Prices, volumes decline in live futures

Dec 16, 2013

Trade was again shrugged off until Friday last week as only 2,844 cash fed cattle sales had taken place by Thursday afternoon. Analysts had predicted this was likely and expected a steady-at-best market relative to the prior week’s $132 live and $208-210 dressed market. A loss of profits on both sides also contributed to last week’s cash standoff.

“Both packers and feeders look to be back losing $30-40 per head on business being transacted,” reported Troy Vetterkind of Vetterkind Cattle Brokerage. Andrew Gottschalk of Hedgers Edge had words of historical hope on the markets, however.

“In eight of the previous 10 years, cash cattle traded higher in late December than they did during this week,” he said last Thursday. “However, the holiday production schedule this year may be insufficient to keep the present level of ‘currentness’ intact; shackle space is a premium.”

Live cattle futures gained a bit in value, but with considerable slowdown in activity by volume over the week. On the prior-Friday’s close, December stood at $131.43, and February at $132.85 with a collective estimated volume of 29,366. By last Thursday afternoon, however, those two contracts had advanced in value to $132.25 and $133.10, respectively, but the estimated volume had dropped to 17,723.

“There continues to be not very much going on in the cattle futures trade,” said Vetterkind last Wednesday. “Open interest went down about 4,500 contracts yesterday likely on some endof-year fund liquidation, which is probably the biggest concern facing the market right now.”

He noted that fund buyers still hold “hefty net longs” and that continued liquidations of those positions could drive the markets down lower. He did note that he doesn’t expect that, however, but “who knows; with them anything is possible.”

Cutout values drifted lower last week with analysts speculating that they may have topped for the time being.

“Product values are expected to come under increased selling pressure as the bulk of holiday pricing draws to a close,” said Gottschalk last Wednesday. Vetterkind also noted that losses to the value of trim— down $7 on 50 percent trim in one day alone—and stagnation or declines in middle meat prices have contributed to the decline of the overall cutout values.

By Thursday, Choice stood at $200.45, a $1.02 decline from the prior-Friday close, and Select stood at $186.62, a loss of 36 cents.

For the moment, beef demand has remained positive as retail beef margins have remained positive, however this represents the greatest risk in the beef market. Gottschalk noted that a falter in the economy could have negative implications for beef.

“On that front, recent economic data is positive,” he pointed out. “Third quarter growth was revised upward and the latest employment data was encouraging.”

Feeder cattle

Cold weather last week put a damper on feeder sales. Many locations in the hardest-hit regions canceled sales altogether, or had so few receipts they did not bother to report the sale. Medium and large class 1 (#1) steers were scarce in many sales, both calves and yearlings.

Nebraska: The Bassett Livestock Auction saw over 4,100 sales with steers trading up $2-5 and heifers up $2-6. Most of the feeders sold were long-weaned calves with full vaccination programs. Prices ranged from $167.69-$183 for #1 steers, with the high being on a batch of fancy yearlings.

Oklahoma: The El Reno sale saw a sharp decline in sales due to weather in the area. Icy conditions and freezing temperatures kept buyers and sellers away. Those cattle that did sell were called steady with heifers $1-4 higher on a light test. A load of 700-pound #1 yearling steers sold for $168.75.

Wyoming: At the Torrington Livestock Commission Co., sales almost doubled at 4,125 receipts compared to their previous sale.

Light steer calves were up $4-10, and midweights were steady to up $2. Similarweight heifers were up $10- 12 and $1-4 respectively. Demand was called very good. Price differences between mid-700s #1 steer yearlings and calves were almost nonexistent with both bringing mid-$173.

Near-term feeder cattle futures gained nicely last week. Compared to a Friday close of $164.48 for January feeders and $164.68 for the March contract, Thursday settled at $167.08 (a gain of $2.60) and $166.55 (a gain of $1.87), respectively. However, volumes were again very light by Thursday compared to the prior Friday.

“Aggressive triple-digit gains have quickly developed through morning trade and the sharp gains appear to be holding well during the rest of the session,” commented Rick Kment, Market Analyst for DTN. “Although there may not be a lot of additional buyer support, the lack of selling pressure late in the week seems to be the main focus of the market.” — Kerry Halladay, WLJ Editor