A good jump in the futures trade lent some support to fed cattle markets last week and was expected to push cash prices higher. Although there was only minimal trade at mid-day last Thursday, analysts were calling the market $1-2 higher at $99-100 live and $158-160 dressed basis when trade finally got started, although the bulk of the action looked to be a Friday affair.
Boxed beef prices also continued to support the live trade with Choice cutout values rising at midweek on fair movement in the retail trade and very good export shipments. South Korea has jumped into the market in a major way and was among the biggest buyers of U.S. beef with a net purchase of 3,000 metric tons, exceeding all other buyers last week. That helped push Choice values to $162.09, up $1.21 at mid-day last Thursday. Select also added 31 cents to reach $155.09, with movement called moderate, with 230 loads trading hands during morning trade. Packers continued to harvest good numbers of cattle on positive margins. The week-to-date tally through last Thursday was estimated at 505,000, with 665,000 head expected for the processing week. Those numbers would be nearly even with the previous week and slightly ahead of year-earlier numbers.
A rally in the up-front live cattle contracts on the Chicago Mercantile Exchange (CME) last Wednesday pushed spot month prices over the $1 mark and spurred several deliveries against the contract. The amount of volatility in the market recently is causing many market analysts to raise caution flags. Fund trading has caused significant price swings in the relatively small commodities markets, however, analysts said the overall picture for the protein markets remains bullish going into 2009. The result should be an overall upward trend for much of the remainder of the year despite a significant decline in grain prices. The supply of beef and other meats is projected to decline while demand is picking up in the export markets, said analyst Troy Vetterkind of Vetterkind Cattle Brokerage. Although he noted the large supply of heavy grass cattle heading for placement this fall and the resulting increase in fed cattle supplies as a reason for some of the weakness in deferred contracts on CME. However, he noted that the opposite dynamic is at play in the pork and poultry markets.
"Canadian hog numbers are down, pork imports are down 14 percent year-to-date, and pork exports are up 61 percent year-to-date. The same type of scenario holds true in the cattle market as we see year-to-date cow slaughter up 6 percent, year-to-date beef imports down 22 percent, and year-to-date beef exports up 33 percent. Factor in year-to-date broiler exports up 29 percent and one needs to be careful about getting too bearish meat markets going into 2009 as we clearly have an overall trend of decreasing beef, pork, and poultry production with increasing demand overseas for each of these markets going forward," he said.
Vetterkind noted that the current market fundamentals, which point to short supply of fed cattle availability in the next several weeks, will support the cash market and also lend to the positive fundamentals in the futures trade.
"This next leg up in cash cattle and beef prices going into the fourth quarter will eventually pull back month fat cattle futures back up in my opinion, a rally we will want to use as a hedging opportunity in Febuary and April futures. We have likely seen the highs in these contracts for the year, however, I do think we will get a better hedging opportunity this fall," said Vetterkind. "Front month August and October fats are probably going to be a sell at some point as we will likely get these contracts a little too far ahead of cash, however, we need to get this spread trade worked out first. I still think if we run into a marketing hole later this year, it is going to come in late October through November, and I continue to like December live cattle futures for this reason."
Changing grass conditions and hot summer weather accounted for some of the largest influences on feeder cattle purchasing trends last week, which remained steady to higher at most auction markets.
As sellers begin to become more aware of trends in the cattle feeding industry which demand heavier-weight cattle for placement, earlier expectations of receiving typical premiums for lightweight feeders have waned and have adjusted to real market demands and transportation costs.
DTN analyst Walt Hackney noted last week that western ranchers have had the hardest time adjusting to the new ways of doing business in light of high feed and transportation costs which have placed a burden on feeder cattle prices in many regions. He mentioned, however, that sellers have begun to adjust their asking prices to market expectations.
"Ranchers in the western areas are fairly well in tune with the markets now and are selling fall delivery calves at a much more realistic level than earlier attempts, which were closer to last years’ money," he said.
Hackney also mentioned that weakness during last week’s trading of corn futures has seen a number of buyers come back into the market for lighter-weight offerings scheduled for fall delivery.
"Monday’s serious break in corn contracts on the CBOT [Chicago Board of Trade] appeared to be the straw that broke the camel’s back as calf buyer interest began in earnest on their decision to go ahead with their program to own fall delivery calves," he explained.
Even as buyer attitudes improve slightly, USDA Market Reporter Corbitt Wall said that weather has begun to play a significant role in the kind of cattle purchasers seek.
"Steer and heifer calf prices continue to run unevenly steady, with buyers still willing to pay the top prices of several weeks ago for larger lots of weaned calves with desirable flesh and weighing conditions," he noted. "However, there seems to be more wrong with the calf quality than with the calf market. Current conditions are simply too hot for the acquisition of fleshy or unweaned calves which can literally melt this time of year."
And as Utah State University Economist Dylan Feuz points out, although competition for quality feeder cattle should keep cash prices high for some time to come, relief from slim or negative margins in the feedlot sector are unlikely to improve anytime soon.
"Higher grain prices are resulting in cattle being placed on feed at heavier weights and cattle are spending fewer days in the feedlot," he observed. "Feedlots tend to be more profitable if they are operating close to full capacity. Therefore, feedlots will continue to aggressively pursue the available supply of feeder cattle and there may be another year or two of minimal or no profits in this sector."
Last week’s sale at the Oklahoma National Stockyards saw a total of 8,232 head available for sale where compared to the week prior, feeder cattle moved $1-3 higher. Demand was very good for feeders, with buyers showing very little discrimination for type and kind. Limited tests of the steer and heifer calf market showed it to be steady with moderate demand. The quality of cattle offered continued to be similar to that during recent weeks, with several consignments of No. 1-2 cattle from out of state. Steers weighing 725 lbs. sold at $114.85, while heifers weighing an average of 721 lbs. sold at $109.57.
There were 3,992 head received last week at the Joplin Regional Stockyards near Joplin, MO, where compared to the most recent sale, steers under 800 lbs. sold steady, with those over 800 lbs. selling steady to $1 higher. Heifers under 600 lbs. were steady to $2 higher, with weights over 600 lbs. steady. Demand was moderate to good for the moderate supply. The bulk of the calves offered were weaned, with one to two rounds of vaccinations. Temperatures of mid to upper 90s in the area with high humidity are expected to start slowing the rate of gain on grazing cattle in the region. Buyers paid $112.02 for 731 lb. steers at this sale, and $104.18 for heifers weighing an average of 719 lbs.
The Winter Livestock Feeder Cattle Auction in Dodge City, KS, offered 2,180 head for sale last week where compared to the previous sale’s light test, steers from 350-700 lbs. were steady to firm, with 700-900 lb. steers steady to $2 higher. Heifers from 350-650 lbs. were steady to firm, with 650-900 lb. heifers steady to $2 higher. Steers weighing an average of 807 lbs. brought $114.44 at this sale, while 767 lb. heifers sold at $109.22.
A total of 1,750 head were received for sale last week at the Bassett Livestock Auction in Bassett, NE, where compared to the previous sale, feeder steers and heifers trended fully steady. The bulk of the offerings were good quality yearlings coming off of grass. There was also good demand noted for the short list of fall-calving cows. Steers weighing 715 lbs. sold for $117.75 at this sale, while 735 lb. heifers brought $111.70.
Last week’s sale at the La Junta Livestock Commission Co. in La Junta, CO, saw 1,032 head available for sale, with feeder steers and heifers steady to $1 higher compared to the previous week. Buyers paid an average of $104 for 793 lb. steers and $101.50 for 713 lb. heifers.
The Riverton Livestock Auction in Riverton, WY, received 855 head for sale last week where compared to the most recent sale, there was no good comparison available for feeders, though the first test of the season on lightweight calves saw good demand. Steer calves weighing 458 lbs. sold at $126, while 477 lb. heifers sold at $107.28. — WLJ