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Monday, August 18, 2014

Down, down they go

by Kerry Halladay, Associate Editor

The cash fed trade developed earlier last week than usual, though the prices left a lot to be desired from the cattle feeders’ perspective. Tuesday saw a surprising number of cattle trade in the Corn Belt at $154-155 live and $245-248 dressed. This was lower than the prior week’s cash trade, which was itself lower than the week before that.

“Whether we can see some stabilization in the cash cattle market next week is yet to be seen,” said Troy Vetterkind of Vetterkind Cattle Brokerage last Thursday morning. “Packers will have some inventory around them after this week’s buy and a lot will depend on what kind of Labor Day beef orders they get to determine if we can see the market hold steady. My ideas earlier were that we could see both the beef and the cattle stabilize a week or two going into Labor Day but that doesn’t necessarily have to happen. Regardless, we have probably put in a high in the cash fed cattle market for a while.”

By Thursday afternoon, over 77,000 head of cattle had traded with prices ranging from $153-156 live and $241-244 dressed.

Beef prices declined last week as well as cash fed prices. Over the course of the week, the Choice cutout lost $3.71 to close Thursday at $256.74, and the Select cutout lost $4.43 to close at $248.57. This was called an overdue correction by Vetterkind early in the week.

“Product values are succumbing to additional selling pressure with the first level of support at $250 basis Choice values,” he said.

Demand for ground beef formulations, and beef for grinding, is still trudging along, but it can no longer hold up the entire value of the carcass. Some of the rumored imports of boneless beef from Oceania have begun arriving and that turned the boneless beef market mixed and lowered prices on imports. Despite this, the continuing demand for ground can be attributed to the upcoming Labor Day weekend.

Overall domestic beef demand has been understandably slowing as the high prices of retail beef have combined with other financial needs to redirect consumers’ protein dollars. Citing back-to-school needs taking priority with consumer pocketbooks, Andrew Gottschalk of Hedgers Edge had this to say:

“[Boneless/skinless] chicken breasts drew more interest, generally leading the sales parade. Seasonal interest in fresh veggies and cold cuts also drew consumer dollars, as red meat sticker shock from the past weeks’ price increases pushed them in other directions. This trade-off in consumer activity waved some warning to the previously redhot livestock markets.”

Export demand might not be there to catch the falling markets this time, either.

For last week, net export sales of 9,400 metric tons of beef represented a 21 percent decline from the prior week, and a 23 percent decline from the prior four-week average. And the mess with Russia’s food bans might actually have an impact on U.S. beef trade after all. Steve Meyer and Len Steiner of the CME Daily Livestock Report pointed out that in the past when Russia closed the door to U.S. beef, another door presented itself. That might not be the case this time.

“The backdoor entry to the Russian market is closed. That back door, of course, was Ukraine whose imports of U.S. meat and poultry have, over the past few years, surged every time Russia limited imports. No one believes it is at all coincidental that Ukrainian consumers increase their apparent consumption of imported meat and poultry at the same time Russia blocked those shipments but given the strife between the two countries, that is not at all likely to happen this time. The question is whether another back door will be found. This action appears to be large enough to impact Russian food prices, creating plenty of incentive to get product into the country through another conduit. Some of the former Soviet republics are still significant food suppliers to Russia with Belarus being listed in one story last week as the largest single one. We’re pretty confident that some creative businesspeople are investigating such possibilities already. It might be wise to observe exports to Russia’s neighbors as this situation plays out.”

When demand declines, the only other option to hold up prices is supply restrictions. Production rates have been kept low lately, with analysts estimating production to be below 575,000 head for last week, following the prior week’s 573,000 head rate. Gottschalk noted that such a pace is “insufficient to keep this industry ‘current.’” As with the cash fed cattle and beef markets, futures continued to fall last week, continuing the decline begun the week before. Over the course of last week, sizeable daily gains and losses in the near-term futures resulted in a weekly loss of $2.55 for the August contract, which settled Thursday at $150, while the October contract settled at $147.35, a loss of $2.65.

“Lower beef markets, lower cash pork markets, and just a general break in bullish psychology is all combining to break down the cattle bull market near term. All of this has led to a break in the cash cattle market and while we did see a nice little pop in the futures last night on the open on some hedge lifting and short covering, the market has given up almost all of those gains coming into this morning,” reported Vetterkind Thursday. Gottschalk had often called the futures market “oversold” last week, suggesting that some stabilization may be coming.

Feeder cattle

“The cash feeder cattle market isn’t falling apart by any means, but a softer undertone has developed as feedlot buyers react to the lower cash fed cattle market and the break in the futures market,” explained Vetterkind Wednesday.

As with other areas of the cattle complex, feeder cattle were generally down. Benchmark medium and large 1-class (#1) steers in the 700-800 lbs. range were still mostly over the $200 mark, but there were more instances of them dipping into the upper $190s than in past weeks.

Kansas: At the Winter Livestock Feeder Cattle Auction, receipts were very limited compared to past sales, making a trend impossible to determine. That said, an “extremely lower undertone” was noted. The roughly four dozen head of #1, 7-weight steers that sold ranged between $211.75-218.

Missouri: At the Joplin Regional Stockyards 3,134 receipts were collected, compared to 5,119 the week before. Despite the lighter volume, feeder steers and heifers were called mostly steady. For the modest offering of #1, 7-weight steers, prices ranged from $207 for fleshy yearlings to $236.

Nebraska: The Bassett Livestock Auction collected 2,130 receipts, but had nothing recent to compare them to, making trends impossible. Demand was described as very good for all offerings and especially the reputation Sandhillraised feeder cattle. Benchmark steers sold between $224.50-248.50.

New Mexico: The Clovis Livestock Auction sold feeder steers $1-5 lower except for a few choice weight classes (500-550 lbs. and 700-750 lbs.) which sold up $2. Light weight heifers sold down $8-10, with heavier heifers down just $1. The 104 head of average 735 lbs. #1 steers sold for an average of $214.95. At the Cattleman’s Livestock Auction, steers were unevenly steady to down $2, while heifers were steady. Only four #1, 7-weight cattle sold between $195-205.

Oklahoma: At the Oklahoma National Stockyards, feeder steers and heifers weighing under 800 lbs. were down $6-10 while heavier feeders were down $2-5. Calves of both sexes were down $10-20 on a light test. Benchmark steers sold between $210- 226.50. At the El Reno sale, receipt volumes were half of what they were the week before. Despite that, feeder steers were said to be down $8-10 and heifers were down $5-10; calves were too lightly tested for a trend. Prices ranged from $190- 225 with calves setting the base.

South Dakota: At the Hub City Livestock Auction, 1,780 receipts were collected. There was no sale the prior week, so no comparisons were given. The roughly half load of #1, 7-weight steers that sold ranged from $235.50- 241.50.

Texas: At the San Angelo Cattle Auction, receipts were slightly down from the prior sale, but volumes were still good enough for trends. Feeders were called $5-10 down with trading and demand called moderate. Prices for #1, 7-weight cattle ranged from $196 for fleshy yearlings up to $218 for light weight yearlings.

Utah: At the Producers Livestock Auction of Salina, feeder steers and heifers were called down $6-8. Benchmark steers fetched between $197-203.

Out of everything last week, the feeder futures held up the best, considering. Over the course of the week, the August feeder contract only lost 19 cents to settle Thursday at $215.13. The September contract was a bit weaker at $213.05, a weekly loss of $1.67.

“All these front month feeder cattle contracts holding above $210 is positive near term,” noted Vetterkind. “That said, I think the market is going to have all sorts of problems back at $220. Bull markets do die hard and once we get through this round of fund liquidation we are going to get some rallies in both live and feeder cattle, but it is my strong opinion that these are the rallies you need to be patient with and do bearish things with options.” — Kerry Halladay, WLJ Editor

 
 


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