Live cash, futures prices continue to surge

Oct 25, 2013

A trend may be developing for mid-week cash cattle trades. After such a long, unbroken streak of “put it off ‘til Friday” trade in recent months, the prospect is hopeful.

“It was a fast track in the country with South Plains trade at $132-133 while the Corn Belt traded at $132-134 live and a full range of $206-210 on a dressed basis,” reported Andrew Gottschalk of Hedgers Edge Thursday, noting that the bulk of the Corn Belt dressed trade was in the $208-209 area.

“Look for this market to maintain an upward bias into the second half of November followed by additional gains during the first quarter,” he added.

“The combination of excess capacity and high fixed costs means that both [feedlots and packing facilities] will tend to bid strongly for the limited cattle numbers,” said Chris Hurt, Professor of Agricultural Economics at Purdue University, in explanation of the high cash prices. He did note that the margins for both packers and feedlots will begin to narrow.

Futures last week saw a nice rally, at least in terms of the nearest term contract of October. Compared to its prior Friday close, the October contract closed last Thursday with a $2.92 gain at $132.80. The December and February contracts gained slightly—85 and 45 cents respectively—with Thursday closes of $132.88 for December and $134.33 for February.

“Renewed buyer support in nearby contracts has offset earlier pressure through the rest of the complex,” said Rick Kment, DTN market analyst, Thursday afternoon. “This support seems to be based on firm fundamentals, but there is growing uncertainty developing in the complex. The recent run up in both futures and wholesale beef prices could quickly correct if consumer demand is quickly shut down due to rising retail beef prices.”

There are both positive and negative things in the immediate future for domestic consumer beef demand.

On the one hand, as Kment mentioned, the rising cutout value could become daunting to consumers once wholesale prices translate to their pocketbook. Last week the gains in both cutouts outstripped the weekly gains for a long time. Compared to the prior- Friday closes, Choice gained $3.78 with $201.07 on Thursday afternoon and Select gained $5.70 with $185.68.

But there are a few upsides in the demand picture.

“Beef demand has remained positive and improved retail beef margins have allowed additional ad space to be garnered by beef this month,” noted Gottschalk early last week. “Seasonal employment gains should help to bolster fourthquarter demand.”

He also pointed out that the year-on-year seasonal decline in gas prices of late have been a boon to beef demand.

“Average gasoline prices are $0.33 per gallon below year ago levels while average diesel prices are $0.23 per gallon below year ago levels. Each one cent per gallon annual reduction in gasoline is equivalent to a $1.3 billion benefit to consumers while a like change in diesel is worth approximately $560 million dollars to consumers. Needless to say, the drop in fuel cost to consumers has helped to fuel beef demand since mid-August.”

As he has pointed out in the past, Gottschalk reiterated that the maximum cash price level for fed cattle that retail beef can support is $136. Though the cash and futures markets are beginning to push closer to those levels, the buffer between the two will hopefully hold out well into seasonally heavy demand for beef. The season for roasts and stews is still ahead.

Feeder cattle

Cash feeder auctions around the country saw good demand for the scant populations of available yearling feeders. Though some prices were mixed on a regional basis, benchmark steers medium and large 1 class (#1) in the mid-700 pound area re mained strongly in the high- $160s to low-$170s.

Colorado: At the La Junta Livestock Commission Company, over 2,200 head sold. Calves were hot again with steers going for up $8-10 and heifers up $3-5. Yearlings were too scarce for a comparison in either sex, but demand was good.

Kansas: There were over 3,700 receipts at the Winter Livestock Feeder Cattle Auction last week. Though no trends were offered, trade and demand for yearlings was called active and very good. Mid-700s #1 yearling steers sold between $169.50- 176.50, calves $159.

Montana: At the Public Auction Yards of Billings, there were 3,155 receipts last week. No trend was offered, but the interest was described as good for stockers and feeders though lackluster for other classes. There were few mid-700s steers of any age available, but 32 head of 714 #1 calves sold for $160.73.

Nebraska: In Bassett, the Livestock Auction saw 1,880 receipts with steady to $3 higher trends on light steers. Heifers were too few in any weight for a comparison. Demand was called good with active buyers. Mid-700s yearling steers were over $170 with a 76-head package of 764-pound #1 steers selling at $173.98.

New Mexico: In the Clovis Livestock Auction, roughly 3,000 receipts came in. Stocker and feeder steers were called up $1-3. Yearlings were hard to come by, but several packages of mid-700s #1 steer calves sold for $155-162.50, with preference going for the value-added calves.

Oklahoma: The Okc West-El Reno sale saw over 6,200 head sell, which was far beyond the volume of the last year sale. No trends were offered, but the large volume of mid-700s yearling steers went for $162-173.50 with preference for lighter steers. Same-weight calves went for $152.

Feeder cattle futures did not fare as well as their fed cattle compatriots. The October contract lost 52 cents over the course of the week with a Thursday close of $165.55. Both the November and January feeder contracts squeaked by in the black with 10 cent gains each, November with a Thursday close of $166.95 and January with a close of $166.70.

“Traders in nearby feeder cattle contracts are starting to become more concerned that the top in live cattle markets could have passed as deferred live cattle futures are unable to gain any buyer interest following higher cash cattle trade,” commented Kment. “[They] appear to be tired of the surge in live cattle futures and there seems to be growing concerns that the beef and live cattle markets are in for a correction.”

This uncertainty in the feeder futures came despite continued declines in the December corn contract. Compared to its prior-Friday close, the contract lost a little over a cent per bushel with a Thursday close of $4.40’2/bu.

Gottschalk pointed out that, according to the most recent reports as of publishing, corn acres harvested stand at 39 percent compared to 85 percent last year and the five-year average of 53 percent. “Corn is unlikely to score its seasonal low until harvest is at least 55-60 percent completed. Producers are expected to limit offerings while electing to store as much corn as possible and deferred sales.” — Kerry Halladay, WLJ Editor