Over the week, 90 percent trim gained $1.09 at $220.34. And 50 percent trim gained 87 cents by Thursday afternoon with $88.97.

The matter of domestic consumer demand has been a long highlighted problem with most analysts calling demand slow.

“It will likely be the second week of April before any demand improvement is realized,” advised Gottschalk.

“Tighter second quarter fed cattle supplies should coincide with seasonally improving beef demand allowing fed cattle prices to advance.”

Gottschalk also explained that domestic beef demand is down 3 percent year-todate compared to 2012.

“There are a multitude of factors limiting consumer spending on beef. The squeeze on consumer incomes and the reality that beef is overpriced relative to the competing meats is a difficult combination to overcome.”

But Steve Meyer and Len Steiner of CME’s Daily Livestock Report had a different take on the domestic demand situation.

“While wholesale beef and pork prices have struggled— at least relative to their expected levels so far this year—retail prices for all meat and poultry proteins remain strong. According to USDA’s monthly retail price data released on Friday [March 15], beef prices remain at or near record high and pork, chicken and turkey prices all increased in February. And this in the face of total meat/poultry supplies that were actually higher than one year ago. While demand has seemed very soft, those data suggest otherwise, at least at the retail level.”

For beef, they point to the fact both Choice and Select product, at least at the retail level, has been at or near record highs. For example, they explained that while Choice beef sold in February for an average of $5.22 per pound, down 2.2 cents per pound from January’s high, it was still 3.5 percent higher than the same time last year.

Exports of beef last week were half of what they were the prior week, at net sales of 15,300 metric tons, but it is important to keep in mind the uncharacteristically high volume of that prior week’s export movement. Relative to past weeks and months where reported exports were in the 11,000 metric ton area, last week was a nice increase. Export sale increases were reported for Japan, Canada, Mexico, Hong Kong, and South Korea.

Feeder cattle

While the prior week saw increased demand for cattle to put out on grass, the forewarned coming of “Grass Fever” didn’t appear to have hit last week. Feeders were widely—and in some places, heavily—discounted. Almost everywhere “steady” was the best that could be claimed. Slaughter cows seem to have lost a bit of their place in the sun as they were slightly discounted last week in most places. Projections of the near future, however, suggest improving grass avail ability and conditions will support feeder prices, particularly as available supplies tighten.

California: Everything remained steady with the prior week at the Escalon Livestock Market; beef steers between 600-800 pounds sold for between $115-135, top-yielding slaughter cows sold for $72- 80, and Holstein steers over 600 pounds went for $80- 100. The Famoso Western Stockman’s Market, feeders were said to be $2-3 down, stockers were down $5, and slaughter cows and bulls were steady.

Colorado: At the La Junta Livestock Commission Company Inc, light steer calves sold down $5-8, while heavier steers and steer calves were down $3-5. Feeder heifer calves were steady for lightweights and down $2-3 for heavier calves and yearlings. Slaughter cows were $1-2 lower and bulls were steady. The few mid- 700s medium and large 1 steers sold went for $130. The Centennial Livestock Auction saw too few receipts to post results.

Kansas: Heavy feeders took a beating at the Winter Livestock Feeder Cattle Auction. Steers 700-1100 pounds sold down $3-6 while commensurate heifers were down $5-9. Lighter animals were too few to offer a comparison. Over 400 head of 768-pounds yearling steers sold for $134.41.

Missouri: Feeder cattle of all sorts were heavily discounted in Missouri’s many sales. Feeder steers ranged anywhere from steady with the prior week to down $15, but with most reports quoting down $4-8, with greater prejudice against lighter animals. Feeder heifers were very much in line with steers and calves in terms of discounts, but of all the classes of cattle quoted, they were the only ones to see an up sale. Farmington Livestock Auction saw some light heifers sell for up $5. Slaughter cows and bulls were unanimously down $2-3, with instances of down $5 on cows. There were relatively few benchmark yearling steer sales quoted, but those that were ranged from $120- 134.42.

Nebraska: Huss Platte Valley Auction saw steers and heifers over 700 pounds sell steady with the prior week and there were too few lighter weight cattle to make a comparison. Demand was called good and a large crowd of buyers—both in person and on the internet—bid actively. There were no sales close to 750 pounds in the medium and large 1 class of steers, but the closest sales were on either end of the 700 range. On the light side, averaging 713 pounds, 225 steers sold for $140.98, while on the heavy side 77 head averaging 790 pounds sold for $133.07.

Nevada: At the Fallon Livestock Exchange, feeder cattle were called steady with the most recent sale. Beef steers weighing between 700-800 pounds sold for between $128-137.50. Holstein steers over 600 pounds went for $65-83. Slaughter cows were also called steady and demand was said to be strong.

New Mexico: In the Clovis Livestock Auction, feeder steers and heifers sold $5-8, except particularly lightweight cattle which were called steady but strong. Slaughter cows were down $1-2 while slaughter bulls were steady. A trio of fleshy medium and large 1-classed steers weighing 756 sold for $129.50. Roughly two-dozen benchmark steers of standard condition and averaging 721 pounds sold for $137.48.

Oklahoma: In the El Reno sale, feeder steers sold $3-5 lower and feeder heifers were down $4-6. Steer and heifer calves were down as much as $8-10. Cattle worthy for turnout on grass saw the worst declines due, according to the report, to the losses posted on the CME feeder cattle futures board for summer and fall contract months. Benchmark steers sold for between the upper $132s to $134.50.

Futures for feeder cattle saw losses on both near-term contracts and deferred contracts. Compared to the prior Friday’s close, March feeders lost $1.94 to settle at $134.73 Thursday afternoon. April feeder contracts lost $1.25 to settle at $137.85. Even August shed 27 cents with $147.75.

“In my opinion,” said Vetterkind, “it takes a close above $127.50 in April live, $123.00 in June live, $143.00 in May feeders, and $150.00 in August feeders to negate recent bearish technical action and keep any type of extended correction rally alive.” — WLJ

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