Reports hopeful

Jul 15, 2013

The negotiated cash trade held off last week as small showlists and reasonable strength in the futures gave the bargaining power to cattle feeders. Bids developed low on Tuesday at $115-117 in the South Plains and $190-191 in the Corn Belt, but sales were too few to set a market trend. By Thursday afternoon, no trend-setting trade had occurred, leaving the week’s trade to Friday.

“Packers are going to tell you that they have enough cattle around them and domestic beef demand is waning as we get into the heat of the summer,” commented Troy Vetterkind of Vetterkind Cattle Brokerage on Wednesday.

“But they have export business to fill and fat trim is in very tight supply, to the point where they in certain instances have to turn buyers away for trimming’s orders, so they’ll have to be in the market for a certain amount of cattle this week. Even Tyson who has been largely missing from the cash market for the last couple of weeks.”

Last week saw a lot of hopeful teasing in the live cattle futures, where trade was again largely sideways. Over the course of the week, both near-term contracts gained slightly from their prior-week closes of $121.95 for August and $126.25 for October. By Thursday afternoon, those contracts stood at $121.93 and $126.43, respectively.

Both contracts were said to be dealing with resistances—$123 for August and $127 for October—later in the week as word spread of potential packer actions and the Goldman Roll began to affect the market.

Following the short production week preceding the July 4 holiday, last week’s production schedule was back to normal. The industry estimated a 648,000-650,000 production week. Packers are still operating at a nice profit—still seated comfortably in the $50-60 per head range—and surprisingly strong consumer demand in the recent past has given them motivation to capitalize on with large full production weeks.

While it has been said and will continue to be said that domestic demand is/will drop as summer wears on, recent demand information paints a buoying picture. Andrew Gottschalk of Hedgers Edge reported that total beef demand during the second quarter had increased 4.5 percent compared with Q2 2012. He also pointed out that both per capita supply and average price were above the prior year, which is another feather in the cap of beef demand.

“When it comes to the issue of meat and poultry demand these days, we are reminded of the old adage to not look a gift horse in the mouth,” reminded Steve Meyer and Len Steiner of CME’s Daily Livestock Report, referring to demand.

They did, however, voice concerns about the future regarding macroeconomic elements.

“Our concern—and perhaps the reason that meat and poultry demand growth is not more robust given growing employment numbers and a strong stock market—is the lack of growth in the amount of money that people have to spend.”

As is often pointed out, more meat, and beef specifically, benefit from consumers with more spending money as improved foodstuffs are a first-turn luxury choice for most consumers.

And of late, American consumers have been buying ground beef. The July 4 holiday was a burger day for a good portion of the meatbuying public and cut-specific prices showed that.

Middle meats and ribs were discounted heavily to move them, while chuck held steady and thin meats were higher on demand for grinding meat and shortages of fat trim.

The demand for ground beef, as well as a decline in imports of grinding meat from New Zealand and Australia, has been holding up cow prices of late, though Tim Petry, livestock economist of the North Dakota State University Extension Service, explained that prices are not as high as last year’s records. The reasoning is multifaceted.

“Total cow slaughter was up 3.4 percent in the first half of 2013 compared to the previous year. In 2012, the meat industry was utilizing less trim from slaughter steers and heifers due to the lean fine textured beef media event. So, prices for 90 percent lean wholesale boneless beef from cows were record high in the first half of 2012. Higher beef imports in the first part of 2013 from drought impacted New Zealand also tempered cow prices.”

Domestic droughts in western states have also played a role in providing a larger supply of slaughter cows this year than last. Petry also pointed out the harsh and often unexpected storms of this spring increased calf losses, which also has had a hand in increasing the amount of cull beef cows available.

“Cow prices in the second half of 2013 will continue to be impacted by weather and its effect on pasture and range conditions and hay supplies and prices. Moisture conditions are much better than last year in the Eastern half of the U.S., but the West remains very dry,” he said.

“If Mother Nature cooperates, the potential for both lower cow slaughter and beef imports in the second half of 2013 exists. That could support cow prices at higher levels than last year. However, an expansion of drought and continued high cow slaughter and high hay prices would pressure prices.”

Demand news continues to be bright with the recent export data.

“While there was an expectation earlier in the year that a change in the terms of trade with Japan (age of cattle allowed) would result in increased shipments there, the recent surge in exports has been quite impressive,” reported Meyer and Steiner. “US beef exports to Japan in May were 24,692 MT, 69 percent higher than the same period a year ago. Japan is now firmly, once again, the top market for US beef.”

The increase in export to Japan was sufficient to cover losses in other areas such as South Korea and Vietnam. Business to Hong Kong was also increased.

“While domestic beef business is expected to slow in the coming weeks, export business has turned active again and this will be a supportive factor to cattle and beef prices,” said Vetterkind.

Feeder cattle

Feeder cattle markets were “on fire” last week as overall yearling feeders—including the benchmark medium and large 1 class (#1) yearling steers—were up or unavailable in many markets. Gottschalk also noted that placements were up in the prior week following light placements in the week before. Drought in western states continues to drive more cow culling and early offering of feeders, even though the heavier animals are the ones getting the attention.

California: At the Turlock Livestock Market early last week, the sale reported good movement given the early-week low grain prices. Cows were sold aggressively with the tops fetching $92.75 and Holsteins at $89.50. #1 steers between 700-800 pounds sold for between $108-127.

Nebraska: In Loup City’s Commission, there were not enough feeder cattle or calves to establish a market trend. Slaughter cows and bulls were called steady to down $2. The sale reported a lot of the slaughter cattle were lower dressing than in past weeks. There were no mid-700 pound #1 steers sold.

New Mexico: At the Roswell Livestock Auction, stocker and feeder steers were $1-3 higher while heifers were up $4-7. Slaughter cows and bulls were called steady to $1 higher with instances of $3 higher. All of three head of 713-pound #1 steers (the heaviest in that category offered at the sale) sold for $138.64.

Oklahoma: At the Woodward Livestock Market, slaughter cows were down $2-3 compared to the prior sale, and slaughter bulls were down $2. High-dressing Breaker and Boner cows sold for $86 and $86.25- 89.50, respectively.

Texas: The Amarillo Livestock Auction had too few yearling or calf feeders for an adequate market trend. Trade activity and demand was called moderate to good with slaughter cows and bulls trading steady. There were no #1 steers sold over 650 pounds.

Wyoming: At the Riverton Livestock Auction, slaughter cows sold unevenly steady with slaughter bulls steady to firm. There were too few feeder yearlings or calves for a market test. Slaughter cows and bulls represented over half of the sale. High-dressing Breaker and Boner cows sold for $70-74 and $71.50- 80, respectively.

Feeder futures did not fare as well as live futures, particularly considering the gains made in the corn futures last week. Compared to their prior Friday closes of $151.80 for August feeders and $154.17 for the September contract, by Thursday afternoon, they had sunk to $150.13 and $152.55, respectively. — WLJ