Ups to be found in down market

Markets
Aug 2, 2013

Cash trade developed in Kansas in low volumes last Thursday at— you guessed it—$119 live. Some small and local loads of cattle were sold in Iowa at $191-194, but volumes were insufficient to set a market trend, though analysts did predict it would set the tone for the rest of the week’s trade. Expectations were for steady to up $1 from the recent stagnation of $119 live in the South Plains and $121-122 live and $194-195 dressed in the Corn Belt.

Live cattle futures made a negative break from their recent stagnation as well. Compared to their prior Friday close of $121.80 for August and $125.85 for October, last Thursday’s close saw them down about $1 at $120.80 and $124.50, respectively. Even with this slight decline, it might not be enough to properly move the market.

“With Monday being first notice day for August deliveries I imagine we narrow some of the wide negative basis the market has been trading for the last couple weeks,” said Troy Vetterkind of Vetterkind Cattle Brokerage.

“Still though, we aren’t going anywhere in the futures until we breakout one way or the other from this range trade. I believe we can see a $2-$3 move in the direction of the breakout but we need to see it first on a closing basis, meaning we have to close convincingly above $127 to see further topside or below $125 to see further downside,” he said, speaking of the October contract.

In other areas of the cattle and beef world, however, the general opinion seems to be that things have hit the low and opportunity and upward moment is to come.

“Product values have attained our ‘worst’ case target price of $186 for choice product,” said Andrew Gottschalk of Hedgers Edge. Compared to the prior Friday’s close of $187.15 for Choice and $182.71 for Select, the cutouts lost last week. By Thursday afternoon, the cutouts stood at $186.66 and $181.53, respectively. But these losses have a silver lining to them, according to Gottschalk.

“With current retail beef prices retail beef margins would be maximized setting the stage for increased product purchasing leading to an increase in beef features. The latter condition is paramount to turning product and cash trends higher.”

And that condition may be coming. Retail procurement of beef ahead of Labor Day should begin this week, which would be a good domestic boost. Until that happens, however, things are still slow in the domestic spot beef markets.

“Seasonally, interest for middle meats is slow, which translated into lower values for rib and loin cuts,” said Vetterkind, Wednesday. “Cash beef markets are still expected to find some buyer interest at current price levels after recent weeks of discounting from the packer."

He also pointed out that there is some evidence of good news on the horizon.

“Forward sales of domestic beef have been on the rise and export business remains active, which along with a moderate tightening of fed cattle numbers towards the end of summer could help stabilize cash fed cattle values near term. Don’t get me wrong we still have plenty of cattle placed against Sept/ Oct given the recent year over year placements of feeder cattle weighing 800 lbs. plus the last 4 months, but along with that we should see a better demand pattern develop in the beef market from domestic buyers.”

Exports of 15,400 metric tons last week were up 2 percent compared to the prior week and up 3 percent compared to the four-week average. As usual, the primary destinations were Japan, Hong Kong, Canada, Mexico and South Korea.

Feeder cattle

Feeder markets continue to stay strong as supplies of yearling feeder steers, particularly of the benchmark medium and large 1 (#1), continue to tighten.

California: The Turlock Livestock Market saw steady selling of feeders and some softness in Holstein steers, but still maintaining good prices. #1 beef steers between 700-800 pounds sold for between $115-139.50 while Holstein steers of the same weight sold for $70-98. At the Escalon Livestock Market, similarly weighted #1 steers sold for between $110-135. In the Cattlemen’s Livestock Market of Galt, the same weighted steers brought between $130-147.

Internet: As in prior weeks, the internet/video sales are on fire lately. Superior Livestock Auction saw a lot of 140 head of 725-pound steers for October delivery out of Oklahoma sold for $158. Another lot of 74 head of 775-pound steers for September delivery out of Wyoming sold for $152. Cattle Country Video held their Oregon Trail Classic sale and yearling feeder steers were heavy, most in the 800s and 900s with some even over 1,000 pounds. Several lots of hundreds of head of 850-pound yearling steers sold for between $148.75- 153.50, but with most of that weight selling around $152.

Kansas: A pair of sales in Kansas—Winter and Pratt—saw mixed sales of feeder steers, with Winter calling them $2 higher while Pratt called them $2 lower. Heifers called steady. Over 450 head of 778-pound #1 steers sold in Winter for $151.74 while #1 steers between 750-800 pounds sold in Pratt for an average of $147.39.

Montana: At the Public Auction Yards of Billings, receipts and cattle continued to be light. Only 581 head sold, and of that, the feeder steers didn’t make it heavier than 550 pounds. Slaughter cows, however, sold up $2-5 while bulls were steady to down $2. Slaughter cows made up the majority of the offering at 75 percent.

Oklahoma: At the Okc West, El Reno sale, feeder steers were taking off. Steers between 600-700 pounds were fetching prices $6-7 higher, and heavier steers were up $2-4. Heifers were up $2-3 while calves of both sexes were mostly $3-5 higher. Recent rains have sparked optimism and people are looking for cattle to put on grass. Several hundred head of mid-700s #1 steers sold for between $151.33-155.18.

Near-term feeder futures have greatly benefited from the declines in the corn markets. Compared to their prior Friday closes, the near-term contracts have gained over $1 at $153.75 for August and $157.25 for September. During that same period, near-term corn futures have fallen from $4.92/ bu for September and $4.76/ bu for December to $4.87’4/ bu and $4.67, respectively. Though that one-week decline isn’t so large, corn has not recovered from the extensive break the prior week which saw the December contract go from a few cents over $5/bu to where it is now. — WLJ

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