Demand mixed

Sep 23, 2013

Yet another week of “wait- ‘til-Friday” trade in the cash fed cattle markets. With larger show lists, a number of outside influences on the market, and the expectation of a late Friday-afternoon Cattle on Feed report, the theme was one of biding time.

Analysts expected another week steady with the last with $122-123 live in the South Plains and $194-195 dressed in the Corn Belt. Again, regional packers represented most of the trickle of trade that happened throughout the week and at prices on the higher end of the expected range.

But both Andrew Gottschalk of Hedgers Edge and Troy Vetterkind of Vetterkind Cattle Brokerage predicted good times ahead.

“Prices should challenge the $128-$130 level during the fourth quarter, likely by mid-November,” suggested Gottschalk. “Adverse early winter weather will be required to force the cash market above $130.”

“Fed cattle supplies will begin to tighten seasonally as we get into the month of October, which is going to be supportive to the market,” said Vetterkind. “But until we see a pickup in domestic beef demand the market is likely going to remain in a sideways pattern for another week or two.”

The issue of consumer demand was an interesting topic last week. Several reports, some official and others academic, released last week showed interesting moves for beef demand. On the one hand a recent federal report on average retail meat prices showed average beef prices up “The latest data on average retail beef prices has the ‘All Beef’ series, inclusive of choice and select product, reported at $4.97 per pound, up from $4.94 last month and $4.70 a year ago,” reported Gottschalk of the data. “An average retail beef price of $4.97 can support fed cattle prices in a full range of $120- $135. Any cash price movement outside of this range would be short lived. This latest average price compares to a year ago when retail prices of $4.70 per pound could only support fed cattle in a price range of $114-$128.

“Point: Retail margins are significantly improved Y/Y which lays the foundation for higher fed cattle prices in the future.”

Added to this, Oklahoma State University’s newly initiated FooDS (Food Demand Survey) report indicated surveyed consumers had increased willingness to pay for steaks and hamburger and decreased willingness to pay for pork chops, deli ham, and chicken wings.

“While this is positive news for the beef industry given concerns have crept into the closing months of 2013, the results related to expected food expenditures more closely follow other reports of consumers pumping their spending brakes,” cautioned John Michael Riley, assistant Extension professor of Mississippi State’s Department of Agricultural Economics. “Respondents indicated they were less likely to make more beef purchases during September (33.19 percent indicated they would not compared to 26.12 percent indicating they would) and 58.39 percent noted they would not eat out more.”

The relatively new demand survey is conducted by surveying at least 1,000 consumers online with demographics balanced to reflect the U.S. population. It seeks to track and gage consumer sentiments regarding their food- (mostly meat) buying intentions. It also includes varying questions regarding consumer perceptions about food safety issues and similar topics. The Sept. issue included a question regarding Zilmax; 83 percent of respondents had never heard of the product.

Despite the potential this information represents, Vetterkind was optimistic.

“Nothing has changed in the beef market, steady/sluggish domestic beef demand is being offset by rather robust weekly export demand. The spark the market needs though is to see an uptick in domestic beef demand in conjunction with the expected seasonal tightening of fed supplies, which I believe is coming sooner rather than later.”

He pointed out that export business has had a hand in keeping up product values and the cash market.

Meanwhile, the futures markets were up slightly over the course of the week, buoyed higher on Wednesday as windfall from overall upward market movement after having drifted lower earlier in the week. From the prior Friday to close of trade on Thursday, the October contract gained 68 cents with $125.93 and the December contract gained 58 cents with $129.73.

Gottschalk called the live futures oversold however, with the basis in October expected at $124.30. The premium in that contract however is continuing to defer marketings until later in the year.

Packers began slipping into the red again despite their recent cutting of weekly kill counts. Early in the week the

per-head losses were estimated at $7. By Thursday however the estimate saw them as almost breaking even. Production was expected to be 620,000-624,000. It is possible the final count will be even lower than this given the JBS plant in Greeley, CO was shuttered for a few shifts because if the flooding in the area.

Feeder cattle

Pressure was finally being felt in the cash feeder markets, though there was still plenty of demand for feeders; buyers were just being choosier than in the past.

“In all, while a lot of summer pasture yearling cattle have already been sold via summer video auctions, we’ll still see an increase in marketings of cattle coming off pasture in the coming weeks,” said Vetterkind. “Again this doesn’t mean the cash feeder cattle market breaks hard but may put the market into more of a steady/sideways scenario.”

Sales of medium and large 1-class (#1) steers were mixed though still mostly up. Lighter weight and questionable animals like calves and unweaned stock sold at discounts to picky buyers.

Kansas: In the Pratt Livestock Feeder Cattle Auction, roughly 2,000 sales occurred last week. Midweight yearling steers sold up $3-4 and heavyweights sold almost the same amount down. Heifers were steady to up $3. Seven head of 765-pound #1 steers sold at $156. In the Winter Livestock Feeder Cattle Auction, receipts were in a similar range with much the same sale trends except that heifers sold down $2-4. Calves were too few to quote a trend. Close to 100 head of mid-700s #1 steers sold from $159.85- 164.25

New Mexico: In the Clovis Livestock Auction, over 1,000 head sold with yearling feeders selling down $2-3 and unweaned calves selling down $5. Trade was called active on good demand. Majority of the offering was in the medium and large 1-2 class, so no benchmark steers were available.

Oklahoma: At the El Reno sale, receipts dipped to 5,746. Compared to the prior sale, feeder steers sold $1-3 higher and heifers were steady to up $3. Steer calves were up or down $4 according to which side of 500 pounds they were, preference for heavier, while heifer calves were steady to up $3. A large group of 771-pound #1 steers sold for an average of $157.47.

Wyoming: Torrington Livestock Commission saw 635 receipts, down considerably from the prior week. This made trends hard to quote, though the few comparable sales were called steady. Sixty-eight head of 784-pound #1 steers sold at $157.50.

Feeder futures did not fare as well as live cattle futures, but that said, the movement overall was easily described as sideways. From the prior Friday to the close of trade last Thursday, the September contract lost 15 cents with $157.15 and the October feeder contract gained 11 cents with $159.38.

“Feeders remain vulnerable to some seasonal weakness during the next month,” said Gottschalk midweek. “[L]ower monthly placements, as occurred in July and August, allow the feeder and calf supply outside of feed yards to increase similar to last fall. As unpopular as this conclusion may be, the supply of feeders and calves outside feed yards should post a modest Y/Y gain by October 1.”