Fed cattle trade last Thursday was underway in the Corn Belt and northern Plains regions with dressed sales in a range of $148-152, with most trade occurring at the $150-151 level. Southern Plains trade was still inactive at mid-day although live trade was expected to come in mostly steady to perhaps slightly higher at the $99 level after cutout values held their ground early in the day.
The mostly steady trade comes at the start of what is expected to be a very tight supply of fed cattle over the next several months. Ahead of the cattle on feed report due out Sept. 19, analysts were predicting overall on feed numbers would decline an average of 2.1 percent from Sept. 1, 2007 levels. That number is expected to remain low, as placements have repeatedly fallen below year-ago numbers and could show a drop again for August when the numbers are reported. Average analyst estimates were for a placement number of 100.2 percent, up just slightly from year earlier levels. Marketings, with two fewer slaughter days during August, were expected to show a significant drop with average guesses coming in at 90.3 percent of year-ago levels. The drop in the number of market ready cattle well into next year could shift bargaining power solidly into the hands of cattle feeders who should be able to force packer bids higher as a result of limited supply.
For now, though, packer margins remain solidly on the positive side of the ledger and feedlot operators were likely to hold out for a larger share of the pie last week as they edged higher. Choice cutout values rose in morning trade to $161.64 while Select prices declined slightly to $153.98, mostly steady to slightly higher than a week earlier despite weak trading action in the middle meats for the past several weeks. Livestock Marketing Information Center Director Jim Robb explained that much of that weakness is directly attributable to lackluster sales in the restaurant sector.
"Restaurants are really the story in the meat markets and will remain so with the larger economy at the edge of a recession," Robb said. "The macro side of the economy is becoming an increasingly important issue in the market right now and if we are going to benefit from the tighter supplies of fed cattle through the second quarter of 2009, then we are going to have to see some improvements at the consumer level."
He said export markets, which have been critical to supporting the market for much of the year, continue to be exceptionally strong. He noted that South Korea, on a weekly basis, has returned to the import volume seen prior to 2003. The result has been a big boost in some of the end meats, particularly the chuck primals which are in high demand overseas.
"With the domestic economy on the edge, the big question will be can we maintain the export markets, particularly as foreign economies begin to slow down?" he said. "If we can, and the restaurant sector manages to improve, then we might be in a position where second quarter live cattle contract prices are a little too low."
However, he cautioned that consumers are under extreme pressure from losses in the housing markets which are now spreading to other areas of the economy and could lead consumers to pull in their horns even farther when it comes to spending.
"I think we are continuing the trend of consumers trading down to lower priced proteins," he said, noting the competition, particularly from pork, currently suffering from an oversupply which is lowering prices and making it a more attractive buying opportunity. Likewise, ground beef markets continue to be a bright spot despite higher than normal slaughter volume.
"Ground beef prices remain historically high and some of that’s a result of consumer demand, but it’s also a result of very low imports of beef from overseas," Robb said. "When the beef import volume is translated to a per-head basis, during July it would have amounted to a decline of 170,000 head. So you can see there has been a substantial drop in the amount of beef being imported into the U.S., and that’s a big reason our cow beef markets have been so strong recently."
Last week, those markets remained well above prior year levels, although they had slipped back some from the previous week. The cow beef cutout stood at $137.15 in morning trade last Thursday, down $2 from the prior Thursday. The 90 percent lean traded at $171 while the 50 percent trim traded at $92, both down more than $2 from the previous week.
Even with ample rain in many major production areas, this summer’s grass supplies have begun to grow short and a number of lightweight offerings have begun to make up a heavy presence in auction markets around the country. Buyers, however, have been very selective for type and kind cattle, possibly more so than normal.
Heavier yearlings would normally continue to be in strong demand, but buyers have begun to eschew these cattle for lighter-weight calves which can be backgrounded over the winter on forage resources, the cheaper alternative to placing light cattle directly in the growing yard. Reports from many areas, though, show that buyers are still taking a wait-and-see approach as the picture for fall and winter grazing prospects begins to clear up.
"We’re definitely seeing good demand for the number of calves we have had come in this fall, which is fairly high right now," pointed out Brian Winter of Winter Livestock in Dodge City, KS. "But there are a lot of people who are waiting to see what there will be available for these cattle to graze over the winter. A lot depends right now on how much wheat pasture there will be available."
DTN analyst Walt Hackney noted that yearlings coming off of summer pastures will begin to taper off in the weeks ahead, though calf movement through auction markets should remain strong for a couple more months.
"The supply of available yearlings has gone through the initial phase of movement off grass pastures, and the remaining run of unsold cattle coming off the grass programs will be primarily finished within the next two to four weeks," he said. "The calf runs will continue on into early to mid-November when all of the October-November contract deliveries are completed and the remaining unsold spring calves are either weaned or taken off the cows and delivered to an auction environment."
James Mintert, professor of ag economics at Kansas State University, warned producers that as corn harvest approaches and grain market uncertainty continues, it would be wise to pay attention to markets closely to secure feed resources for the winter at more reasonable prices.
"Attention is expected to remain focused on corn yields for a few more weeks, perhaps until harvest is well underway in October," he said. "However, once 2008 yields are confirmed, attention will shift to a battle for acreage between corn and soybeans. Once that happens, it’s possible that corn prices could move higher over the course of the winter and early spring. As a result, livestock producers should consider taking steps to aggressively manage their feed purchases for the rest of the fall, winter and spring."
As the runs of yearlings begin to peter out and lighter-weight calves begin to dominate the markets, buyers will start becoming more particular about the cattle they choose, explained USDA market reporter Corbitt Wall.
"Normally this time of year, available yearlings are highly sought after and the first offerings of top quality calves are met with open arms, though outlets tend to fill up later in the fall," he said. "This week, buyers turned much more particular, even on heavy yearlings, which is a direct contrast to their bidding habits of several weeks ago—when scattered single and odd lots would sell very near the top of the market."
A total of 6,170 head were received last week at the Oklahoma National Stockyards in Oklahoma City, OK, where compared to the previous sale, feeder cattle and calves moved $1-3 lower, with instances of $4-5 lower on plainer, fleshy or stressed offerings. Demand was moderate at best, with some buying interest out of the market. Many cattle buyers have a wait-and-see attitude, as there is uncertainty in the financial, grain and futures markets adding to the pressure on cattle prices. Lighter runs showed up last week as many of the summer yearlings get cleaned up and the fall calf season is not in full swing. Heavy rain in western and eastern areas of Oklahoma also slowed down cattle movement some. Steers weighing 776 lbs. sold at $110.61, while heifers weighing 760 lbs. sold at $100 even.
The Joplin Regional Stockyards near Joplin, MO, took in 4,525 head last week where all classes of steers sold $3-7 lower. Heifers, calves and yearlings traded $1-4 lower with a few consignments of northern-quality heifers selling steady. Market uncertainty from several different fronts pressured feeder cattle demand. Factors included bearish news from Wall Street, flooded conditions in many cattle and grain production areas from the remnants of Hurricane Ike, and unseasonably cool nighttime temperatures that are triggering calf health concerns. Buyers paid $107.05 for steers weighing 784 lbs., and $101.97 for heifers weighing 757 lbs.
Last week’s sale at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, saw receipts of 3,349 head. There was a higher undertone noted on steers from 350-600 lbs. and heifers from 300-550 lbs., though there were no sales last week for a comparison. Steers from 600-750 lbs. were weak on a light test, with weights from 750-1,000 lbs. going $1-4 lower. Heifers from 600-700 lbs. were not tested, while 700-850 lb. heifers were weak to $3 lower in a light test. Steers weighing an average of 776 lbs. sold at $109.59, while fleshy, 781 lb. heifers brought $100.10.
A full 4,300 head were received last week at the Bassett Livestock Auction in Bassett, NE, where compared with two weeks ago, feeder steers and heifers trended $5 lower. Demand was fair to weak, with most consignments showing extra fill. An average of $113 was paid for 773 lb. steers, while 767 lb. heifers brought $106.80.
The La Junta Livestock Commission Company in La Junta, CO, reported receipts of 1,287 head last week where steer and heifer calves under 600 lbs. dropped $2-4 lower. Feeder steer and heifers over 600 lbs. were $2 lower, with active trade and moderate demand. Steers weighing an average of 615 lbs. sold at $109.55, while 610 lb. heifers were good for $101.50.
Last week’s sale at the Riverton Livestock Auction in Riverton, WY, offered 2,101 head for sale. Compared to the previous sale, steer calves under 400 lbs. went $1 lower, with 500-600 lb. steers steady with instances of $1-5 higher. Heifer calves under 500 lbs. dropped $3-5 lower. Yearling steers were $4-5 lower with instances of $7-10 lower on weights over 900 lbs. Yearling heifers were $1-3 lower, with instances of $4-5 lower. Demand was noted as being good to moderate. Buyers paid $103 for steers weighing an average of 760 lbs., and $102.29 for heifers weighing an average of 767 lbs.
The Stockland Livestock Auction in Davenport, WA, reported receipts of 1,080 head last week where feeder cattle went $5-6 lower. Trade was slow with light to moderate demand. Steers weighing 739 lbs. sold at $94.36, while 782 lb. heifers brought $85.66. — WLJ