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Monday, March 31, 2014

Cash and live futures rally strong mid-week

by Kerry Halladay, Associate Editor

It is such an alien thing to report these days, but cash fed cattle trade was wrapping up Wednesday last week, with the prices paid surprising even bullish analysts. Live cattle went for $150-154, with most volume in the $152-154 area—up $4 in the Southern Plains and steady to up $1 in the Corn Belt—and $242-245 dressed.

Steve Meyer and Len Steiner of CME’s Daily Livestock Report described it as packers aggressively wanting to own cattle as demand for middle meats and exports picks up and product values have stubbornly resisted declines. According to the most recent estimate from Andrew Gottschalk at Hedgers Edge, packers are currently flirting with the possibility of breakevens. The fact product values haven’t declined as much as anticipated has helped keep black ink in tantalizing reach.

Gottschalk noted that product values have proved resilient to downward pressures but still asserted values have topped and will trend lower, particularly in mid- April.

“Our initial downside objective is $230 followed by $225.”

Over the course of last week, the Choice cutout only lost 91 cents with a Thursday value estimate of $239.25. Select wasn’t so tenacious and lost $2.45 to see Thursday afternoon at $231.21. The declining demand for ground—and the subsequent need for price cuts in end and thin meats—is being mostly offset by domestic interest turning to middle meats and export activity.

Keeping production rates at bay has also helped and indications suggest the strategy will continue. Last week was estimated as a 575,000 head production week, steady with the prior week’s production rate. The week had seen a higher estimate earlier in the week.

“The reduction will lend some modest support and will help to slow any decline in product values,” said Gottschalk.

Domestic demand is still a large question mark, given that retail prices still do not reflect the highs in wholesale beef prices. In the past few months, pork margins were said to be “subsidizing” this disconnect in beef prices. But that is likely to end, given the high prices and issues facing pork.

“The uncertainty over the total pork production will also limit retailers from relaxing retail pork prices. To the contrary, they will advance prices. Chicken is at a bargain price versus pork and beef and will capture consumer dollars and market share as retailers advance beef and pork prices,” warned Gottschalk.

Troy Vetterkind of Vetterkind Cattle Brokerage, however, predicted that beef demand—at least from a retailer point of view—will remain firm in the near term as retailers procure beef for the grilling season.

The gains in cash had a positive effect on futures. Over the course of last week (Mar. 21-27), the April live cattle contract gained $2.48 with a close last Thursday of $146.48. The June contract was right up there too with a weekly gain of $2.41 with a close of $138.53. Close, but more deferred contracts had similar gains.

“Cattle futures settled higher across the board yesterday in response to strong cash in both the fat and feeder market,” reported Vetterkind last Thursday. “Fat cattle once again failed to take out the reversal highs from last week but feeders did. The live cattle futures market still feels like it is running into long liquidation on rally attempts since last week in anticipation of increased fed cattle supplies down the road. Whether this is right or wrong is yet to be seen.”

Feeder cattle

Feeder cattle keep inching up and up. Prices in the $180 area for medium and large 1-class (#1), 7-weight steers are getting more and more common. With these improving prices, there’s word that cattle feeders are actually making money again.

Colorado: At the La Junta Livestock Commission Company Inc., receipt volumes were recovering after the prior week’s precipitous drop. Despite the extreme differences in volumes, feeder steers and heifers between 400-700 lbs. were called up $5-8 with instances of up $10. Lighter weights were steady and heavier weights were steady to up $3. Slightly more than 120 head of 7-weight, #1 yearling steers sold in the $176-177 region.

Iowa: No comparisons were offered in the most recent weekly collected report on Iowa’s feeder auctions, but over 7,600 receipts were collected. Yearling #1, 7-weight steers sold in a tight mid- $180s range. Outliers in the class were a batch of fleshy yearlings that went for $158.85 and a slightly larger batch of value-added yearlings that sold for $200.

Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City collected 3,491 receipts. Heavier feeders (600-1,000 lbs.) were a firmsteady to up $5 for animals in the lighter end of the range. Just over 200 head of #1 steers between 700-800 lbs. sold between $175.39- 181.25.

Nebraska: At the Huss Platte Valley Auction, an estimated 4,200 receipts were collected. Compared to the most recent prior sale, steers under 850 lbs. were up $5-10. Heavier steers were steady to up $4. Demand was called very good. Seven-weight #1 steers ran the gamut from $173.07 for some fleshy yearlings to a high of $189.92.

As mentioned, feeder futures did well last week. The March contract gained $3.53 with a Thursday settle of $178.55 and the April contract gained $4.23 to settle at $179.50.

“The feeders are the feeders and there is nothing bearish in that market,” concluded Vetterkind. “I would say that if you want to be long anything, be long the feeders, but if the fat cattle start to break down, feeders can wash out pretty quick, as well. Don’t really know what to think there.” — Kerry Halladay, WLJ Editor

 
 


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