Cattle markets lower on surging corn futures
Skyrocketing grain futures put a damper on fed cattle futures last week, which through Wednesday had traded mostly steady for near-term contracts. The futures are still well ahead of the current cash trade, which has been enough to encourage yards to keep their pens full. All near-term fed cattle futures were down late in Thursday’s trade, with June contracts dropping 5 cents lower to $98, August losing 55 cents to $103.85, and October contracts moving 60 cents lower to $111.27.
The reopening of beef trade with South Korea, along with expectations for higher protein prices in coming months has helped maintain confidence in cattle markets as the year moves forward, though the decline in the Choice-Select spread still remains as a cause for concern. The situation negatively impacts feeders, who are already operating in the red as a result of high grain prices.
"Market analysts and cattlemen will likely point to various reasons for the counter seasonal decline in the spread during the first five months of the year," noted market consultant Steve Meyer. "In our opinion, the main culprit is the deterioration in food service demand at the same time when feedlot inventories were larger than a year ago."
Meyer also lays partial blame on the attitude of feeders and their tendency to keep cattle on feed for longer.
"It did not help that feedlots were holding on to cattle as long as they could in hopes of getting a better deal and, in the process, putting a bit more fat on their animals, thus boosting the choice beef supply," he explained. "Currently the spread is back to more ‘normal’ levels and we suspect that the spread will get a bit larger going forward as feedlots have fewer head on feed and as they try to turn them a bit faster..."
As evidenced by the latest cattle on feed report, cattle supplies are not expected to grow anytime soon, and analysts say that when looking at current feeder cattle price premiums to fed cattle, a significant herd reduction is doubtful anytime soon.
Wachovia Capital Markets analyst Dan Vaught explained in a conference call last week that cattle markets typically hold up well during recessions, as consumers buy more retail meat for eating at home rather than dining out. Though a severe cutback in cattle supplies are unlikely, says Vaught, these consumer trends should help keep prices strong going forward.
"In my opinion, we are not going to see a big cutback in cattle supplies this year. Any decrease will be demand-driven, not supply-driven," he said.
Packers were reluctant to do cash business early in the week, preferring to hold off until later rather than meet early asking prices, though there were signs on Thursday that significant trade could develop if packers showed interest in bidding higher.
DTN analyst John Harrington noted that, "buying interest does seem to be improving with early bids around $94-95 in the South and $150-153 in the North. Asking prices are holding at $98-99 in the South and $155-158 in the North. We could see trade develop today if packers are willing to show enough money, though aggressive cash business may be more likely on Friday."
Indeed, while trade volume remained at a standstill at midday Thursday, buying interest seemed to be slowly improving. At least one regional buyer in the North who offered to "call in" at $155, with the best bid from a major packer in the North being $152. The South remained at a virtual standstill with buyers waiting until Friday before showing serious interest. Beef cutouts jumped significantly higher, with Choice gaining 92 cents to go to $164.62, and Select going $1.41 higher to $159.60. Light to moderate box movement was seen early, with 56.08 loads of choice cuts, 57.57 loads of select cuts, 22.55 loads of trim, and 37.82 loads of grind. Thursday’s slaughter total of 127,000 brought the week-to-date total to 508,000, which was 5,000 head above one year ago.
Luckily for most producers, last week’s cash trade for feeder cattle didn’t suffer the same blow that the futures market did, as near-term feeder cattle futures all lost as a result of higher corn futures. June corn contracts finished Wednesday up 17.4 cents, which was enough to scare August feeder cattle futures down 92 cents, closing at $112.55.
A bullish cattle on feed report and a shrinking supply of quality feeder cattle has motivated feedlots to keep their pens full, and prices have started rebounding from the corn price scare of previous weeks. Feeders continued last week to seek out those cattle which are heavier and will spend fewer days on feed, especially those quality cattle with good preconditioning programs and health records.
"The best demand was noted for the heaviest feeders (which were responsible for most of the steady trends) as feedlots search for ways to limit expensive days on feed," explained USDA market reporter Corbitt Wall. "Feeder cattle prices are on the verge of inverting as cost-of-gains surpass the value of the cattle. This could change the way we view feeder markets if heavier cattle yield a higher price/cwt than lighter weights and fleshy cattle have more value than those in thin condition, which could be hard for buyers to swallow."
Some demand exists for lighter-weight feeders to turn out on grass, but due to the increased attention on heavy cattle, prices for light feeder calves have been suffering, with demand slowing for these cattle where prices remain steady.
"Calf demand is suffering as backgrounders have lost interest in feeding commodity feed to calves and those that exclusively graze calves have already turned their cattle out," said Wall. "Midwestern farmer-feeders usually pick up the calf market this time of year, as they mostly have their crops planted and are looking for a summer project. But, these producers are banking on selling corn this year and many in the flooded regions are not sure how much corn they’ll have anyway."
Fed cattle contracts, which have reached near their historic highs, have helped to re-boost the confidence of those seeking feeder cattle for cash, but Wall says that it may not matter how much live cattle are worth if feedyards can’t find some way to cut their cost of gain.
"These lofty price levels look promising to cattle feeders but a profit will still be very difficult to obtain if they have to grind $7.50 per bushel corn," he notes. "Most commercial feedlots have been implementing at least some level of by-product feeds in their ration to cut costs. Increased competition for these feedstuffs has caused prices to escalate as Distiller’s Dried Grains increased by as much as $25 per ton this week alone."
Last week’s sale at the Oklahoma National Stockyards saw receipts of 8,556, and compared to the week previous, feeder steers and heifers sold $2-3 higher. Steer and heifer calves were not well tested, but the few weaned calves available sold near steady. Demand was good for all classes except unweaned new crop calves, which found narrow outlets. The run continued to include significant numbers of plainer cattle from outside of the area, and also included were several shipments of light, No. 2, thin-weaned calves that found fairly good acceptance. Steers weighing an average of 723 lbs. sold for $111.17, while 725 lb. heifers brought $102.96.
The Joplin Regional Stockyards near Joplin, MO, received 5,973 head last week, where steers were $1-3 higher. Heifers under 650 lbs. were steady, with weights over 650 lbs. steady to $2 higher. Demand was moderate to good for the moderate supply. Several load lots of yearlings were in the offering. Steers weighing 722 lbs. sold for $111.77, while heifers weighing 732 lbs. sold at $102.26.
A total of 1,862 head were received at last week’s Winter Livestock Feeder Cattle Auction in Dodge City, KS, where compared with the last week, steers weighing 800-900 lbs. went $3-5 higher. Heifers weighing from 500-700 lbs. were steady to firm. There were not enough cattle in other classes and weights for an adequate market test, though a steady to firm undertone was noted. Feeder steers weighing 722 lbs. sold at $113, while heifers weighing 680 lbs. were good for $105.27.
There were 3,200 head received last week at the Bassett Livestock Auction in Bassett, NE, where good quality weaned fall calves and yearlings coming off of grass made up the bulk of the consignments. Due to no sale the previous week, a market trend was not established. Demand was strongest for 800-900 weight cattle. Steers weighing 716 lbs. sold for $119.15, while 733 lb. heifers brought $109.41.
Last week’s sale at the La Junta Livestock Commission Company in La Junta, CO, saw 1,032 reported receipts, with feeder steers and heifers steady to $1 higher. Demand was noted as good for the cattle offered, with 793 lb. steers selling for $104, and 713 lb. heifers going for $101.50.
The Stockland Livestock Auction in Davenport, WA, received 540 head last week, not enough for an accurate trend. However, a firm undertone was noted. Buyer demand was noted as moderate to good for most classes of feeder cattle. Buyers paid $99.48 for 718 lb. steers, while heifers weighing an average of 728 lbs. sold for $94.71. — WLJ