Live futures a battleground

Mar 14, 2014

Things slowed down in the cash fed cattle markets last week. By Thursday afternoon, barely 3,000 head had been confirmed sold. Though the volumes were too low to name it the price for the week, the steers that sold graded 80 percent Choice or greater and went for $148 live. This followed lackluster bidding activity throughout the week.

The bulk of the trade was clearly put off until Friday. Analysts hypothesized that packers were holding their collective purchasing breaths, hoping live cattle futures might move lower and prompt cattle feeders to accept lower bids late in the week.

Futures hadn’t done much as of Thursday’s settlement. Over the course of the week, both near-term contracts traded mostly sideways with a slight upward incline. The April contract gained all of 37 cents at $143.62 compared to the prior Friday close, and the June contract gained $1 to settle at $136.87.

“Well, the battle continues in the cattle futures,” announced Troy Vetterkind, of Vetterkind Cattle Brokerage on Thursday. “The market managed to settle higher yesterday but after the early rally and once April got into $144 resistance, the market literally quit trading for the rest of the day. We’re kind of in a tricky area right here.”

He pointed out that while the April contract has been sluggish since the rally, then immediate downward reversal seen in the week of March 3-7, the June contract has fared better. He pronounced April’s resistance level at $144 and support at $142.50; eclipse the former and the market would reverse the downward trend of the first month of March, or take out the latter and confirm the downward action. He called this second option trouble for the markets.

“The reversals in deferred month live cattle (i.e., June forward) weren’t quite as ominous as in April as June forward live cattle managed to come back and close above the previous day’s low [seen on March 5]. Nonetheless, they were reversals on heavy volume and technically they look pretty ugly on the charts so I still don’t know if we can come back and take them out near term.”

Markets were at least looking up for the beef markets. Product values and spot beef prices for several classes of cuts were up as continued restricted production weeks and warmer weather—i.e,. improved grilling interest—converged favorably for packers. Over the course of the week, the Choice cutout rose $5.28 to $241.30 on Thursday afternoon. The Select cutout gained $4 to settle Thursday with $236.87.

“Product values have continued to advance and holding the trend better than expected,” commented Andrew Gottschalk of Hedgers Edge last Wednesday. “That said, March is normally the weakest beef demand month of the year. There is little reason to believe this year will differ as retailers advance their prices to reflect cutout values.”

But cut-specific prices have improved recently. Middle meats and grilling cuts have seen greater demand as the country has seen some blue skies and T- shirt temperatures.

“Warmer weather throughout much of the country has prompted some buyers to begin securing a portion of their spring middle meat needs and this is expected to be a feature of the market going forward,” explained Vetterkind. “Ribs and loins are expected to carry the cutout for a while now but if discounts continue to show up in the end meats, the strong gains we’ve seen the last several sessions may start to level off. That said, overall strong gains in the trim markets and thin meats going into the grind are expected to keep cutouts from falling out of bed.”

He noted that chuck and round cuts have seen some discounting, both due to the passing of stewing/roasting weather and some “cooling” of ground beef markets.

Beef demand might be historically lowest in March, but the misfortunes of the pork industry have been working out well for beef at the retail meat case.

“Beef prices have benefited from the sharp advance in the pork cutout,” reported Gottschalk. “Any weakness there could quickly translate into pressure on beef price also. On a positive note the advance in beef cutout values has put packer margins in the black. This could result in some gain in weekly production levels next week.”

The past few weeks have been projected in the 550,000 head area. Last week was estimated as a 550,000- 557,000 head production week, with the prior week having similar estimates yet coming in at 548,000. As mentioned, packers went from an estimated $1 per head loss last Monday to a $25 per head gain by Thursday. Feeder cattle

Many sales saw larger volumes of offered cattle last week and prices remained strong. Though some auctions quoted some classes of cattle down a few dollars, prices for benchmark medium and large 1-class (#1) steers in the 700-pound range were strongly in the $170s area, with more prices in the $180s than in the $160s compared to recent weeks. Slaughter cows and bulls, where quoted, were in strong demand.

California: At the Escalon Livestock Market, #1 beef steers weighing between 600-800 lbs. sold for $145-185, a $5 increase in the lower end of the range from the prior week. By comparison, Holstein steers in the same weight range sold at $100-120, steady with the prior week. The Turlock Livestock Auction Market again had no 7-weight #1 beef steers to quote, but saw the range for 7-weight Holstein steers tighten up to $82-115 compared with the prior week’s $78-118.

Colorado: The La Junta Livestock Commission Company sold very few cattle last week compared with usual sales. At 311 receipts, volumes were too light for market trends, plus the supply consisted mostly of slaughter cows. Breaker cows averaged $104-106 while Boner cows brought an average of $104- 108.

Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City collected over 7,200 receipts, far more than the prior sale, which made comparisons difficult. For comparable offerings, steers between 600-750 lbs. were called firm, 750-900 lbs. down $2-3, and heavier steers steady to up $2. Heifers of similar weights were steady to down $3. Calves were too lightly tested to offer a trend, but were described as having an “extremely higher undertone.” The #1, 7-weight yearling steers sold ranged from a weighted average of $167.35- 178.93.

Nebraska: The Bassett Livestock Auction collected about a third of its usual receipt volume last week, making trends impossible to judge. That said, demand was called very good for all offered cattle, of which 61 were steers. Thirty-two head of #1 yearling steers averaging 727 lbs. sold for $183.98, while heavier steers sold for $177.75. In the Huss Platte Valley Auction, receipts were up compared to the prior sale, which again made trends difficult. Steers were generally called steady to up $5, with heifers called unevenly steady. Seven-weight, #1 yearling steers sold between $178.87-186.94.

Oklahoma: At the OKC West-El Reno Livestock Market, receipts were more than double what they had been the prior week. Feeder steers were noted as steady to $2 lower with best prices for grazing-worthy cattle. Heifers were $1-3 lower while calves were too lightly tested for a trend. A large volume of #1, 7-weight steers were sold, ranging from $163 for a small package of fleshy, 798-pound yearlings, to $176.27 for a large collection of steers averaging 730 lbs. Meanwhile, at the Union Livestock Market, receipts were over three times what they had been the week before. Steer calves were called up $5-9 on the prior week’s light test, heifer calves up $3-8. Slaughter cows were up $5-13 and slaughter bulls up $9 on good demand. Few benchmark steers were recorded sold, but those that did in the #1, 7-weight class sold solidly in the low $170s.

Washington: The Stockland Livestock Auction in Davenport could not offer trends due to the very light receipts in the prior week’s sale though a higher undertone was noted in all classes offered. Slaughter cows made up almost half of the offering. There were no #1 steers reported sold, but there were a scant few in the medium and large 1-2 class in the 7-weight category which ranged from $162-171.

Wyoming: Cattle sold in slightly lower volumes at the Riverton Livestock Auction’s special cow sale last week. Slaughter cows were called steady to up $2 and slaughter bulls up $1-4. Buyer attendance for the bred cow portion of the sale, which represented 64 percent of the offering, was high. Breaker cows averaged $85-90 while Boner cows fetched $85-93. The Torrington Livestock Commission sold feeder steers under 800 lbs. $2-7 higher than the prior sale, while heifers sold $2-6 higher. Heavier feeders sold steady to up $2. Sevenweight, #1 yearling steers sold between $177.40- 188.17.

Like cash feeders, nearterm feeder futures did well last week. Over the course of the week, the March feeder cattle contract advanced $1.60 to close Thursday at $173.97. The April feeders did even better, gaining $2.27 to close with $175.92. Vetterkind noted that if feeder futures keep this trend up, they will take out the next set of resistance and set new resistance levels in the $180s.

“Whether we do that right away or not is yet to be seen. I think a lot would have to do with what happens near term in the live cattle market. Regardless, there is nothing yet to indicate that a high has been printed in the feeder market, although I don’t know if I would want to be overly long right here.” — Kerry Halladay, WLJ Editor