Packers seeing black

Markets
Jun 10, 2013
by WLJ

The cash trade was put off until later last week as packers again tried to hold onto their positive margins in the face of steadily declining product values. Bids only surfaced on Wednesday at $121 live in the South Plains, which would be $3-4 lower than the cash prices of the prior week.

But by Thursday afternoon, livestock futures began to see some significant support.

On Monday, South Plains fed cash cattle prices traded fully steady at $124 basis the South Plains. Corn Belt cash prices were steady at $125- 125.50. The weighted average dressed trade in the Corn Belt was $0.33 lower at $199.06. Trade was in a full range of $198-200.

“We left [the previous] week with a cash fed cattle market that traded mostly steady at $124 live in the south and $124.50-$126 live and $1.98-$2 dressed in the north,” said Troy Vetterkind with Vetterkind Cattle Brokerage.

By midweek, futures closed lower, down 70 to 105. Continuing its choppy trading pattern, the live cattle pit reversed from a brief Tuesday rally to close significantly lower Wednesday. Selling pressure was tied to eroding carcass value and a general lack of buying interest. Live futures remained trapped within a fairly narrow trading range, according to analysts. Beef cutouts were mixed, off $.89 (Choice, $204.40) to up $.47 (Select, $184.56), with light to moderate demand and moderate offerings.

Packers are beginning to find themselves in a familiar Catch-22; they are in the black, which they want to capitalize on, so they up production rates. But as they kill more cattle, the more beef there will be on the market, which will help drive product values down. And in order to preserve their margins as cutouts go down, they are going to need to buy cattle cheaper, but there’s only so low fed cattle can go, particularly as supplies of available feeder cattle are projected to decline.

The prior week was confirmed as a 594,000-head week, though of course that week was short due to the Memorial Day holiday. The most recent non-holiday production week saw 648,000 head processed. Industry expectations for last week stood at 640,000-645,000 head, the lower end of which Gottschalk claims is “sufficient to keep the fed sector current.”

Steve Meyer and Len Steiner of CME’s Daily Livestock Report projected beef production should hit its seasonal peak soon.

“A normal seasonal pattern would result in weekly output levels of 510 to 520 million pounds per week during June. In spite of monthly placement patterns that have been anything but normal over the past two years, the season pattern of beef production seems intact.”

By Thursday, beef cutouts were mixed, $0.28 per cwt higher for Select and down $1.32 per cwt for Choice with moderate movement compared to their prior-week closes of $206.65 for Choice and $187.20 for Select.

“Product values are expected to trend lower with the first level of critical support at $198-$200,” said Gottschalk. “Long term support this summer should be uncovered at the $188-$191 level.”

This decline was led largely by weakness in cut-specific spot pricing. Following the Memorial Day procurement for grilling and a few weeks away from the next big grilling holidays, middle meats only managed steady prices while end meats, chucks and ground beef saw discounting.

There is some hope that Father’s Day will bring some renewed interest in retail beef features, but if Mother Nature continues to play coy with prime grilling weather, beef movement could continue to disappoint.

While domestic demand continues to be a concern, recent news from USDA suggests some hopeful things about agricultural exports, even if not specifically beefcentric. USDA released its fourth Outlook for U.S. Agriculture Trade in fiscal year 2013 on Wednesday, June 5. The report projects $139.5 billion in agricultural exports for FY 2013. If realized, such an export value would be a new record.

“Today’s report is promising news that keeps American agriculture on track to continue the strongest period of exports in our nation’s history,” said Agriculture Secretary Tom Vilsack in a statement following the report.

“Agricultural exports are an important part of our economy, supporting more than one million jobs…”

Feeder cattle

Receipts for medium and large 1-class (#1) steers were more plentiful last week than they were the week before, but prices were still mixed. Demand for calves seemed to be mixed but given to extremes in some places with favor going for lightweights and heavyweight calves.

California: The Turlock Livestock Auction Yard saw improvements in their sale compared to the prior week, but still did not quote a trend. #1 steers weighing between 700-800 pounds went for $108-131. At the Escalon Livestock Market, #1 steers between 600-800 pounds sold for $90-118, and Holstein steers over 600 pounds sold for $65-80.

Colorado: Winter Livestock Inc. of La Junta saw a light test on yearling feeder steers and heifers, but called it mostly steady. Slaughter cows were down $2-3 while bulls were down $3-5. The offering was fairly evenly split between feeders, slaughter cows and bulls, and pairs. A lot of 745-pound #1 steers sold for $135 while a lot of 765-pound #1 steers sold for $130.

Kansas: At the Winter Livestock Feeder Cattle Auction, feeder steers sold up $2-4 and heifers were up $3- 5. Slaughter cows were called steady. Fifty-three head of 746-pound #1 steers sold for an average of $138.14.

Nebraska: At the Loup City Commission, there were not enough sales to quote a trend and there existed a vast difference in quality between the last sale and the previous sale. That said, a firm undertone was noted on feeders. Slaughter cows and bulls went for steady to $2 higher money. There were no #1 steers over 650 pounds to quote.

Nevada: The Fallon Livestock Exchange saw feeder cattle going for $3-10 higher than their previous sale. Slaughter cows were up $2.5- 4 and buyer demand for all cattle was said to be very active. Number1 feeder steers between 700-800 pounds sold for between $108-114.

Oklahoma: McAlester’s Union Livestock Market sold steer calves under 500 pounds for $2-10 more than the prior sale, though most fell into the $7-9 higher range. Midrange steer calves were $1-8 lower while calves over 650 pounds sold for $1-5 higher. Light heifer calves were discounted $2-8 while heavier ones were $1- 5 up. There were few #1 steers in the mid-700-pound area, but receipts showed cattle at either end of the 700-pound spectrum selling for between $121.91-128.47. At the same time over in the National Stockyards, yearling feeders were selling $3- 6 higher and calves were not well tested. Again, only the extreme ends of the 700-pound spectrum were seen for #1 steers, but they sold for between $134.65- 138.46.

Texas: At the Amarillo Livestock Auction, feeder steers and heifers sold firm to $5 higher while calves were not well tested. Trade and demand were called moderate to good, particularly on yearlings. The extreme spread in 700-range #1 steers was seen again, this time with cattle selling for between $133.50-137.50.

Crop Progress

The most recent Crop Progress Report (June 3) shows corn plantings so close, yet so far, from averages. Compared to the fiveyear average of 95 percent of the crop planted, last week saw it lagging by 4 percentage points. This, together with the continued rain in key corn states and the general rule of having corn planted before June 1, means farmers have some choices to make.

“For some producers, it may make more sense to take the prevented planting payments as outlined in their crop insurance policies rather than roll the dice and plant the crop,” said Meyer and Steiner. “Some producers may opt to switch to soybeans but that option also has its complications and deadlines regarding final planting dates for preventive plantings.”

Overall, about 8.7 million corn acres have yet to be planted. By Gottschalk’s estimation, 1.5-2 million acres of corn may not be planted as producers opt for the prevented planting payments and some more of those remaining acres may be rolled over into soybeans.

“If 2 million acres are not planted, a yield of 155 bpa could result in a crop size of 13.6 billion bushels,” said Gottschalk. “This would be a record total production level providing a carryout of 1.3 billion bushels, up from this year’s estimate of 759 million bushels.”

Meyer and Steiner pointed out that producers can still plant corn, but the lateness and the continued wet conditions are likely to have a negative impact on yields.

“The delays in planting, and potential impact on yield, comes in states that have some of the best yielding crop,” they said.

“According to Iowa State research, while there is a negative impact on yields for a late planted crop, the impact may not be as severe as some expect. Some estimates now are indicating overall corn crop yields in the mid- to low-150s, which would likely keep corn prices in the high $5/bu. for next year.” — WLJ

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