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Monday, September 1, 2014

Live futures rebound, may stabalize briefly

by Kerry Halladay, Associate Editor

The cash fed trade was slow to develop last week ahead of the Labor Day weekend, but the market movers suggested a period of price stabilization may be coming, even if short-lived.

“We could see the cash fed cattle market stabilize here for a week or two as packers do have decent processing margins and there has been some export business around they will have to kill for,” noted Troy Vetterkind of Vetterkind Cattle Brokerage.

“However, I believe we get past Labor Day and further into the month of September and the market will be dealing with increased supplies of competing proteins and heavier carcass weights. This likely resumes the recent downtrend in cash cattle prices from the historic highs posted earlier [in August].”

By Thursday afternoon, not even 4,000 head of cattle had been confirmed sold, too few to establish a market trend. Those few head that were sold went for $153 live and $243 dressed. This was on the higher end of steady from the prior week’s prices at $151-153 live and $240-243 dressed.

Andrew Gottschalk of Hedgers Edge offered a bit of cash trend history. “Basis W KS $151-152 is a key support level followed by $148. The latter level would constitute a 9.8 percent decline from the July top. In periods of tight supplies declines are generally limited to 8-10 percent.”

He also noted that fourth quarter average prices are historically above third quarter average prices.

For the first time in a while, the futures market saw a resurgence. On its last days, the August contract gained $2.80 over the course of last week, closing Thursday at $154.65. The October contract gained $3.10 over the course of the week with a good chunk of those gains coming on Thursday with its $150.10 close. The new near-term contract of December similarly grew by $2.85 to settle Thursday at $152.70.

“The futures market is oversold and once we got past the Cattle on Feed and Cold Storage reports on Friday [Aug. 22] along with ideas of no worse than steady fed cattle markets this week, I think we saw some short covering yesterday,” said Vetterkind mid-week before accurately predicting the strong gains of Thursday.

“Funds were big sellers of 11,000 live cattle contracts last week in [Aug. 22]’s commitment of traders report and given the technicals have broken down on the daily price charts; I think they are going to continue to be there to sell rallies up against overhead resistance. I think this means October live runs into problems at $149-$150 and December at $153-$154.”

Packers had the upper hand last week as they have had good margins to work with and were buying for a short kill week following Labor Day. Last week’s production rate was estimated to run 585,000-587,000 head, with this week likely challenged to hit 525,000. This lull in production may be the last one for a while.

“We can likely see the boxed beef market stabilize for a moment here this week, but I think we get past Labor Day and the market probably continues to trend lower as kills pick up and cattle weights continue to climb,” opined Vetterkind.

But beef movement over the week preceding Labor Day has exceeded expectations and helped prop up the still-declining cutout.

By the close of trade Thursday, the cutouts had fallen a few dollars a piece. The Choice cutout closed at $246.89, down $2.88 from the prior Friday. The Select cutout fell $4.39 to settle at $235.27 by Thursday afternoon.

Feeder cattle

The cash feeder markets were mixed last week, but more down than up. Still, prices for benchmark medium and large 1-class (#1) steers were almost entirely still over $200, and most to a respectable degree. Gottschalk projected that feeder receipts should begin to rise seasonally in the near future.

Internet: Though we reported on the Big Horn Classic sale hosted in Sheridan, WY, by Superior Livestock Auction last week, the sale was still in progress at the time. Now the full results are in. Over 133,000 head of stockers, feeders, and bred cattle were sold from 31 states. Yearling steers were called down $3-5 and yearling heifers were down $5-7.

Some example lots include: a batch of 390-lb. weaned southern steer calves out of Angus/Hereford/English cross cows and Angus bulls, VAC 45, NeverEver3, NHTC, for $390 for Nov./ Dec. delivery; A group of black Angus/Angus cross/ Simm. cross northern heifer calves, 385 lbs., VAC 24, $331 for October delivery; a group of NHTC, NeverEver3, 725-lb. southern yearling steers out of English/ English cross, $224 for Sept. delivery; 750-lb. English/ English cross steers for $225 for Oct. delivery.

Iowa: The combined Iowa markets were up and running last week with over 6,100 receipts collected. Seven-weight, #1 steers brought between $221-246 with the lower end set by calves and the upper end set by “fancy” yearlings.

Kansas: At the Winter Livestock Feeder Cattle Auction of Dodge City, prices and volumes were good. At nearly double the receipt volume of the prior week and with prices for feeder steers and heifers up $5-10 with instances of up $15-20 on thin-fleshed steers. Sevenweight, #1 steers fetched $218.25-220.

Missouri: The National Stockyards in Joplin sold half the number of cattle last week as the week before, but feeders were steady up to 800 lbs. then traded down $4-5 on heavier steers. Heifers were steady for yearlings and up $5 for calves. The few #1, 7-weight steers fetched between $214.50-229.

New Mexico: Volumes were down across the major New Mexican sales compared to the prior week. Where comparable sales were available, trade in feeders was called steady at best with the Cattlemen’s Livestock Auction quoting them down $2-4. Benchmark steers across the state brought between $185- 219.50.

Oklahoma: The National Stockyards of Oklahoma City were awash in cattle sales last week. Almost 5,700 receipts were collected with feeders called steady to $1 lower and calves too lightly tested for a proper trend.

At the El Reno sale, steers were called up $3-6 with heifers up $5-8. Between the two sales, benchmark steers were widely available and ranged in price from $209- 232.

South Dakota: There were a couple sales of note last week with over 3,300 receipts between them. The Mitchell Livestock Auction noted higher undertones in its light sale of steers, with #1, 7-weight feeders bringing in $225-232. The Philip Livestock Auction saw good demand for feeder cattle and a very active market. The five head of 776-lb. #1 steers it reported sold brought in an average of $230.

What at first was seen as a downward trend line below resistance levels may have been jumping the gun. Feeder futures staged an impressive comeback last week.

The August contract gained $2.43 in its last few days to settle Thursday afternoon at $218.53. The September contract was perhaps the most impressive, gaining $6.25 over the course of the week to settle at $217.15. October too gained $5.30 to settle at $214.78.

“October and November feeder cattle are dealing with some overhead resistance in this $212-214 area and while we can chop around here for the balance of the week, I still think we could have some downside risk once we get back from the long weekend,” warned Vetterkind on Wednesday. “I continue to believe we have broken down the technicals of the daily price charts and that this has turned some of the trend following accounts to the sell side of the cattle market for the near term.”

Cold Storage

In addition to the July Cattle on Feed report, the July Cold Storage report came out on Aug. 22. The Cold Storage report showed that meat (total poultry and total red meat) stores in all warehouses as of July 31 were down 12.2 percent at 2.04 billion pounds compared to July of 2013. Of that total, chicken and pork occupied a larger portion of the total—while beef’s proportion declined—even while raw volumes of all of the major proteins shrank.

For July 2014, there were 366.55 million pounds of beef in cold storage, down 20.7 percent from last year. Beef’s representation in storage declined to 39.3 percent of all red meat in storage and 17.9 percent of all meat in storage, compared to 44.7 and 19.9 percent, respectively, last year. Beef’s representation in cold storage lost ground to pork and chicken, owing in large part to packers’ efforts at matching production with demand.

Vetterkind noted that the Cold Storage report results were bearish for beef. Prereport expectations for beef in cold storage estimated 341 million pounds, lower than reality. This is bearish because it was expected that packers were moving more product than it turned out, and packers have been trying to match production with reality.

There were 529.25 million pounds of pork in cold storage by July 31, down 3 percent from the same time last year. Despite this volume decline, pork made up 56.7 percent of red meat and 25.9 percent of total meat in cold storage, up from 52.5 and 23.4 percent, respectively, last year. — Kerry Halladay, WLJ Editor

 
 


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