Choice records continue

May 27, 2013

Cash trade on live cattle kept analysts guessing throughout the week. At first, expectations were for a midweek startup, then after the futures’ bust on Wednesday, analysts were calling for a late-week trade. All the while, the cash market failed to show the repeatedly record-setting cutout values.

Andrew Gottschalk of Hedgers Edge noted that the relationship between the cash market and the Choice cutout was “at a low level last seen in July of 2012.”

Slight trade developed at $124 live in the South Plains and $200- 202 to a regional packer in Iowa on Wednesday, this being down $1 from the prior week on live and steady with dressed. By Thursday afternoon, these prices were maintained for their respective areas, but still at levels called too light for a proper market test.

Near-term live cattle futures had a manic week last week. For Monday and Tuesday, they gained nicely—up almost $2 for June and August compared to their prior Friday closes—but proceeded to plunge on Wednesday. The highs seen on Tuesday were attributed to “outright short liquidation,” according to Troy Vetterkind of Vetterkind Cattle Brokerage. The lows seen Wednesday, then continued on Thursday, were attributed to a number of factors.

“Cattle futures failed at the recent rally attempt yesterday on concerns the beef market is going to top out and cash cattle markets are going to continue to move lower in the coming weeks,” said Vetterkind on Thursday. “The futures market already has a lot of this negative news priced in with the huge discount to cash, however that doesn’t matter right now as the bears are in full control of the market near term. I would say that the market will need to see a sizeable break in the beef market before shorts are going to be willing to come away from the market in a meaningful way.”

Gottschalk also opined that it would “require a close over $121.45 to tame the bears.”

As of Thursday afternoon, near-term live cattle futures were a few cents below where they’d been on the prior Friday. The June contract had lost 28 cents at $119.12 and the August contract had lost 35 cents with $118.20. These were both new contract lows up to that point.

Just as with the prior week, product values just kept moving upwards last week. Each new USDA cutout estimate seemed to post a new record for Choice prices. By Thursday afternoon, Choice had reached $211.37, up $1.89 from the prior Friday and $15.81 higher than the same time last year. Select wasn’t quite so amazing at $191.52— down 79 cents compared to the prior Friday—but it was still above the previous year.

Much of these gains in the Choice cutout rested on the shoulders of middle meats, particularly loins and ribs as grilling season plus Memorial Day and Fathers’ Day beef procurement behavior was in effect. Steve Meyer and Len Steiner of CME’s Daily Livestock Report said as much as 85 percent of the increase in Choice was due to the pricing of middle meat primals. But that started slacking off as the week went by as even last minute procurements were mostly completed.

Vetterkind was of the opinion that, even though the market is or has topped, the break shouldn’t be too hard given the strength of demand. Even if Fathers’ Day procurement is all or mostly done, there is still the Fourth of July on the horizon.

“It is important to keep in mind that the current cutout measures the spot price for beef,” cautioned Meyer and Steiner. “It does not measure what all market participants are paying for their beef.”

Feeder cattle

Cash feeder cattle were mixed geographically, but mostly steady to down on yearlings. Slaughter cows were also mixed, though the availability compared to the prices were sometimes backwards with abundant cows going for higher money in some places.

California: In the Escalon Livestock Market, #1 feeder steers between 600- 800 pounds were selling steady at $90-118 while Holstein steers over 600 pounds dropped $10 on the low end of the range at $65-80 compared to last week. At Turlock Livestock Auction Yard, the most recent feeder sale was said to have a good test on all classes offered. Yearling steers between 700-800 pounds sold for $118-123. Holstein steers of the same weight sold for $70-85.

Colorado: The La Junta Livestock Commission Company had too light a test on feeder steers and heifers to call a trend, but slaughter cows and bulls were called steady on moderate demand. High-dressing Breaker cows were selling for $83-85, with high-dressing Boner cows selling for $80-83.

Iowa: At the Iowa Feeder Cattle Auction in Bloomfield, feeder steers were mostly $2-4 higher than the most recent sale, with the exception of 450- to 600-pound steers, which were down $4. The weight breakdown for prices was the same for heifers, but with the majority going for $2-3 higher and steady for the selected middleweights. There were almost 200 head of #1 steers sold; the majority weighed an average of 730 pounds and went for $145.43 and a handful of 751-pounders went for $144.

Kansas: In the Winter Livestock Feeder Cattle Auction of Dodge City, the majority of feeder steers went for steady to $1 higher money with the exception of heavyweights, which went for $2-4 higher. Calves were limited but called steady to weak. Close to 200 head of 783-pound #1 steers sold at $132.06.

Missouri: Buyers were being very picky about what they wanted when it came to feeder steers. Most all sales quoting receipts for yearling feeder steers picked out individual weight groups. Lighter weighted steers (anything up to 700) were steady at best, but more often down $1-6, with most trending in the down $2-4 area. Heavier steers were up $2-3. Feeder heifers were steady to up $3. Slaughter cows were mixed up and down $2 depending upon the availability at the sale, and slaughter bulls were a weak steady. The few mid-700s #1 steers went for between $132-147.50 at Springfield and Green City, respectively. Prices favored steers on the lighter end of the 700 range.

Nevada: At the Fallon Livestock Auction, feeder cattle were called softer due to the dry conditions of the region. Despite this, demand was called active. #1 steers ranging from 700-800 pounds sold for between $108-116. Breaker cows were going for between $70- 75 while Boner cows were bringing $75-80.

Oklahoma: At the El Reno sale, feeder steers under 800 pounds were steady to down $1 while heavier animals traded up $1-3. Heifers, however, were steady to $2 lower. Calves were limited, but generally called steady to down $2-4 for heifer calves. Close to 300 head of 776-pound #1 steers sold for an average of $132.20.

New Mexico: At the Clovis Livestock Auction, feeder steers and heifers were mostly steady to $3 lower. Slaughter cows were steady to down $1. The sale noted the bulk of the offering consisted of #1 steers and heifers under 600 pounds. Almost a dozen 718-pound #1 steers sold for $133.08.

Wyoming: The Torrington Livestock Commission Co. saw too few sales of steers to declare a market trend, but called yearling heifers an uneven steady. Demand was called moderate to good. One hundred and seven head of #1 steers averaging 735 pounds sold for an average of $141.69.

Near-term feeder cattle futures fared better than their live cattle brethren… but not by much. They lost more, relatively speaking, but at least they didn’t both set new contract lows. Compared to the near-term contracts’ prior Friday closes of $133.90 for May and $143.37 for August, the May contract lost $2.28 with $131.62—a new contract low—and the August contract lost 72 cents with $142.65.

Feeder futures suffered from many of the same factors as live cattle futures, but had already been at a disadvantage from earlier in the week with the very bearish Cattle on Feed report which saw a surprisingly higher number of cattle placed in feedlots than expected. See the coverage of the report beginning on the cover of this week’s WLJ.

To go along with the Cattle on Feed report, the most recent Cold Storage report was released last Wednesday. It was called neutral by analysts, with supplies of total meat (all red meat and poultry) in all warehouses being slightly below last month and steady with the same time the prior year. Beef stocks in cold storage amounted to 510 million pounds, which was down slightly from last month and down 7 million pounds from the same time last year.

Meyer and Steiner attributed some of last week’s late-week defensiveness across various sectors of the beef market to the Cold Storage situation. The stores of meat also bespoke the ongoing beef and pork export concerns.

“In recent years, the expansion in US meat protein exports, especially in pork exports, has affected the size of the inventory positions since more meat needs to be staged before it is shipped to overseas destinations. However, with pork exports slumping and beef and poultry exports on a softer footing, the big inventory numbers likely imply that a larger portion of this supply will have to be absorbed in the domestic market.” — WLJ