Cash trade, futures move higher

Markets
Apr 1, 2013
by WLJ

The vast majority of cash fed trade took place on Thursday morning and early afternoon ahead of the market closures of Good Friday. The small volume of sales earlier in the week developed in the South Plains at $125 live and $202 dressed, but the bulk of the trade on Thursday went for $127-129 live and $203-204 dressed.

This not only violated analyst expectations of a week’s trade at steady to $1 lower than the prior week, but was a surprising increase over the previous week’s $124-125 live and $198 dressed. By the close of trade Thursday, almost 80,000 head had been confirmed in negotiated sales.

Live cattle futures posted some surprising gains last week. Compared to the prior Friday’s close of $126.20 for the April contract and $121.17 for June, near-term contracts gained several dollars. By Thursday afternoon, the contracts had moved to $128.50 and $124.40, respectively.

“Part of the futures strength can be attributed to end of the month/ end of the quarter position squaring,” said Troy Vetterkind of Vetterkind Cattle Brokerage. “But I think another part of the futures strength can be attributed to ideas of firming cattle and beef markets in the weeks ahead. Regardless, the market made some important technical trades yesterday as I wanted to see April live close above $127, June live above $122, and August live above $123.50 and we did.”

Product values dropped a couple dollars last week compared to the prior week close of $191.43 for Choice and $192.28 for Select. By Thursday afternoon, the Choice cutout stood at $189.07 and Select had descended to $188.84. Though both closed lower than previously, Choice had at least regained its position over Select.

The prior week’s slaughter rate was adjusted to 601,000 head, compared to the industry expectation of 595,000- 600,000 head. At the beginning of last week, Andrew Gottschalk of Hedgers Edge said that production rate was “15,000-20,000 head per week above current demand levels” and accurately predicted the scope of the decline in cutout values.

Last week’s early-week industry expectations predicted a production rate of 570,000-590,000 head. Last week saw packers back in the negative teens per head, after briefly realizing small profits the week before.

CME’s Steve Meyer and Len Steiner of the Daily Livestock Report pointed out how the decrease in product values, coupled with the surge in cattle prices, will put additional pressure on packer margins. They also projected that this spate of lighter kill weeks might reverse.

“Packers have been running fairly light schedules for much of this past month but the expectation is that with weather warming up and Lent behind us, slaughter should start to improve in April.”

Consumer demand is still a forefront issue. Last week, consumer attention was less on beef than usual as the Easter holiday had more shoppers looking for hams than steaks. This seasonal demand also comes at a time when other protein options are less expensive and more plentiful than beef.

Meyer and Steiner had some hopeful projections for the near future, however.

“The fact that Easter was earlier this year should help the cutout rally earlier than it did a year ago. Retailers are looking for post-Easter features and some beef items are now priced notably lower than they were earlier this year (remember April LC was $137/cwt at the beginning of the year). Cold weather across much of the US East Coast and parts of the Midwest so far has negatively impacted sales compared to last year when weather in heavily populated areas was warmer. As weather improves, there should be some pent up demand that could underpin beef cut sales in April and May.”

But at least for last week, that hopeful possibility hadn’t materialized yet. Middle meats and ground offerings were fairly steady, but chucks and rounds were a drag on the complex. Vetterkind reported packers are hopeful about their ability to move product in the near future, however.

Trim prices were mixed, with 90 percent having lost value and 50 percent having gained. Compared to its prior Friday close at $220.23, 90 percent trim had declined to $218.16 by Thursday. Conversely, by Thursday, 50 percent trim gained $2.79 over its prior Friday value with $88.72.

Some of the decline in lean trim likely comes from the increase in cow slaughter balanced with reduced import of boneless beef for grinding. According to Meyer and Steiner, “cow slaughter rates continue to run well above year ago levels. The increase continues to be driven, at least so far, by more dairy cows coming to market than a year ago. Milk prices have improved but feed costs will remain a concern for the dairy industry at least until we have a better idea of how this year’s harvest will shape up.”

Feeder cattle

Feeder steers and grass-quality calves were sought after last week as the potential for grazing and warmer weather inches closer. Heifers were not as heavily pursued and slaughter cows and bulls seem to have slipped from their recent limelight.

California: At the Escalon Livestock Market, little changed from prior weeks. Medium and large 1 class yearling beef steers between 600-800 pounds $115-135. Holstein steers weighing over 600 pounds sold for between $80-100 and high-grading slaughter cows slipped $3 on the upper limit to $72-77.

Colorado: The La Junta Livestock Commission Company saw especially light steer calves sell steady with $3-8 increases on heavier steers, with instances of up $10-12 for steers in the 500-pound area. Heifer calves were generally steady at best with some down as much as $3. Yearling feeder steers and heifers were steady, as were slaughter cows and bulls. Demand was said to be very good for steers suitable for grass. Most calves were destined for other states which are getting more moisture and have better prospects for grass. Medium and large 1 class yearling steers sold for $129.50-138.50.

Missouri: Several of Missouri’s markets were closed due to weather and there were few yearling medium and large 1 class steers reported. Those that were reported ranged from $130- 139 with a trend towards the lower side. Despite that, most markets called their sales on yearling feeder steers up $3-4, and mixed but mostly steady for heifers. Calves varied wildly by area and quality, but were mostly down, and steeply down with some markets calling them $12 lower than the prior week. But calves worthy to turn out on grass sold steady to up $5. Slaughter cows were mixed, both up and down $2 across different sales, but slaughter bulls were unanimously weak with down $1-2 being common quotes.

Nebraska: At the Huss Platte Valley Auction in Kearney, steers sold $2-5 higher than the prior week and heifers sold steady to up $4. The sharply higher close on CME feeder cattle boards on Wednesday was credited for the increased cash buys. Benchmark yearling steers near the 750-pound mark sold for between $141-144.

Oklahoma: In the Union Livestock Market of McAlester there were wide ranges of price differences compared to prior sales. Light steer calves sold down $3-5, but heavier ones (500 pounds and up) sold steady to up $4. Heifers ranged from up $1-7. Slaughter cows were down $1-5, and slaughter bulls were as much as $10 lower. There were no benchmark yearling steers to report. At the El Reno sale, however, feeder steers were $3-5 higher and heifers were steady to up $1. Calves were not overly plentiful. Benchmark yearling steers sold for between $135.50-138.

South Dakota: In Aberdeen’s Hub City Livestock Auction, lightweight steers were too lightly tested to set a trend, though weak undertones were noted. Steers weighing over 600 pounds were higher, ranging from up $2-10, with interest going for 700-800 pound animals. Heifers followed a similar trend, but did not reach the highs of steers and were mostly $1-6 up. The market was said to be active with good demand. Medium and large 1 class steers weighing between 700-800 pounds sold for between $137-143, with a load of fancy 755-pound steers selling for $144.25.

Wyoming: At the Torrington Livestock Commission Co., steers were called steady to $3 higher while heifers were up $2-4. Demand was said to be moderate to good. A collection of 51 718-pound, value-added medium and large 1 class steers sold for $144.50 while a handful of 780-pound normal steers of the same class sold for $123.50.

Feeder cattle futures also posted gains relative to their prior Friday close. Compared to $134.65 for March feeder contracts and $138.05 for April, March gained 88 cents with $135.53 and April gained a surprising $5.35 with $143.40.

Among other things impacting the feeder markets, the movement of corn futures played a role. Following the release of the Grain Stocks and Prospective Plantings reports, corn futures for May, July and September traded limit down, and deferred contracts all the way out to July 2014 traded at or above 30 cents/ bu down. — WLJ

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