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Monday, April 7, 2014

Feeders leave fed cattle in the dust

by Kerry Halladay, Associate Editor

The cash fed cattle trade decided to play an opposite day prank for the week of April Fools. Compared to the prior week, where the bulk of a very large weekly cash fed trade took place early in the week for surprisingly higher money, last week was sluggish, inactive, and what few trades did occur prior to publishing were depressed. By Thursday afternoon, just over 4,500 head of fed cattle had sold for an average of $152.54 live, but the volumes were too low to be called the trend for the week.

“Showlists are uniformly larger in all feeding regions this week with noted increases in committed cattle being offered to the packer,” reported Troy Vetterkind of Vetterkind Cattle Brokerage last Wednesday.

“Packers continue to talk they have some cattle inventory around them and that they can draw on April contract/formula cattle for their near term needs, but they talked like that last week too.”

He speculated that the larger showlists, claims of having sufficient contract/formula cattle, a softening in wholesale beef markets and a lull in retail and consumer demand would put the leverage in packers’ hands. A steady to lower cash fed market compared to the prior week’s $152-154 live and $244-245 dressed was expected.

The aforementioned slowdown in the beef market has seen itself in the need for packers to offer discounts on almost all cuts.

“While packers may be killing cattle to fulfill forward booked beef orders, they are struggling to achieve any type of higher price points in the spot market now. End meats remain under pressure and now middle meats, as well as thin meats and ground beef, are in need of discounting, as well,” reported Vetterkind.

Discounting in the cut-specific market translates to decreases in the cutout values. Over the course of last week, the Choice cutout lost $2.51 to settle at $231.95. Similarly the Select cutout lost $5.93 to settle at $221.41.

“Product values remain under selling pressure with $230 our initial objective followed by $225 for the Choice cutout,” reiterated Andrew Gottschalk of Hedgers Edge. “We continue to expect a post-Easter rebound. Such a rebound often does not develop until one week following the Easter holiday. Procrastinators who have to book Memorial Day needs will chase the product to higher levels.”

Easter this year falls on April 20.

The declining cutout values are leading to mounting losses to packers. Estimates of per-head losses reached $82.50 on Thursday. This plus the softness in the markets is expected to spur packers to cut kills. Last week was expected to have a 82,000-585,000-head production rate, with the upper end of the range mirroring that of the prior week. Gottschalk, however, asserted the lower end of the range was still too high “given the current level of demand.”

Demand continues to be a problem and economic activities have the potential to continue that difficulty.

“Retailers will continue to advance prices rapidly as the most recent monthly average retail beef price will only support a $144 cash and a $214 cutout,” reported Gottschalk early in the week. He continued, saying a live fed cattle basis of $152 would require a retail beef price average of $5.58 per pound, though he also noted that demand is expected to increase roughly 6 percent in May over April.

But immediate demand faces a different potential impediment. Last week saw the release of several economic reports gauging the state of the U.S. economy, consumer confidence, and unemployment.

“The outlooks of U.S. consumers continue to trend upward with what we would characterize as some ‘continuing trepidation’ perhaps,” reported Steve Meyer and Len Steiner of CME’s Daily Livestock Report. This assessment came from the results of some of the aforementioned economic reports, specifically the Thomson Reuters/University of Michigan Index of Consumer Sentiment and The Conference Board’s Consumer Confidence Index.

Shifts in consumer confidence levels between February and March were minimal and mixed between the two reports. Despite that, Meyer and Steiner noted that the uptrend in growing—even if slow-growing— consumer confidence seems intact.

“We wouldn’t call the apparent improvement in consumer attitudes robust but the improvement since the end of the recession is still encouraging.”

Consumer confidence in the economy is an important, if somewhat indirect, element to beef demand. Improved food options such as beef are often one of the first things on which consumers spend disposable income. Lacking that disposable income, or a lack of certainty that such income will exist in the future, negatively impacts beef demand.

Live cattle futures were weak last week, with the April contract losing $1.35 from the prior Friday to last Thursday with a close of $145.15. June’s losses weren’t quite as high, but with a Thursday settle of $137.38, it lost almost $1 in the course of the week. Losses throughout the week had been larger, but strength in the feeder futures had buoyed the live futures somewhat later in the week.

Feeder cattle

“The supply side of feeders and calves remains very positive long-term,” noted Gottschalk last week. “The sharp contraction in available supplies will limit selling pressure of feeders, stockers and calves and will also limit feed yard placements in the coming months.”

Feeder auctions did indeed appear to be feeling the pinch of tight supplies. Prices for benchmark 7-weight steers in the medium and large 1-class (#1) category were decidedly in the mid- 170s to mid- to upper-$180s, with prices over $200 being seen.

People want to own feeders and as the pool shrinks, prices and competition heats up. Weather plays a role, as well.

“Some much need moisture is developing in some of the grazing areas of the Southern Plains. This will only stoke the fires for calves and stockers,” said Gottschalk.

California: At the Turlock Livestock Auction, demand was good for all classes of offered cattle. Steers weighing 700-800 lbs. sold in the range of $150-181. Holstein steers of the same weight groups sold between $90-128. At the Escalon Livestock Market, beef steers weighing between 600-800 lbs. sold between $135-185 and comparable Holstein steers sold for $100- 120.

Colorado: At the Sterling Livestock Commission Company, 1,137 receipts were collected. There was no trend quoted due to no sale the prior week. Trade was called moderate to good on very good buyer demand. A little over 100 head of #1, 7-weight steers sold from $175.55-186.50 with the upper end of the range being for value-added steers.

Iowa: Prices for benchmark steers in the Hawkeye state, known for its health price discovery, were decidedly in the upper-$170s to mid-$180s. In the Bloomfield Feeder Cattle Auction, 1,647 receipts were collected and nearly 100 head of 741-pound #1 steers sold for $185.52. The low price for the weight group brought $178.23. These prices were evident elsewhere in the state as reported in the weekly Iowa report.

Kansas: At the Winter Livestock Feeder Cattle Auction of Dodge City, volumes were a bit light at 2,685 receipts, but feeder steers were still called $2-6 higher in the heavier ranges. Calves were too lightly tested for a trend, but a higher undertone was noted. Yearling heifers ranged from steady to up $5. A large collection of 281 head of 781-pound #1 steers fetched $177.35, while three dozen 703-pound #1 steers sold at $186.25.

Nebraska: The Bassett Livestock Auction collected a whopping 4,650 receipts after a prior sale that didn’t happen. As such, no trend was offered, but demand was called high on reputation strings and good on other offerings. While most prices around the country were in the mid-$170s to mid-180s area, Prices paid for #1, 7-weight steers in the Bassett auction was spectacular. Nearly 400 head of 721-pound steers sold for $203.83. Another batch averaging 750 lbs. and noted as fancy brought $200. The lowest price paid for steers in that weight range was $188.73 for 342 head of 780-pound yearlings.

Oklahoma: The El Reno Livestock Market kept good pace with recent sales with 4,485 receipts collected with feeders steady to up $2. Calves were called steady but on few comparable sales. Prices paid for #1 yearling steers between 700-800 lbs. ranged from $176.24-181.75, and an eight-head collection of calves in the same weight group sold for $173.97. At the Union Livestock Market of McAlester, the story was a bit different. Steer calves were up $3-8 and heifer calves were up $2-7. There were too few yearlings to quote a trend, but a package of 777-pound #1 steers sold for $175.85.

As mentioned, feeder futures were stronger last week. Though gains in nearterm contracts weren’t amazing, they were still gains. The April feeder contract gained 48 cents for the week with a Thursday close of $178.83 and the May contract gained 65 cents with a Thursday close of $180.15.

“May and August feeder cattle are into resistance at $180,” reported Vetterkind. “I would think from a technical perspective we would want to see closes above that level to keep the market trending higher.” — Kerry Halladay, WLJ Editor

 
 


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