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Monday, July 21, 2014

Cash fed cattle surprise, move up

by Kerry Halladay, Associate Editor

The cash fed cattle market developed reasonably early contrary to expectation. The majority of the purchasing occurred on Wednesday with clean-up trade on Thursday. The prices were mostly in line with expectations, at least at the beginning. The bulk of the trade saw $154-155 prices on live cattle, down $1 from the prior week, and $244-$247 dressed, steady to up with the prior week. Prices on cattle on Thursday were $2 higher for live as live cattle futures rebounded from the most recent decline.

In the futures markets, it must be asked: Are you getting dizzy yet?

After spending the better part of the prior week in effective freefall, last week saw near-term live cattle futures muddle back and forth most of the week until Thursday. Thursday saw August settle almost limit up at $150.65, a weekly gain of $1.53. The October contract gained slightly more for the week at up $2.05 with a close of $153.70, though—like with August—all of that gain came from Thursday’s movement.

This movement comes after the live futures were in an oversold state, according to Andrew Gottschalk of Hedgers Edge. Gottschalk called this situation a rebound following the sharp correction of live cattle’s lofty heights. Troy Vetterkind of Vetterkind Cattle Brokerage cited resistance levels at $150-151 for August and $153-154 in October.

“Technically, positive closes would be above $151 in the August and $154 in the October, to where we can get some fund buying back in the market and make another run higher.”

It is unclear if the late week move upward was anything other than a “dead cat bounce”—anything will bounce upwards after a long fall, even a dead cat—or a legitimate direction change back up. Vetterkind credited it to the better-than-expected cash trade in the Corn Belt. That said, it seems likely the markets will chop up and down with fund buying then profit-taking until it finds some equilibrium from market fundamentals in the summer doldrums.

Cutout values fell last week, but not as badly as one might expect given the retail demand for beef has slacked as cautious procurers operate on a hand-to-mouth strategy. Choice lost $1.98 to close Thursday at $249.81. Select held value better at $244.24, a 60 cent decline for the week. Export demand reductions have also played a role in the declining cutout.

Despite the short-term demand problems, Gottschalk had optimistic news.

“Employment gains and wage growth are both accelerating, which will be positive toward beef demand and meat demand” he noted. “Hours worked by production workers and non-supervisory personnel are at the highest levels since 1945. Yes, the unemployment rate is high and remains unacceptably so. The vast majority of those who are working full-time, however, are earning more than ever.”

While weekend beef clearance was better than expected following the first full post-July 4 week, slacking demand for rounds, ground beef, and trim—what had been holding up values in past weeks—resulted in discounting. Cuts to production continue in an effort to match supply with demand, but caution is warranted lest a back-up in fed cattle supplies develop.

“Production last week was estimated at 576,000 head, as packers reduced production to protect their margin and to limit any sell-off in beef cutout values,” said Gottschalk early last week. “Production this week will likely be challenged to exceed 590,000 head. Several weeks of production below 600,000 does not pose any serious problem for the fed sector. However, sub- 600,000 weekly production levels should not become habitual.”

Later on in the week, the production estimate dipped to 575,000 head.

Feeder Cattle

For the first time in recent memory, prices for feeders at auction markets were said to be stagnant or declining. Offerings were small in most surveyed markets, and not even that reduced supply seemed to help prices. In several states, medium and large 1-class (#1) steers weighing between 700-800 lbs. drifted back into the $180 area. That said, most prices were still above $200 and some spectacular prices were seen in the digital auction market.

California: At the Turlock Livestock Auction Yard, the feeder market was steady with fewer offerings. Seven-weight #1 steers fetched $195-215 and were the heaviest offering in the class. At the Cattlemen’s Livestock Market in Galt, prices were also steady with benchmark steers bringing $210-230.

Internet: The most recent Superior Livestock Auction, “Week in the Rockies XXVI,” sold over 200,000 head to producers in 26 states. A collection of 425-lb. Angus/ Brangus/Charolais weaned/ preconditioned heifer calves sold at $300 for Oct. delivery. Some special—VAC 45 , NHTC—350-lb Angus/Angus-cross steer calves out of Wyoming fetched $422 for a Nov. delivery. And finally, a collection of Montana-based, preconditioned, 700-lb black yearling steers sold for $247 for September delivery.

Kansas: At the Winter Livestock Feeder Cattle Auction of Dodge City, 2,033 receipts were collected. Offers of feeders were few and far between, and were called down $2 while heifers were down $6-9. Seven-weight #1 steers sold between $208.50- 213.75.

Missouri: Things were down at the Joplin Regional Stockyards, as well. Steer calves were called down $5- 15, yearlings down $5, and all heifers were steady to down $5. Benchmark steers fetched between $200-219 with calves setting the base.

Nebraska: The most recent sale held at the Burwell Livestock Market had no comparison due to the prior holiday cancellation of the sale. A small offering of #1, 7-weight yearling steers sold between $211-225.

Oklahoma: While other sales saw declining receipts last week, The Oklahoma National Stockyards doubled its volume, collecting over 7,500 receipts. Despite that, steers were called steady to down $4 and heifers were steady. Calves had a weaker undertone but too few sales to cite a more specific trend. Benchmark steers brought between $208-222.75 with calves occupying the lower end of the range. These numbers held for the El Reno Livestock Market too, where 7-weight, #1 steers brought between $210-222.

“Offerings are likely to be limited until September, as ranchers elect to keep cattle on grass for as long as possible. The economics of extending ownership is unmistakable,” commented Gottschalk.

Feeder futures were positive but subdued. As with live cattle futures, feeders spent the better part of the week without clear direction, but made strong gains on Thursday that put them in the black for the week. The August contract gained $1.23 to settle at $211.60, while September gained 73 cents to settle at $212.35.

“Technically a positive close in the August feeders would be above $214,” said Vetterkind Thursday. He opined that if Friday could reach that level the markets could see follow-through gains but would otherwise trade sideways for a while. — Kerry Halladay, WLJ Editor

 
 


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