Slow cash trade as futures improve

Markets
Apr 29, 2013
by WLJ

Cash trade—or even the rumor of it—was basically non-existent throughout the first half of last week, with not even 1,500 head sold by Wednesday evening. Packer bids only developed late Wednesday, and at $123-124 live and $198 dressed, they lagged behind offers by $5-7. By close of trade Thursday, a few thousand more had traded, but nowhere near enough to set a trend. Analysts expected Friday trade to be steady with or even a dollar higher than the prior week’s $125-126 live and $2-2.02 dressed.

Live cattle futures had gained over a dollar compared to their prior week closes last week, which is a welcomed improvement from the recent lows. The April contract gained $1.33 by Thursday after noon with $127.68 and the June contract increased $1.60 with $122.90 compared to the prior Friday’s close.

“I thought the market finally made some good technical trades with June live cattle closing above $122 and August feeder cattle closing above $150,” opined Troy Vetterkind of Vetterkind Cattle Brokerage.

“Most of this was due to short covering and renewed optimism towards the cash markets. Whatever kind of spring rally we are going to get in the cattle and beef markets looks like is going to happen in May and it looks like we are seeing a little short covering ahead of this. This spring rally is sure to disappoint in the long run, but a $3-$4 rally nonetheless shouldn’t be ruled out.”

Product values and product movement picked up last week. Compared to the prior week’s close of $190.10 for Choice and $183.63 for Select, cutout values gained $1.44 and 87 cents, respectively, with $191.54 for Choice and $184.50 for Select by Thursday afternoon. Similarly, cut-specific product values went up as the week progressed.

“Packers report buyer inquiry for middle meats has improved markedly and as such have been able to achieve higher price points on most of their rib and loin offerings,” reported Vetterkind. “There has also been improvement in round meat business as well as in the coarse ground market and all of this is leading to higher cutout values, which are expected to continue into [this] week.”

Andrew Gottschalk of HedgersEdge also had comments on the near future of domestic demand.

“Retail margins are improved from year ago levels which will lead to more aggressive beef features in the coming weeks. At the current retail beef price of $4.92 versus $4.67 a year ago, retail margins are near maximum at current cutout values. This is a retail margin level which in the past has fostered aggressive beef featuring.

Production rates are slowly increasing to meet the expected—and slowly materializing—increase in domestic demand. Following the prior week’s mildly surprising 615,000-head processing rate, last week saw industry expecting a 610,000- 615,000 production week. Packers are still losing around $35 a head, but the need to fill orders is overshadowing that.

While domestic demand is slowly coming around, export demand—at least last week—maintained its beleaguered, hopeful tone. Net sales of 15,900 metric tons were down 6 percent from the previous week, but up 16 percent compared to the prior four-week average. The majority of exports went to the usual suspects: Japan, Mexico, Canada, South Korea and Hong Kong.

Feeder cattle

Compared to the prior week’s oddly centralized prices for feeder cattle, last week saw a return to more normal geographic price differences. In some areas, benchmark medium and large 1 class (#1) feeder steers weighing in the mid- 700s were hard to find.

California: At the Escalon Livestock Market, there were some significant changes. Compared to the prior week where #1 feeder steers weighing between 600-800 pounds were selling for between $115-135, last week they were selling for $90-118. Comparable heifers were selling for $90-110, a $10-20 decline. Holstein steers also sold down, going for $70-85, down $5-15.

Colorado: The La Junta Livestock Commission Company Inc. saw sale trading too light for a market comparison, but a higher undertone was noted on calves and feeder cattle. Slaughter cows were $1-3 lower and bulls were steady on a light test. Demand was called moderate to good with the sale being mostly cows and bulls. High-dressing Breakers were selling for $82 and high-dressing Boners were $81-82.50.

Iowa: Bloomfield’s Feeder Cattle Auction sold feeder steers except lights for $3-5 more than the previous sale held two weeks prior. Lightweight steers sold down $4-7, and heifers of all weights sold down $1-3, with greater discounting going to light animals. A collection of 99 #1 steers weighing 757 pounds sold for $141.26.

Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City saw heavyweight steers trade $3-7 higher, with heifers on a light test. Lighter animals were called steady with the prior week. A batch of 150 776-pound #1 steers sold for $136.52.

Missouri: In Missouri’s copious sales, yearling feeders were hard to come by, with few receipts reported for mid-700-pound #1 steers. But what yearlings they had found strong demand. At worst, yearling steers and heifers both were steady, with most sales quoting them around $2-5 up, with Farmington seeing $5-10 up for them. Calves of both sexes saw similarly slim offerings, but prices were high for them too. Steer calves were up $3-5 and heifer calves were up $6-12 with instances of $15. Though there were very few receipts for benchmark steers, the range was $123 for three 755-pound steers in Vienna, and $139.57 for 107 head of 770-pound steers in the St. Joseph sale.

Nebraska: At the Huss Platte Valley Auction, steers and heifers sold steady to $3 higher compared to the prior week. Demand was called good on all classes of cattle. Slaughter cows sold $1-2 down while bulls sold steady. One hundred and four head of 761-pound #1 steers sold for $135.63. At the Bassett Livestock Auction, there weren’t enough comparable sales the prior week to quote a trend, but demand was called very good for all offerings. Fifty head of 775-pound #1 steers sold for $137.75.

Oklahoma: In McAlester’s Union Livestock Market, steers were uneven and steady to up $2. Light heifers (under 500 pounds) sold steady to down $3 and heavier heifers sold $2-6 lower.

Slaughter cows were down $3-4 but bulls were steady. Steers over 600 pounds were hard to come by, but 6 head of 725-pound #1 steers sold for $130.83. In the El Reno sale, feeder steers sold $4-6 higher and most feeder heifers were $3-4 higher while heavyweights sold steady. Calves had no comparable sales. Over 200 head of #1 steers weighing between 720-781 pounds sold for $134.56-139.20.

For feeders, futures movements over last week got better the further out you got, which was surprising, given the results of the Cattle on Feed report. While the April contract was all but steady with itself—up 6 cents at $134.08—from the prior Friday’s close and last Thursday’s, the May contract gained over $2 and the September contract gained over $5. By Thursday afternoon, the May contract stood at $141.98 and the September contract was at $153.78.

For Vetterkind, there was cause for optimism in feeder futures, particularly the August contract.

“There were some seasonal feeder cattle recommendations to buy feeders going into the end of April/first of May and you can’t buy enough August feeder cattle because of this since the first of the week… It would appear August feeders could be on a mission now up to $156 and possibly $160 if they really want to get carried away.

“I think this gives us a chance to see June/August live cattle trade up to $124- $125 once we get into May Day’s and get the ‘kiss of death’ April live cattle contract off the board [this] week.”

Some interesting things happened in the outside markets last week as well. On Tuesday, hackers got a hold of the Twitter account of the Associated Press. They posted a false report that bombs had gone off at the White House and President Obama had been injured. The Dow responded radically, dropping 140 points almost immediately due to the speed of algorithm trade. The issue was cleared up and the markets returned to normal almost as quickly. Though it is now an entertaining downward spike on the Dow’s weekly graph, it is a testament to the reactivity of the modern market.

The other issue that is affecting the market overall is what Gottschalk calls the “retrenched consumer” and recent reports used as economic litmus tests.

“The outside news this morning is still waving the caution flags for economic concerns. The durable goods report this morning saw new orders plunge 5.7 percent in March, with the reported February advance revised down. This weaker demand is further confirmation of the slowdown noted pretty much across the board with consumers since the reinstatement of the payroll tax assessments.” — WLJ

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