Import projections, exports improve
It was another week of “put-it-off-‘til-Friday” cash trade last week.
Bids were slow to develop and were passed over out of hand by cattle feeders offering cattle at $3-5 above the Spartan bids. That said, analysts expected trade would develop at slightly depressed prices from the prior week of $123 live in the South Plains, and $194-195 dressed in the Corn Belt.
“Fed cattle supplies probably don’t begin to tighten significantly until the end of the month, which is about the same time we should begin to see an increase in beef usage,” predicted Troy Vetterkind of Vetterkind Cattle Brokerage.
“This is certainly going to be a positive for the cash fed cattle market going into the end of the year, but until then I don’t doubt we see a market that bides time and trades mostly sideways.”
He did point out however that there are some things holding up the cash market lately; exports!
“[F]orward sales of beef have been good the last week or two as well. This is supportive to the cash fed cattle market until fall beef demand kicks in, which probably doesn’t take place until we get closer to the month of October…” The matter of exports and, for a change, imports have been playing an important role in the markets. Added to the strength in the exports—sales of 18,900 metric tons for export and actual exports of 11,800 metric tons for last week—the most recent World Agriculture Supply and Demand Estimates (WASDE) report saw beef import expectations for both 2013 and 2014 fall as well as export expectations for 2013 grow.
Steve Meyer and Len Steiner of the CME Daily Livestock Report pointed out the August WASDE reduced the estimates of 2013 and 2014 beef imports. Together with the most recent September WASDE lowering import projections again, Meyer and Steiner contemplated the likely possibility of seeing lower imports in 2013 than seen in 2012.
While they pointed out that imports this year have been well below last year, there is the potential for that to change.
“One factor that could drive imports would be a shortage of lean beef in the U.S. as US cow/calf operators stop sending cows to market.”
The potential of rebuilding the cow herd came up in a number of areas.
“Underlying this optimism is a growing view that many cow/calf operators are nearing a situation of being not only able to physically add breeding stock but also that operators have forward-looking profit expectations that warrant expansion,” said Glynn T. Tonsor, Associate Professor Department of Agricultural Economics, Kansas State University.
Andrew Gottschalk of Hedgers Edge however disputed the idea that herd rebuilding is going on. Early in the week when discussing the supply of calves outside feedlots he said, “The overall supply of calves and feeders remains historically low with no evidence of herd expansion.”
Though the potential for cheaper feed is there to potentially spur some herd building, and some areas are seeing improved pasture conditions, there are many other factors involved with the willingness to start to build the herd again. Time will tell.
Getting back to the usual flow, near-term live cattle futures shed a few cents. Compared to the prior-Friday closes, October cattle closed at $124.83, a loss of 84 cents, and December cattle closed at $128.36, a 39-cent loss.
Vetterkind explained that last week the futures markets were in the grips of the “Goldman Roll” and Gottschalk called the market oversold.
“October cattle should find support at $124.30,” Gottschalk said. “January feeders are not oversold at this time and need to hold support at $157 to prevent additional selling from developing.”
One interesting thing that did happen in the futures markets in general was that the Commodity Futures Trading Commission (CFTC) has been directing more attention to the problem of predatory electronic trading abuses. In a statement following a meeting with the CFTC Technology Advisory Committee, Commissioner Bart Chilton had some entertaining words of praise for the committee.
“Technology in markets is way cool. All sorts of new and gee whiz things have been developed. The high frequency cheetah traders are killing it. I just want to ensure that they don’t kill other traders, like end users, or markets or consumers.”
Chilton advocated some things “that should be done now” regarding keeping electronic traders in check. In admirably concise wording, he recommended registration and testing for such traders, a “kill switch” for the automatic trades, and the prohibition of “wash sales,” a form of manipulative trade intended to avoid market risk. He praised IntercontinentalExchange (ICE) for already having adopted such a policy.
ICE is one of the only direct competitors with CME for the ag-commodities market share.
As per earlier expectations, product values took a dip last week. Compared to their prior-Friday closes of $195.23 for Choice and $181.19 for Select, both values lost noticeably. Choice closed last Thursday at $193.85, a loss of $1.38, and Select closed at $177.24, a steep loss of $3.95. This brought the spread to $16.61.
Analysts last week were predicting the near-future stall out of the feeder rocket ship.
“Until deferred fed cattle futures score new highs, feeders are likely to stall,” said Gottschalk early last week.
“With consecutive months of sharply declining placements the feeder and calf supply outside feed yards will likely be above year ago levels by October. This condition, coupled with losses in the fed sector, pressured feeder and calf prices this past winter.”
Vetterkind too was predicting the slowdown in the recent gains of cash feeders, though his prognosis was less dire.
“Should begin to see a few more cattle available to the market as producers move animals off summer pasture. That doesn’t mean the cash feeder market has to break very hard but further rally potential may be limited.”
California: At the Turlock Livestock Auction Yard saw most classes of cattle trading steady to unknown due to light receipts. #1 beef steers were slightly lower at $125- 145, and Holstein steers were steady with previous weeks at $70-100.
Colorado: At the La Junta Livestock Commission Company, 339 head sold. Though comparisons were not offered, demand was called good with the majority being slaughter cows. Breaker and Boner cows sold for an average of $83-87 and $83-86 respectively.
Kansas: In Dodge City’s Winter Livestock Feeder Cattle Auction, almost 3,500 head of mostly feeders. Heavy heifers sold $2-4 higher and trade was called active on very good demand. The supply was largely heifers, though the couple hundred head of mid-700s steers sold for an average of $158.75.
Nebraska: At the Bassett Livestock Auction, no trend was given on the 1,685 head sold due to no recent enough sales for comparison. Demand was called good on this heavyweight offering and trade was active. Eight head of 765-pound #1 steers sold for $160.50.
New Mexico: At the Clovis Livestock Auction sale receipts were up to just over 1,400, a worthy increase compared to the prior sale’s 900. Light feeders (under 600 pounds) sold up $2-4 while heavier animals sold steady to week on few comparisons. Offering was mostly feeders with an almost even split between the sexes. Six head of 715-pound #1 steers sold for $155.
Oklahoma: At the El Reno sale, receipts almost hit 6,000! Demand was moderate to good on the moderate to attractive offering of mostly heavyweight feeders. Yearling steers sold up $1-3 with heifers selling steady to up $2. Over 250 head of 771-pound #1 steers sold for $155.54.
Wyoming: At the Riverton Livestock Auction slaughter cows took the stage with selling $2 with instances of $4-8 higher. They were only a quarter of the offering, but saw the best increase. Breaker and Boner cows sold for an average of $74 and $72-79 respectively.
Feeder futures reacted nicely to the WASDE report’s corn update. For the span of week, the near term contracts gained roughly 50 cents each, but all of that and then some was gained on Thursday. The September contract closed Thursday at $157.03, and the October contract closed at $158.60. — WLJ