Record cash trade; $143.74 live, $228.60 dressed

Markets
Jan 20, 2014

—Cutout values also rocketing upwards; Choice $228.79, Select $225.51

Astounded. Surprised. Flabbergasted. Bewildered. Shocked.

Whatever word you like, it applied to the cash cattle and beef market last week where record after record was set, eclipsed, and reset.

By Thursday afternoon, sale volumes had advanced to a whopping 91,702 head traded for the week, with prices advancing a full $2 live and as much as $5 dressed, compared to Wednesday’s respectable numbers, let alone the prior week’s.

While cattle sold for $141-142 live in the South Plains, and $140- 142 live/$225-228 dressed in the Corn Belt—$1-2 higher live and fully $4-7 higher dressed than the prior week—by close of trade Thursday those prices had advanced to as high as $144.50 live (all grade steer average of $143.74) and dressed prices as high as $230 (all grade steer average of $228.60). These prices compared to the average Choice fed steers price of $122.77 and the average dressed steers price of $196.33 from the same week last year.

Troy Vetterkind of Vetterkind Cattle Brokerage classified the price movement last week as “Another round of record high cattle prices backed up by record high boxed beef prices that justify the packer paying up for cattle.”

The record-setting cattle prices were not without words of caution. Early last week, Andrew Gottschalk of Hedgers Edge noted that a rapid rebound in the postholiday market is a two to three week event.

“Last week [Jan. 6-10] was the third week of rapid price gain. Caution is the word going forward.”

Cash fed cattle prices weren’t the only things to see record prices last week. The cutout too saw prices for Choice and Select break through previously-stated resistance levels and set new records.

From the prior Friday to last Thursday, Choice product gained $13.81 with a Thursday close of $228.79. Select gained $13.93 over that time frame with a close of $225.51. For Select, the price represented the second week in a row of record Select prices.

“Product values continue to advance as retailers seek to fill their inventories postholiday,” reported Gottschalk. “The type of price action we are seeing often comes to an abrupt halt once pipeline inventory levels are gathered. The staying ability of these prices will ultimately be determined by the retailer and consumer. They have not voted at this time but it is certain they will.”

Record cutout values mean high cut-specific prices.

“Cash beef prices moved into new record all-time highs again yesterday prompted by tight near-term supplies of beef, short bought buyers, and record high live cattle prices,” reported Vetterkind. He noted that chucks, rounds, ground beef, and trim prices led the charge higher late last week, though prices firmed for rib cuts, as well.

“There seems to be a sense of urgency to get some product coverage for spot delivery, but that urgency seems to fade going out 20 days.” He opined that this urgency should continue to support cutout prices in the nearterm, but that the recent gains will likely “level off” this week.

Steve Meyer and Len Steiner of the CME Daily Livestock Report said their— and many other analysts’— perspectives on the current beef market have been ones of surprised expectations.

“We told you this stuff was going to get expensive! We know of hardly anyone, though, that thought it was going to get expensive in January! What happened to the post-holiday doldrums?” They, and others, pointed out that both supply and demand have shared responsibility in the current recordsetting prices.

“The fact that there aren’t as many cattle available should not be news to anyone,” they said, before launching into a history lesson of recent supply. They pointed out that the placement months represented by cattle currently entering the meat market (June, July and August of 2013) were all below the year prior. In the cases of July and August, placements were over 10 percent less than the prior year’s months.

Though these cattle have not yet reached the marketplace, placements during September and October were up 1 and 10 percent, respectively, (compared to a prior year that saw unusually low September and October placements), but November placements were down 3 percent. Placements during December have not yet been released, but will be included in the January Cattle on Feed report, due for release this Friday.

Meyer and Steiner noted that, based on actual weekly slaughter data, steer and heifer slaughter for December (most recent data) was down 2 percent compared to last year. During the same time, cow slaughter was down 22 percent compared to the same time last year. They concluded that, while cow beef doesn’t have a direct impact on the graded beef cutout, sometimes “beef is beef and less beef is less beef.”

The demand side of the equation that produced the boom prices is one of concern and extensive speculation as it is both the linchpin to the whole market, and one of the hardest elements to gauge.

Analysts across the board prophesized the testing of demand as prices continue skyward.

“The risk facing the beef sector now is the response of retailers as their margins are minimized when wholesale values advance,” said Gottschalk. “This concern is exacerbated because February is generally a ‘pork’ month. Will retailers continue to subsidize beef with their pork margin? The latter action remains a possibility and will need to be monitored closely in the coming weeks.”

For more information on demand projections, see the story, “A preview of things to come,” on the front page.

Beef prices weren’t the only things to see a massive boost in the rocketing cash fed cattle prices. Live cattle futures also got a good shot in the arm which propelled them through previously set resistance levels.

“Cattle futures finally got into new contract highs in the Feb and April contracts yesterday on the strong cash markets,” said Vetterkind on Thursday.

By close of trade on Thursday, both of the near-term futures contracts gained into the multiple dollars. The February contract gained $3.18 with a Thursday close of $140.15, while the April contract gained $2.26 with a close of $139.23.

“Until we start to see some sort of weakness in that spread or Feb live closes back below $140, the market is open to the topside,” opined Vetterkind.

Feeder cattle

Gottschalk was a soothsayer early last week, predicting Monday that additional gains were likely in the feeder cattle market compared to the advances seen the prior week. And that did indeed occur, with nary an auction reporting lower prices on anything. The tight supplies of feeder cattle and the prospect of good wheat grazing now, or spring/summer grazing later have feeders wanting cattle. Supplies of medium and large 1-class (#1) steers seemed neither to have increased or decreased, but prices were mostly in the mid-$170s, with ranges widening to $149-196.50 across the surveyed auctions.

Colorado: At the La Junta Livestock Commission Company, 2,345 receipts were collected last week compared to only 712 the prior week. Steers under 600 lbs. sold up $5-8 with instances of up $10. Other steers were mostly steady. Heifers under 500 lbs. were also up $5-8, while heavier heifers were steady to up $2. A group of 32 715-pound #1 steers sold for $170.

Iowa: In Bloomfield’s Iowa Feeder Cattle Auction, just over 1,300 receipts were collected. This was down a bit from both the prior week and a year ago when volumes ran in the 1,800 receipts area. Peewee steer calves on limited offerings fetched as much as $12 higher, mid-weights were up $4- 7, and benchmark 7-weight steers were steady. Most heifer offerings were steady. Trade was called active on good demand. All of the receipts on #1 7-weight steers were calves. Offerings on the lighter end of the scale brought $176.16 while those on the heavier end brought $164.

Kansas: In Dodge City’s Winter Livestock Feeder Cattle Auction, 5,601 receipts were collected compared with the prior year’s 4,124. Heavyweight feeders of both sexes were steady to weak on the heaviest animals, while everything 700 lbs. and under were firmsteady to up $5, with instances of up $8-12. Several hundred #1 steers in the 700-pound range sold with prices ranging from $160.24 on some 724-pound calves, to $177.09 for some thinfleshed yearlings averaging 717 lbs.

Montana: The Public Auction Yards of Billings saw only 612 sales, so no trend was offered. That said, higher undertones were noted and demand was called good for all classes of cattle. Ten head of 756-pounds #1 yearlings sold for $169.

Nebraska: Close to 10,000 head sold in Nebraska last week, between the Bassett Livestock Auction and the Huss Platte Valley Auction. Most steers sold steady at the worst and most sold up as much as $11-15 with the exception of fullfleshed heavyweights which were steady to $3 lower. Heifers were lightly tested. Calves suitable for turnout on grass, as well as backgrounded/preconditioned calves from reputation operations, saw excellent demand. Prices ran the gamut of $162 for 790-pound fleshy #1 yearlings to $196.50 for fancy, 700-pound #1 yearlings.

New Mexico: At the Clovis Livestock Auction almost 2,700 receipts were collected with feeders over 600 lbs. bringing $3-5 more than the prior week. Trade was called active and demand was good to very good. Of the #1 7-weight steer sales reported, both yearlings and calves brought mid- to upper-$160s.

Oklahoma: The OKC West-El Reno Livestock Auction almost saw 8,000 receipts last week, compared to the prior year of 5,567. Feeder steers and both sexes of calves were relatively lukewarm with steady to up $1 prices. Heifers on the other hand were up $2-4. Demand was called moderate to good for all classes on average to attractive quality. Prices for 7-weight #1 yearling steers ranged from the upper-$160s to the lower- $170s.

Washington: The Stockland Livestock Auction in Davenport saw almost double its year-ago receipts last week with 735 receipts. Stockers and feeders were called $5-6 higher compared to the prior sale with active, demanding trade on the attractive offering. Standard #1 7-weight yearlings sold solidly in the mid-160s while small groups of full-fleshed yearlings ranged from $149-155.

Wyoming: The Torrington Livestock Commission Co. collected 6,225 receipts last week, compared to 4,500 the week before. Steers under 700 lbs. sold for $3-7 higher, with instances of up $10 on 5-weight steers. Over 700 lbs. saw prices up only $1-2. Heifers saw similar weightto-price breakdowns with the exception of peewee heifers selling for $10-12 higher.

Prices for #1 steers in the 700-pound range went from $169.53 for 86 head of 774-pound steers to $176.77 for 234 head of 731-pound steers.

The near-term feeder futures were once again slow to join the party of sharp gains. Over the course of the week, the January contract gained $1.15 to settle Thursday at $169.80 and the March contract advanced only 60 cents to $168.25.

“March feeders are taking aim on recent highs of $169.50 and I would think we need to see a close above that to keep the topside open to $175,” opined Vetterkind on Thursday. “Hedgers, I continue to believe this is the rally you want to scale up and sell into for spring and summer cattle inventory as this near-term squeeze in cattle pricing likely resolves itself in 30 days.”

Meat, hay production

As mentioned on the cover of this week’s WLJ, both the most recent World Agricultural Supply and Demand Estimates (WASDE) report and the Annual Crop Production report were released on Jan. 10. The WASDE report projected increases across the board for beef production, trade, and availability. Overall hay production was up in all ways— acres harvested, production, and yield—compared to 2012, showing the wages of declining drought.

Beginning stocks of beef for 2014 were increased from 550 million pounds (mp) to 595 mp in the most recent WASDE. This came on the heels of increased production in the last stretch of 2013. Production estimates for 2014 were increased by 12 mp to 24.4 billion pounds (bp), again on the late-2013 established production rates. Despite the increase compared to the prior WASDE, 24.4 bp is still down significantly from the estimated 25.8 bp of 2013 and the known 25.99 bp of 2012.

By comparison, production projections for pork declined to 23.6 bp, due in part to the growing idea of increased impact from the Porcine Epidemic Diarrhea virus. Chicken production estimates stayed steady at 38.48 bp.

Both forms of trade in the beef world increased, but beef still maintained its position as a net exporter in the minds of USDA. Beef import expectations grew to 2.29 bp, up 20 mp from the prior report. Export projections in the meantime grew by 25 mp to 2.34 bp. There were no changes made to the trade expectations for pork and chicken in 2014. Pork imports are expected at 880 mp, exports at 5.18 bp, and chicken imports are anticipated at 112 mp with exports at 7.55 bp.

Hay production in 2013 gave a hopeful glimpse of recovery after some of the worst drought seen in decades. Compared to 2012, 2013 saw a 3.55 percent increase in all hay (alfalfa plus other hay) acres to 58.26 million acres. This was compared to 2012’s 56.26 million acres and 2011’s 55.65 million acres.

Yields increased by 9.39 percent to an average of 2.33 tons of hay per acre. Despite this increase compared to 2012, the 2.33 tons/acre yield is on par with the 2011 yield average of 2.36 tons/acre. Arizona saw the best hay yields at 7.65 tons/acre, though Arizona didn’t grow many acres of hay. Among states growing 1 million or more acres of hay, California saw the best yield with 5.53 tons/acre. The lowest yields were seen in Maine, with 1.46 tons/acre, and among the states growing more than 1 million acres, the lowest yield was 1.57 tons/acre in Texas.

Overall production by tons was up 13.4 percent to 135.95 million tons. Again, though it was up compared to 2012, the production volume was similar to 2011’s 131.22 million tons. Despite its poor yields, Texas grew the most hay with 8.88 million tons produced in the state. Missouri produced 7.98 million tons and California was a close third with 7.96 million tons. — Kerry Halladay, WLJ Editor

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