Blizzard's market impact mixed

Markets
Oct 11, 2013

The continued government shutdown has lent more speculation to the cash markets. Asking prices, bids, and the fact it was another week of Friday trade were all easy to track. But expectations of where that Friday trade would eventually come in was all over the map, from “up” to “down” to “steady” predictions. By Thursday afternoon however, “steady” was the most commonly heard idea. A steady trade would represent $126 live trade and $198-199 dressed trade.

The cash fed trade and the cash feeder market could pull some surprising acrobatics in the near future, however. The exact impact of the South Dakota blizzard continues to be realized, but what is certain is cattle supplies in that region will be devastated.

“The last two days we have seen some dramatic pictures of the devastation across ranches in South Dakota,” reported Steve Meyer and Len Steiner of the CME Daily Livestock Report.

“For the affected farms, this is nothing short of a tragedy. Some of them lost as much as half of their herds and it will take time and a lot of effort to overcome. We send them our sympathies and best wishes for a quick recovery.”

One WLJ fieldman opined that the damage is far greater. He pointed out that many ranchers in the state had to pay for “every scrap of feed” fed to cattle in the last two years. That economic strain, followed now with a chaser of no calves to sell and a severely diminished— if not fully obliterated—cow herd might well end many economically.

Meyer and Steiner went on, however, from the perspective of the national cattle and beef market.

“For the industry as a whole, the devastation will likely have a relatively limited impact as far as short term supplies are concerned. However, we need to recognize that given the shrinking cattle herd in the U.S., the destruction of 60,000- 70,000 head is still significant. It represents about one week of national beef cow slaughter. Also consider that beef cow replacement numbers in 2012 increased by about 99,000 head.

“The immediate loss of these animals—many of them likely were at the peak of their productivity—implies an increased impetus for herd replacement activity in 2014. Eventually this will show up in the cattle inventory numbers (assuming USDA will open to do the survey in January).”

Exactly how much impact this will have is hard to say at this point. Read more about the blizzard’s effects in the top cover story of this week’s issue of WLJ.

In the immediate term, the reactions of the futures were positive to news of the large losses of incoming cattle. However, other influences— some ongoing price correction of the already overbought futures and news that South Korea has banned beef shipments from a Colorado plant—had a downward effect. Overall, near-term futures moved little.

Compared with their prior- Friday closes, the October contract gained 25 cents with a Thursday close of $128.30 and December lost 25 cents with $132.18.

In the face of lacking information from USDA, other entities have stepped in. Troy Vetterkind of Vetterkind Cattle Brokerage cited Urner Barry as an invaluable source of cutout values.

“Thank goodness for our good friends at Urner Barry for providing us with slaughter data and cash beef quotes during this government shutdown because without them we would really be running blind. I have personally been a customer of Urner Barry for several years and rely on their cash beef information more than the USDA anyway. I will remain a customer of theirs for years to come and suggest anyone in the beef/pork business do the same.”

According to the Urner Barry cutout estimates, as reported by Vetterkind, Choice product as of last Thursday stood at $191.97 and Select at $177.92. This would be down noticeably for Choice and up slightly for Select, compared to the last official quotes from USDA of $193.25 and $177.61, respectively.

Feeder cattle

Up-to-date reports of cash feeder markets are getting fewer and farther between. That said, word of mouth and impressions from analysts suggest feeder markets are still going nuts.

“Despite no daily USDA cash feeder cattle information, the markets that I watched throughout the week on the internet didn’t look any cheaper to me,” reported Vetterkind.

“Demand still remains very good for available supplies of feeder cattle and with the fall yearling run largely over with, I wouldn’t expect to see the heavier weight feeder cattle market break too hard this week.”

In California’s Turlock Livestock Auction Yard, feeders saw active bidding on the large offering of calves. Medium and large class-1 steers weighing in the 700s brought $125-146.50. Holstein steers of the same class and weight range brought $70-97.50. Comparable beef and Holstein steers brought similar money at the Escalon Livestock Auction at $120-140 and $80-93, respectively.

Vetterkind additionally reported that 7 weight steers in Kansas sales are bringing mid-$170.

“I would tend to think though, that even with considerably lower costs of gains coming at the market later this year, cash feeders are getting a little pricey.”

Word came in also of a feeder sale in South Dakota that had expected to sell 7,000 head, but had only 500 as a result of the blizzard. At least half of those that were expected to sell at that sale were presumed dead. The blizzard is certain to have a lasting impact on the receipt counts of sales in and around that area.

Feeder futures are still going up, up, up. Near-term contracts set new highs for several consecutive days last week, and more deferred contracts set new highs each day since the prior week.

Compared to the prior- Friday closes, the October, November and January contracts gained handily. October gained $1.48 by Thursday with a close of $165.93, November gained $1.98 with $167.93, and January gained $1.88 with $167.83. Though analysts voiced expectations that prices should slow and perhaps correct themselves in the near future, the trend is still pointed up.

Editor’s note: Concern has been voiced for the physical well-being of ranchers hit by the blizzard. Please—if you find yourself in this situation—talk to someone! Emotional stress can take a very heavy toll on a person, but family and community can hold you up in hard times. People care and talking can help. We don’t want to have stories in the coming weeks of ranchers causing themselves harm because of extreme stress. — Kerry Halladay, WLJ Editor


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