Where's the top to cash fed cattle?

Markets
Jan 13, 2014

Last week the cash fed market continued to ride the rising tide of record prices. Though the bulk of sales were pushed off until Friday, the scattered small volume sells to regional packers were nothing if not a reprisal of the prior week’s tune, though at a slightly higher pitch.

“There was light trade in Iowa at $137 live and $220 dressed to a small regional packer; trade is insufficient to call this the market for the week,” noted Andrew Gottschalk of Hedgers Edge last Thursday morning. By Thursday afternoon, volumes of cattle sold on the live basis were too low for an established trend, but USDA was quoting dressed sales in the $220- 221 area.

Opinions varied widely on whether or not the recent run-up in fed cattle prices will continue well into the future.

“The type of rapid price advance which has occurred since late December is in its third week. This type of advance generally has a two-three week life span before a period of price consolidation or price correction occurs,” explained Gottschalk.

“I think it unlikely that we will see a continuation of the current rally in the next few days,” opined Derrell Peel, Oklahoma State University Extension Livestock Marketing Specialist.

“Reduced slaughter and carcass weights, perhaps aggravated by weather impacts, will tend to support prices close to current levels but packers will certainly resist higher fed prices unless boxed beef continues to move higher. Fed prices may move mostly sideways for the near term but the potential exists for prices to push towards $140/cwt by the end of the first quarter. In contrast, current April Live Cattle futures would suggest we are already at the spring peak.”

Dr. David Anderson, Texas A&M AgriLife Extension Service Livestock Economist, also gave a conditional projection on the near future of fed cattle prices.

“For beef cattle prices to continue their record run, the 2014 U.S. corn crop will have to produce record yields,” he said. “That aside, the 2014 beef cattle market outlook is poised for another historic run as lack of supply will continue to fetch strong bids on calves.”

The final word on the 2013/2014 corn crop came out in the form of the January World Agricultural Supply and Demand Estimates report, and the Annual Crop Production report last Friday. However, as of publishing (Thursday) those reports were still in the future. Speculation from industry experts projected increases in the yield estimates which would push the corn supply well into record-setting levels. Look for coverage of the ramifications of the corn reports in next week’s WLJ.

As fed cattle prices advance, so too do costs to packers who are desperately trying to reclaim some semblance of profitability. At the beginning of last week, they were estimated at losing roughly $80 per head. By the end of the week that had declined to about $57 lost per head. In an effort to continue that move toward profitability—or rather, diminish losses—production runs were limited compared to prior expectations. Last week was estimated to be a 585,000-head production week with this week unlikely to exceed 600,000 head.

As reduced capacity and other economic movers churned the engines of the cattle and beef markets, product values soared through previously set resistances. By Thursday afternoon the Choice cutout surged $9.64 to $212.05 and the Select cutout eclipsed that even with a $11.67 gain to close the day at $209.05.

“Product values have attained our secondary price objective at $210 with the next level of resistance at $215. These prices are not reflected at retail which are only reflecting a max cutout of $206,” Gottschalk cautioned.

“Thus, additional cash price gains will result in retailers raising their prices and/or limiting of beef features. It is likely they will implement both actions in the coming weeks. Wholesale beef prices are now overpriced relative to pork.”

“The question I get all of the time is when are people going to quit eating beef in reaction to record-high beef prices?” said Anderson. “It hasn’t happened yet. We’ve had record prices for months and months, and I think they are going to continue to go up. We’ve seen a shift in the kind of beef we eat, but haven’t seen people giving up their hamburgers for pork or chicken. We continue to have slowly growing beef demand with a slowly growing economy.”

Indeed, consumer demand signals seem to be decidedly positive. The most recent Restaurant Performance Index (RPI) hit a five-month high in November (most recent data).

“Recent growth in the RPI was fueled in large part by improving same-store sales and customer traffic levels,” said Hudson Riehle, Senior Vice President of the Research and Knowledge Group for the National Restaurant Association.

“In addition, restaurant operators are somewhat more confident that sales levels will improve, and a majority plan to make a capital expenditure in the next six months.”

The live cattle futures apparently weren’t paying close attention to the feel of the cash market, as they gained only slightly over the course of the week. As of Thursday’s close, the February contract gained 25 cents at $136.55, while the April contract gained 20 cents with $136.87.

Gottschalk pointed out the live cattle futures are at an overbought level which he said should stall rallies and lead to a period of price correction in the short term.

Feeder cattle

Welcome back to the world of feeder sales! After at least three weeks of next to nothing to report as many auctions closed for the year-end holidays, we finally see a return to the normalcy that is consistently-running auctions. Buyers appreciated the offerings around the country with very few auctions reporting lower prices on comparable sales. Medium and large 1-class (#1) steers were steadily in the $170s with even higher money for fancy or value-added animals.

California: The sales of the Golden State were up and running last week. In Galt, the Cattlemen’s Livestock Market saw #1 steers in the 700s sell for $142-155, up $4- 6 compared to the most recent prior sale. Lighter weight #1 steers were up $5- 10. At the Escalon Livestock Market, #1 beef steers between 600-800 pounds were $148-165 while Holstein steers of the same range sold for $80-93. At the Turlock Livestock Auction Yard, #1 steers from 700-800 pounds sold for $140-158 while sameweight Holstein steers sold between $82-118.

Colorado: Colorado’s feeder auctions returned like gang-busters with almost 6,000 receipts collected across the several sales held last week. All classes of cattle were steady at worst with most feeders being up respectably, usually in the up $3-8 range. One instance of up $10-20 was noted at the Sterling Livestock Commission Company on light, preconditioned calves. Mid-700s #1 yearling feeder steers ran the gamut of $165-175.66 with most receipts reporting in the high-$160s to low- 170s.

Iowa: The many Iowa sales also saw spectacular comebacks in volume after the holiday hiatus. Literally tens of thousands of cattle sold last week. Almost no trends were offered because of the dearth of sales or comparable volumes in the recent past, but all reporting auctions noted strong demand and active buyers. Standard #1 yearling steers weighing in the 700-pound range brought anything from $168.94 for a 157-head collection of 779-pound steers, to $181 for eight 719-pound steers. Fancy #1 yearlings sold for $176-186.72. Calves ran from $165.94 for 177 772-pound #1 calves to $176.16 for 69 708-pound calves.

Kansas: Over 10,000 receipts were collected last week across early-week auctions in Kansas. Most classes of cattle were quoted as steady at worst with most classes being up $3-6, the one exception being heavyweight heifers in the Winter Livestock Feeder Cattle Auction of Dodge City which were down $2-3. Overall demand was called good. Most prices for #1 steers were decidedly in the high-$160s to low- to mid-$170s. Fancy or valueadded steers reached $180.60 for a 78-head collection of 724-pound steers.

Montana: The Public Auction Yards of Billings saw 837 receipts last week. Compared to the prior sale, offerings were lightly tested with a higher undertone noted for feeder and stocker cattle, plus feeding cows. Demand was called good. There were no 700-range #1 feeders, but eight 696-pound calves sold for $171, and five 826-pound calves sold for $166.

Nebraska: At the Bassett Livestock Auction there were 2,850 receipts last week. No trend was offered, but demand was called good for all offerings. An 85-head group of 714-pound #1 yearling steers sold for a whopping $191.46. Nine head of 750-pound yearlings sold for $172.50. The Huss Platte Valley Auction collected an estimated 5,600 receipts with all reported stock selling up. Steers under 700 pounds were up $8 compared to the most recent prior sale. Heifers under 550 were up $9, while those over were up $2- 3. Mid-700s #1 yearling steers sold the full range of $170-178.

Oklahoma: At the OKC- West sale in El Reno, steers of all ages were up $3-6 and heifers of all ages were up $3-5. Demand was called good for all classes. Yearling #1 steers in the 700-pound range sold at $171.72 for a 615-head collection of 727-pound steers, and $166.45 for 160 775-pound steers. The few #1 calves in the weight group sold between $160-164.50.

Texas: The Amarillo Livestock Auction collected 799 receipts with feeder steers and heifers selling firm to up $4 compared to the most recent sale. Activity was called good on strong demand, though the volume was lower than previous sales, making trends hard to call. A group of 21 740-pound #1 calves sold for $165.

Wyoming: The Torrington Livestock Commission Co. estimated 4,500 receipts last week with very high undertones noted on the offering.

Demand was called very good with buyers actively seeking the cattle available. Prices for #1 yearling steers in the mid- 700s ranged from $171.14- 175.98.

Anderson commented that the tendency for packers to overpay for fed cattle continues to pressure bids for feeder cattle as there are fewer to be sold.

Unlike their live cattle compatriots, feeder cattle futures advanced at a respectable rate last week. The January contract gained $1.53 to close Thursday with $169.15. The March contract was more conservative in its increases with a close of $168.83, 73 cents above the prior-Friday close. — Kerry Halladay, WLJ Editor

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