Where are cash prices going?

Dec 9, 2013

Trade was slow to develop last week ahead and then during the sudden, intense cold weather that gripped most of cattle country. Light purchasing trickled in throughout the week, but by Thursday afternoon the bulk of the week’s trade took place at $132 live and $208-210 dressed, roughly steady with the prior week. Analysts had earlier expected trade would possibly be up due to the decline in formula cattle and packers’ needs to fill forward beef orders, but sharp weakness in near-term live cattle futures likely spurred cattle feeders to accept steady offers rather than hold out for higher prices.

What cash prices will do this week and in the immediate future, however, was a topic of great speculation among cattle market watchers.

“We anticipate cash prices to advance into mid- December,” said Andrew Gottschalk of Hedgers Edge. Troy Vetterkind of Vetterkind Cattle Brokerage agreed, but mentioned some other moving parts in the potential future.

“Obviously cattle supply and weather can and will be a factor from week to week this year that can alter the seasonal [cash fed price] tendency. But nevertheless I would say if we trade $133-135 cash cattle this week or next, that is probably going to be the best of it for at least three to four weeks, which would leave the cash fed market some risk back down to $128-130 by early February. At that point the market can stabilize again and make another push higher for spring.”

Gottschalk again mentioned that the next major cash price resistance level is at $136 in the Kansas market. If cattle prices reach that level, retail prices will be pushed higher which will impact beef features. Gottschalk reiterated his thoughts that a cash price exceeding $136 would be short-lived.

The two differed on their projections of the direction of product values, however.

“Product values should gain additional support from holiday pricing needs. A challenge of the $206 level is likely by mid-December,” said Gottschalk on the one hand.

“It is now thought that this $203-$205 area basis the Choice cutout could be the best of it until we get into February as holiday middle meat demand gets fulfilled and end meat demand wanes going into January,” said Vetterkind as a counterpoint. Vetterkind noted that the cutouts break seasonally 5-7 percent in value from early December into mid-February. Gottschalk also observed that product values appear to have stalled earlier than expected.

Compared to the prior- Friday close, the Choice cutout declined slightly with a Thursday close of $202.41, a 47 cent loss. Similarly the Select cutout lost 79 cents with a Thursday close of $189.62.

The market will be heading into some higher-production weeks this and coming weeks to meet the aforementioned fill orders. Last week was estimated to be a 620,000-622,000-head production week with expectations of this and likely next week ranging in the 620,000- 630,000 head area.

Currently the beef market is being led by Choice middle meats and ribs, while roasting items and ground are dragging on the carcass value. A slowdown in export demand is also projected to weigh on carcass values.

“The slowdown in export sales applies more to muscle cuts of beef as variety meats, livers, tongues, head meat, etc., continue strong as witnessed by many of these items, along with hides trading 20-30 percent above year ago levels in value, thus the record high drop values as reported by the USDA,” Vetterkind pointed out. He did, however, note that export demand will remain seasonally slow going into February and domestic business will slow down the closer we get to end-of-the-year holidays.

Despite this fairly seasonal movement, recent data from the National Restaurant Association are hopeful for restaurant sales.

“The [monthly Restaurant Performance Index] stood above 100, the demarcation between expansion and contraction, for the eighth straight month, reaching its highest level in the past four months at 100.9,” reported Steve Meyer and Len Steiner from CME’s Daily Livestock Report.

“That figure is 0.7 points higher than that September level and 1.5 points higher than one year ago. Both the Current Situation and Expectations components of the index also stood at 100.9 indicating what we believe is good balance between foodservice operators’ expectations and actual conditions.”

Though the pair offered some reasons for this more realistic view from foodservice operators, they noted that “a string of eight 100-plus monthly indexes is positive no matter what the context.” Concern over the direction of the economy still remains an issue. Reportedly foodservice operators’ responses to the “better or worse?” question have become more negative of late, indicating a waning optimism for the direction of the economy.

As Gottschalk often says, uncertainty is a danger to markets.

And uncertainty definitely had its way with the live cattle futures market last week. Near-term contracts took a sizable nose-dive last week compared to the prior Friday’s settlement. Early week selling of near-term futures coupled with aggressive Thursday liquidation selling, ultimately putting the December contract at $131.65 (down $1.82) and the February contract at $132.90 (down $1.35). Rick Kment, analyst for DTN, attributed Thursday’s $1 declines to the lack of direction in the cash market up to that morning. Weakness in hog futures was also involved he said.

Feeder cattle

The weather outside for feeder cattle auctions was a bit frightful last week as an “arctic” cold front hit most of cattle country. Despite the prospect of cold, windy, snowy weather wreaking havoc on feedlot pen conditions, and thereby dulling cattle feeders’ motivation to buy cattle, opposing forces were at work which helped keep the market mostly steady.

“Calf prices are bumping into record levels once again as stocker operations look to place cattle on wheat pasture and feedlots try to secure their share of the tight calf supply,” summarized Meyer and Steiner. Calves are a desired commodity with some buyers overlooking the downsides of truckweaned or unconditioned calves in their desire to have cattle to put on wheat pasture. Most quoted cattle in the medium and large 1 (#1) class were calves.

Colorado: The Winter Livestock, Inc, in La Junta saw 3,644 receipts last week. Steer calves were still in demand as lightweights under 600 pounds sold for $3-5 higher, with instances of $8 higher. Heifer calves were steady to up $5 with preference going for lighter heifers. Yearling steers were up $2-3. Mid-700s #1 steers sold for $165-174.50.

Iowa: The Feeder Cattle Auction of Humeston sold over 2,000 head, though there were no comparisons available on this, the first sale of a seasonal auction. Slightly over half of the offering was feeder cattle over 600 pounds. Both #1 yearling and calf steers sold in the upper $160s.

Kansas: The Winter Livestock Feeder Cattle Auction saw 4,309 receipts, well over the amount of the same sale last year. Yearling feeder steers were called up $2 with heifers called steady on a limited offering. Calves of both sexes were called steady to firm as buyers’ desires to own calves runs up against discounts on truck-weaned calves. Several large packages of yearlings and calves saw #1 steers ranging from $154-172, with preference going for true yearlings rather than fleshy calves.

Montana: The Billings Livestock Commission sold 1,452 head on a light test compared to the prior sale. No trend was offered, though a lower undertone was noted. Majority of the offering was cows, both feeding cows and slaughter cows. Slaughter cows were called steady to firm. Six head of 748-pound #1 steer calves sold for $154.75.

Nebraska: In Kearney’s Huss Platte Valley Auction, 4,280 receipts were collected, outstripping comparative sales. Preconditioned, weaned calves with their shots sold steady to up $4, with untreated or bawling calves weak. Yearling #1 steers in the 700-pound range sold in the lower- to mid-$170s, while calves sold in the low-$160s

New Mexico: A special Holstein steer special sale at the Clovis Livestock Auction saw 2,729 receipts with the Holsteins selling $5-8 higher. Beef calves were called steady to strong, with yearling feeders over 600 pounds called steady to weak. Both #1 yearling and calf steers in the 700 pound range sold solidly in the upper $150s. Holstein steers were lightweight, but the heaviest of the offering (550 pounds, Large 3 class) fetched $120.

Oklahoma: At the OKC West-El Reno sale, a whopping 8,970 receipts were collected. Yearling feeder steers were steady to $1 down, with heifers being down $2-4. Calves of both sexes were called steady to down $1, as well, despite a heavy supply of long-weaned reputation calves being offered. Mid-700 pound #1 steer calves brought mid-$150s, yearlings brought low- to mid- $160s, and a 25-head package of value-added yearlings brought $170.

Texas: At the Amarillo Livestock Auction, there were no trends offered given the light sales of the prior week. Trade was called moderate to good on good demand. Weaned and preconditioned calves are still in high demand over their unweaned or unconditioned counterparts as continued cold weather is expected in the area. #1 Steer calves in the 700-pound range sold in the low-$150s, while yearlings sold in the upper-$160s.

Washington: The Stockland Livestock Auction of Davenport saw good prices for stocker and feeder cattle, up $2-3 with instances of up $7-8 on benchmark steers. Trade was called active on good demand. There were no #1 steers offered, however, with most of the feeder offering being in the medium and large 1-2 class.

Wyoming: The Torrington Livestock Commission Co. sold 2,100 head last week, down from recent and yearto-year sales. Steer calves were up $1-2 with calves in the 400s up $3-6. Heifer calves were down $2-4 and yearlings of both sexes were poorly tested. The few mid- 700s #1 yearling steers quoted brought $169-174.

Feeder cattle futures followed live cattle lower last Thursday. Compared to the prior-Friday close, the January contract lost $1.34 with a close of $164.13. The March contract shed $1.24 with a close of $164.43. Kment credited the downward movement in the live cattle futures and the upward movement in the corn futures for the activities in feeder futures. — Kerry Halladay, WLJ Editor