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Monday, April 14, 2014

Higher losses plague packers, cutout down

by Kerry Halladay, Associate Editor

Packers are bleeding out red ink again, and last week looked like the cash fed cattle market was going to wring a bit more red out of them. By close of trade Thursday afternoon, barely 5,000 head had been confirmed sold for the whole week, and then only at $150 live and average $240.33 dressed. Despite the steady to weaker prices paid compared with the prior week—which had seen strong losses compared to the week before—packer losses were estimated to be slightly over $100 per head.

Packers are again talking about cutting kills to try to recapture profitability. Compared to the prior week’s 583,000 head, production rate estimates for last week ranged from 566,000-575,000 head. But with product values in slow-motion freefall in recent weeks, dropping production rates will have to catch the dropping cutout.

Over the course of last week, Choice cutout value lost $3.74 to settle last Thursday at $225. Select product value similarly lost $3.07 to settle at $214.30. But, hope is on the horizon.

“A flush in product values is necessary before any rebound can be sustained,” reminded Andrew Gottschalk of Hedgers Edge. “A flush is likely next week ahead for the Easter holiday. We continue to expect a post-Easter rally in product values and cash cattle prices as Memorial Day pricing is completed.”

He went on to note that reduced production rates will limit selling pressure on the product values and it is the time now to focus on “signs of the turnaround.”

This demand uptick is a hopeful light on the horizon, but by definition, horizons are away in the distance. Still, it looks like beef will make it there.

“U.S. consumer level meat and poultry demand has performed well so far in 2014,” noted Steve Meyer and Len Steiner of the CME Daily Livestock Report. “The indexes for the past 12 months indicate that pork demand is quite strong while the other species have weakened slightly. But all of that weakness for beef and chicken occurred in January and indexes for both species rebounded in February.”

They also pointed out that while year-to-year growth rates in real per capita disposable incomes grew 2 percent in January and 1.4 percent in February, price increases on meat have grown far faster. Yet demand for meat, and particularly beef, remain.

“So, in spite of a seemingly unending barrage of negative news —whether deserved or not — meat preferences appear to be growing. We think renewed attention to and concern about dietary protein is a major reason for this apparent shift.”

The pair also contend that the claim that high prices will destroy demand has not yet shown up, at least not to the extent of many naysayers. Supplies have declined—which necessitates a decline in consumption—but that decline in consumption is not indicative of a decline in demand.

“Consumers can’t buy/ eat as much because there isn’t as much product available! That, however, doesn’t mean demand has changed,” they said. “If you want to argue with that, consider the opposite: Would you say demand is “created” if supply increased?” Over the course of the week, near-term live cattle contracts gained slightly. The April contract gained 95 cents over the week with a Thursday settlement of $144 while the June contract gained 40 cents with a Thursday settle of $135.20. Technical issues last Tuesday briefly shut down many agricultural futures contracts, but were resolved before the end of trade that day.

Feeder cattle

It’s possible the recent frenzy over feeders has subsided, at least for yearlings.

Those benchmark steers in the medium and large 1-class (#1) reported sold were still up in the heady upper-$170s to mid-$180s seen in prior weeks, but reports indicated mostly steady action. Small and/or young feeders suitable for grazing turnout, however, are still a hot commodity.

“The best demand and highest pricing remains for lightweight calves that will go on a summer grazing program,” noted Vetterkind last Wednesday.

California: Sales in the Golden State were playing ball with the rest of states in terms of feeder prices. Forget the basis that usually disadvantages West Coast cattle to their Plains cousins, 7-weight, #1 feeder steers at the Turlock Livestock Auction Yard sold for $150-188. Similar prices were to be had at the Escalon Livestock Market, where #1 beef steers weighing between 600-800 lbs. sold in the $145-185 range, with same-weight Holstein steers selling for $110-118.

Kansas: At the Winter Livestock Feeder Cattle Auction of Dodge City, 3,788 receipts were collected. Heavy feeder steers and heifers were called $1-3 lower, while those under 700 lbs. were said to have a higher undertone on light sales. Demand for grazing cattle was very strong. Almost 200 head of #1 steers averaging 774 lbs. brought $175.96. At the Pratt Livestock Feeder Cattle Auction, an estimated 4,000 receipts were collected. No trends were offered, but 7-weight, #1 steers sold mostly in the mid-$170s to low-$180s, with lighter-weight, thinfleshed offerings bringing in $197-198.25.

Nebraska: At the Huss Platte Valley Auction, receipt volumes were slightly depressed from the prior week’s sale, and feeders were called unevenly steady on good demand. It was noted that the majority of the offering was made up of small packages and very few load lots. Reported #1, 7-weight steers sold between $182-192.

Feeder futures kept hold of their uptrend last week, but Gottschalk warned caution and the need to watch for a reversal. The April feeder contract gained 58 cents over the course of the week to settle Thursday at $178.28, and the May contract gained $1.16 to settle with $179.68. — Kerry Halladay, WLJ Editor

 
 


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