And up we go (again)! Packers took the steer by the proverbial horns last week in the cash markets. They were apparently undaunted by their $100-perhead losses as they bid up the price of cash cattle to $150-152 live and $240-242 dressed mid-week. By Thursday afternoon at the close of trade, over 100,000 head had been reported sold on the cash markets for the week. Live steers of all grades went for an average of $151.23 and dressed at $240.06.
Andrew Gottschalk of Hedgers Edge characterized the sharp rally—$4-5 higher in live cattle and $7-10 higher in dressed cattle compared to the prior week’s prices—as the Wild-Wild West show and Troy Vetterkind of Vetterkind Cattle Brokerage painted a similar picture, describing packers as fighting among themselves to get the cattle they need. Vetterkind described the sharp rally in the cash market as the result of tight showlists, the run-up in live cattle futures, and the need to fill export orders and domestic demand for ground beef.
The February live contract apparently decided to go out with a bang last week. The Thursdayafternoon settle of $150.05 was $5.50 higher than its prior-Friday close. The February contract left the board last Friday. The other near-term contracts also gained handily last week, though not to the extremes of the February contract. The March contract gained $3 over the course of the week to settle Thursday at $144.45, and the June contract gained $1.47 to settle at $134.20.
“The next objective for April live cattle is $146.50, however a solid trade above that would open the door for final price counts to $152,” noted Vetterkind, Thursday. “Funds look to still be putting on length in all the meat markets with new contract highs in all live cattle, feeder cattle, and lean hogs yesterday. So nothing bearish there and uptrends are fully intact for the time being.”
The way Vetterkind described it, the rally in the cash fed markets and the futures markets were circularly self-fulfilling prophecies. The futures market anticipated higher cash prices due to production cuts and went higher. Seeing the futures go higher, the cash market went higher as participants hoped to get cattle before the futures charged up too far. Live cattle futures trade volume was notably higher than it has been in the recent past.
As mentioned, packers have been deeply in the red and hoping that cutting kill rates will help get them profitable again. Last week was estimated at 540,000- 545,000 head, following the prior week which was 539,000 head. While this is moving one side of the equation—cutout values—Gottschalk had a cautionary tone about its potential longer term impact.
“An industry that must constantly shrink supply to raise price is on a collision course with itself,” he warned after noting that beef’s market share on the domestic side “has eroded approximately 0.7 percent per year since 1976.”
The effort to cut kills and possibly regain profitability has worked for one of packers’ immediate goals, whatever the long-term effects are; the pendulum on cutout values has swung back into an upward direction. After closing the previous week with a Choice cutout of $213.75 and a Select cutout of $210.88, last Thursday saw those numbers up around $8; Choice closed Thursday at $221.41 and Select had $219.
Gottschalk opined that the Choice cutout would advance beyond $227 this week, which would blow past many of his warnings about retail prices.
“Be reminded that the latest average retail beef price of $5.25 can only support a $144 cash price and a cutout at $215,” he said, projecting a quickly forthcoming surge in retail beef prices. “Cattle at $150 will eventually necessitate an average retail beef price of $5.50 per pound, up an additional $0.25 per pound from the most recent price.”
He asserted forebodingly that consumers ultimately pick market winners and losers. “Beef has been losing this battle domestically and worldwide.”
In the feeder cattle sale barns of the Southern Plains and Corn Belt, feeder steers were mostly lower than the prior weeks while steer calves and heifers were mostly up. In Iowa, there was a noted demand for quality calves, which saw the higher extremes in prices, but steers were otherwise depressed in prices around the high-$160s to low-$170s area for 7-weight, medium and 1-class (#1) steers.
In Kansas’ sales, steers were lower with interest placed in heifers. Prices for #1 steers in the 700-pound range were anything from $157-182, but most were in the low-$170s. Nebraska was the one state that had sales reporting significant increases in almost all classes, noting instances of up $10 on quality steers and steer calves, and up $12 for heifers. Prices for #1, 7-weight steers were solidly in the mid-$170s. Oklahoma’s sales reported steers down with the exception of calves, which were only up a few dollars. The few #1, 7-weight steers sold in the low-$160s.
“Spring fever is quickly approaching, which should lend additional support to calves and stockers,” said Gottschalk about the near future of the cash feeder market. “The supply side of feeders and calves remains very positive long-term. The outlook for the cow/calf producers is positive for thenext two years.”
Feeder futures did very well for themselves last week, even if they were again overshadowed by their live cattle counterparts. The March contract gained $1.13 over the week to settle Thursday at $171.83 and the April contract gained $2.20 to settle at $173.40.
“March feeders still have price counts to $175 and above that $188, but would certainly look for $175 to be hit in the coming days,” opined Vetterkind.
Some of the movement in the near-term feeder cattle futures was credited to the surge in live cattle, but it is uncertain how much continuing upward motion in live and cash fed will carry over to the feeder futures market. — Kerry Halladay, WLJ Editor