Demand hopes

Apr 22, 2013
by WLJ

Cash cattle trade was a slow continuous drip of toolight-to-tell sales throughout the first half of the week. By Wednesday at the close of trade, almost 4,000 head had been confirmed sold with tiny volumes sold each day. Early sales were mostly regional and to the tune of $125 live and $200 dressed, $2 lower than the prior week.

Midweek events in the futures markets and the timing of the Cattle on Feed report release—Friday, see next week’s paper for coverage— led analysts to believe the bulk of sales would hold off until the report. Later-week asking prices were mostly $126-128 live and $202-204 dressed with bids of $125 and $200 being ignored by cattle feeders despite the earlier sales. By Thursday afternoon, only 1,000 or so more cattle had sold, still at volumes too low to set a trend. Analysts predicted Friday sales would be steady with or down $1 compared to the prior week’s $127 live and $202 dressed, contingent on the results of the Cattle on Feed report.

Near term live cattle futures gained very modestly over the course of the week. Compared to the prior week’s close at $125.85 for April and $120.75 for June, the contracts had gained only cents—15 and 40, respectively—by Thursday afternoon.

Troy Vetterkind of Vetterkind Cattle Brokerage explained that “important support in April will be $125 and in June at $120 and we want to see these price levels hold… If we can do this it keeps the market poised to rally up to $127 in the April and $122 in the June. If not then there is risk of another $2-$3 leg lower in the market.”

He also commented on options activity in the live cattle market Tuesday last week.

“Option trade was active yesterday on the break, especially in the June live cattle puts and June option volatility has jumped up pretty hard at 13 percent. This is a volatility level in the options we haven’t seen for several months and could provide a short term opportunity to sell some options. Have to be careful with that strategy though as selling options does entail unlimited risk if the position isn’t covered or hedged in some form or fashion.”

The industry has been holding its breath for the past few weeks anticipating the return of grilling weather and the demand uptick that comes with it. Last week saw the industry still blue in the face as weather in much of the country resembles winter more than grilling season.

“It is an ugly scene in cattleland exacerbated by weaker than expected demand for this period,” said Andrew Gottschalk of Hedgers Edge. I guess Mother Nature is angered at those who lay claim to knowledge of global warming. Thus, she is allowing the wet and cold weather to persist to let everyone know that she is in charge, not a group of scientists or should I say politicians. Product demand remains soft and would benefit greatly from a week [of] sunshine and warm temperatures.”

But not everything demand-wise is as gloomy as the weather. There have been enough market teases suggesting a demand increase is coming to sustain hopes. Case-in-point, Gottschalk mentioned having seen the first steak commercial of the season last week, an encouraging detail.

“Product sales volume showed some modest improvement with out front bookings showing some increased interest. We remain optimistic that product demand during the May-June period will show significant improvement from current levels.”

Vetterkind also noted that the movement of loins last week had picked up and prices had improved for some of the traditional grilling/steak areas of the carcass. Chuck and end meats are still lagging as domestic demand isn’t there yet and export demand continues to fall below expectations.

Export sales were playing roller-coaster last week. At net sales of 16,800 metric tons, sales were up 65 percent from the previous week and 26 percent from the prior four-week average. This was after a couple weeks of relatively very low export sales following after at least one massive jump a month or so ago.

By Thursday afternoon, cutout values had gained modestly compared to their prior week values. At $190.79 for Choice and $184.25 for Select, the cutouts had gained $1.27 and 11 cents, respectively. This follows increased production weeks relative to the recent trend. Compared with the prior week’s 606,000 head processed, last week was anticipated to be a 600,000- to 610,000-head production week. Gottschalk also pointed out weekly kills will have to pick up soon as the anticipated demand increase hits.

Both packers and cattle feeders are hurting right now with both groups in the red. Packers are estimated to be losing around $50-60 a head at the moment and cattle feeders are in sorer shape.

“The fed sector continues to lose equity following months of sustained losses,” reported Gottschalk. “Per Cattle-Fax, the average loss over the previous 53 week is $136 per head. Forward break-evens for new placements are improving, benefitting from lower replacements costs and cheaper feed grain costs. Many break-evens are now into the mid $120s.”

CME’s Daily Livestock Report’s Steven Meyer and Len Steiner had a different take, citing information from the Livestock Marketing Information Center.

“While breakeven costs are projected to decline to near $130/cwt. live by the end of the year, losses will still be large given fed cattle futures prices of $120, $124 and $125 for the remainder of 2013. Further, those losses come on top of many $200 per head losses during the past two years.”

Feeder cattle

There was an odd consensus in prices around the country on Medium and Large #1 (#1) feeder steers in the 700-pound area. They were overwhelmingly selling for $133-136 with few noteworthy exceptions.

California: In the Escalon Livestock Market, little had changed for #1 feeder steers. Steers weighing between 600- 800 pounds still sold for between $115-135 while sameweight heifers sold for $110- 120. High-yielding slaughter cows sold for $70-78, steady with the prior week. Holstein steers over 600 pounds again went for between $80-100. In the Cattlemen’s Livestock Market of Galt, #1 steers in the 700-pound range were down roughly $10, selling at $110-125 while same-weight heifers sold for $110-119.

Colorado: At the La Junta Livestock Commission Company, steers under 700 pounds were down $3-5 while heifers were steady with the exception of very lights and some medium weights, up $5-6. Slaughter cows were down $1-2 while slaughter bulls were steady. High-dressing breaker cows sold for $84-87 while low-dressing breakers sold for $72-76.

Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City saw some decline in feeder steer prices. Mid- and heavyweight steers sold weak to down $6, and similarly weighted heifers sold down $1-6. Lighter animals were not well tested. Trade was called slow for yearlings and slightly better for calves, and similar trends for demand. Over 350 #1 steers in the 700-pound range sold for between $133-136.

Missouri: Feeder yearlings and calves were again snubbed last week in Missouri’s many sales. Continuing the trend from the prior week, yearling feeders were down to the tune of $6-12 and down $10-20 for calves of both sexes. Slaughter cows were mixed based on quality and geography, but ranged anywhere from up and down $2.

Slaughter bulls were rarely quoted but said to be $1. The availability of #1 feeder steers in the 700-pound range was very tight and they traded from $120-133.5 with an even split of examples on either end of that range. Numerous sales didn’t have any #1 steers over 700 pounds to mention.

Montana: In the Public Auction Yards of Billings, a light test of most classes of cattle made for a sale without many comparisons. Slaughter cows were called steady to weak, but with no further detail. Demand was called moderate to good. Though offerings were slim, 45 head of 736-pound #1 steers sold at $133.37.

Nebraska: Feeder steers over 700 pounds were down $2-4 in Kearney’s Huss Platte Valley Auction. Same-weight heifers sold down $3. There were too few animals lighter than that for an adequate market trend. Demand was described as good for lightweight grass-worthy cattle and cow/calf pairs, with moderate demand for feeder cattle. Sixty-one head of 764-pound #1 steers sold for $136.66.

New Mexico: At the Clovis Livestock Auction, feeder steers sold $1-4 lower with heifers mostly down $3-5. Slaughter cows and bulls were called $2-3 down on moderate demand. Only eight head of mid-700s #1 feeder steers sold at $133.62.

Oklahoma: Light steer calves (under 450 pounds) sold up $2-10 at the Union Livestock Market in McAlester, but heavier steer calves over 450 pounds sold steady to $5 lower. Heifer calves sold $2-8 lower. Slaughter cows were called steady while slaughter bulls were $2 higher. Seven head of 768-pound #1 steers sold at $119.25 with no note or indication regarding the lower price compared to other sales in the state. In El Reno’s sale, for instance, over 300 head of 777-pound #1 steers sold for $132.27, which was much more in keeping with other prices around the country. At the sale, heavy feeder steers sold up $1-2 and overall feeder heifers were down $1-3. Calves were untested with lack of comparable sales.

Feeder futures did not fair near as well as live cattle futures. After doing sluggishly throughout the first half of the week, the April contract slumped a surprising $2.35 on Thursday trade alone, bringing the contract’s total weekly loss to $3.72 by close of trade, ending at $134.20.

“April feeder cattle futures posted sharp triple-digit losses Thursday as traders focused on weakness in corn and live cattle markets during the last half of the session,” said DTN analyst Rick Kment. “The April contract will expire [this] week and the lack of recent support is causing additional movement into other nearby contract months.”

More deferred contracts fared better, but only by comparison. May feeder cattle contracts lost $1.39 at $139.53, and the September contract lost $1.07 at $148.83. The majority of these losses were sustained in late trade on Thursday. — WLJ