Fed cattle sales last week were being called $1-2 higher ahead of any significant trade volume at mid-day Thursday. Strong demand ahead of the Labor Day holiday, strong boxed beef prices, good export sales and tighter supplies ahead were all playing a role in boosting cash expectations among feedlot operators last week.
The clearance levels of beef from packers and out of cold storage were good, with retailers taking deliveries of product for holiday sales and also booking advanced purchases of beef to lock in prices before they go up as we head into the fourth quarter.
Trade was largely expected in a range of $101-102 live and $160-162 dressed, with a few dressed sales in the Corn Belt being reported at midweek at the $160 dressed level. The very current state of feedlot inventories after strong trade volume the prior week was adding some optimism to the market last week as well.
Choice boxed beef last Thursday was reported at $164.58, down 2 cents from the previous day while the Select cutout rose 31 cents to reach $157.81 on good demand and movement. Packers were reportedly seeing good margins on harvested cattle, with HedgersEdge.com reporting packer profits in the neighborhood of $30 per head last Thursday. Understandably, packing interests were working to take advantage of the positive conditions by harvesting increasing numbers of cattle ahead of the expected tighter supply in the fourth quarter. Slaughter volume through Thursday last week was estimated at 512,000 head, 9,000 more than the previous week and 23,000 more than the same period in 2007.
On the Chicago Mercantile Exchange at mid-day last Thursday, live cattle contracts were trading mixed to slightly lower ahead of cash trade for the week. The August contract was down 12 points to $103.05, while October was unchanged at $107.45 and December was down 20 points to trade at $107.95.
The export markets continue to be a strong point for the beef industry, with first half of 2008 numbers up more than 30 percent in volume and 39 percent in value over the same period in 2007, the U.S. Meat Export Federation (USMEF) reported last week. For the first six months of 2008, total beef exports reached 445,036 metric tons with a total value to the industry of $1.58 billion, more than 87 percent of the value achieved during the first six months of 2003, the peak year for U.S. beef exports. Mexico and Canada remain the two largest outlets for U.S. products with exports to Mexico up 18 percent through June to 199,890 metric tons valued at $678.1 million. Exports to Mexico set a new record in June—surpassing the July 2003 volume and reaching 36,619 metric tons. Meanwhile, first half exports to Canada rose 41 percent to 78,790 metric tons valued at $365.8 million.
In Asia, U.S. exports continue to rebuild their former foothold, with shipments to Japan rising 66 percent over last year’s level to 34,339 metric tons with a market value of $177 million.
According to USMEF figures, U.S. beef is also gaining prominence in the Association of Southeast Asian Nations. Through June, year-to-date exports to this region rose 380 percent in volume over last year to 24,454 metric tons valued at $67.1 million. Vietnam led the way with 18,092 metric tons, followed by the Philippines at 4,992 metric tons.
Beef exports to Russia are well on their way to surpassing 2003 levels—the last year this market was open to U.S. beef. Russia has imported 11,194 metric tons of beef and beef variety meats so far this year, valued at $25 million. But even more significant is the impact Russia’s demand is having on selected cuts.
"Liver prices increased dramatically as Russia started bidding against Egypt for the limited supply of U.S. beef livers," said Erin Daley, manager of research and analysis for USMEF. "Liver prices have risen to more than 70 cents per pound, compared to less than 20 cents per pound last year. This has added roughly $7 per head on a live animal basis."
Daley said that while this year’s beef exports won’t be able to match the peak levels achieved earlier in this decade, the beef industry is getting close to reaching the same level of value. While beef exports exceeded $3.8 billion in 2003, she forecasts that this year’s exports could total as high as $3.5 billion—assuming no major disruptions in trade.Feeder cattle
Sustained losses in the corn markets have given cattle feeders reason to be optimistic, the same of which can be said about USDA’s most recent corn progress report which expects high yields exceeded only by the crop average in 2004. Many analysts, however, have doubts in the accuracy of the report, which they feel is overly optimistic and may come down come harvest time.
Farmer feeders, which have seen new crop prices tumble over the past month since their all time highs, now have reason to get back into the cattle feeding business and market their corn through cattle, though fed cattle have also taken a hit as they follow corn prices down. Cash feeder cattle prices have been bolstered by the return of profitability to many feeding operations which have been running in the red for quite some time.
As more buyers enter the market in search of quality feeder cattle to place on the newly-cheapened feed, competition is increasing for the tight supply of heavier program cattle. Marketings continue to be light during this portion of the year and in light of falling corn prices, some buyers have returned their attention to lighter, six- and seven-weight cattle.
"According to reports from all of the feeder cattle production areas, demand for feeders showed a significant increase last week when corn prices took a healthy dip and finished cattle took a major raise," said DTN analyst Walt Hackney. "Feed costs—while still in orbit because of high-priced corn in the inventory—are becoming more manageable with cheaper ingredients going into the averages. Unless something unforseen causes an explosion in the corn market, cheaper rations and subsequent cheaper costs of gain are imminent with the devaluation of the CBOT [Chicago Board of Trade] corn prices."
Hackney also made note of the trend towards farmers in the Corn Belt getting back into cattle feeding as a way to increase their returns on corn production. Cash prices in the major corn production areas are lower than board prices, which gives farmers added reason to consider holding off on selling their harvest.
"Several reports last week in the western Corn Belt indicated cash corn was purchased below $4.30 per bushel, leading to much more incentives for feeding it to cattle than earlier opinions of marketing it into the cash market at $6 and above levels," he points out.
Due to the late corn crop, which was hampered by spring flooding and subsequent replantings, Darrell Mark of the University of Nebraska-Lincoln cautions that feedlot operators may not want to jump into the corn buying game just yet. Instead, he says it may be prudent to wait for the crop to progress further and yield estimates to possibly go up further.
"Corn crop progress is clearly lagging behind normal yet. As of Aug. 10, 93 percent of the corn crop was silking, compared to 98 percent last year and 96 percent on average. Only 30 percent of the corp was in dough stage, compared to 59 percent last year and 50 percent on average. So, livestock feeders should continue to watch the corn market carefully for signs of a potential bottom," he explained.
In the cash markets, last week’s sale at the Oklahoma National Stockyards in Oklahoma City, OK, saw a total of 9,276 cattle received for sale where compared to the week prior, feeder steers were steady to $2 higher, with the most advance coming on 800-900 lb. steers. Much of the advance was lost late in the sale as orders were filled, and the market closed mostly steady. Steer and heifer calves were steady to $3 higher. Heavy rains in the area improved interest for calves on sale day. Cattle quality at this sale was noted as mostly average to plain, including several consignments of No. 2 cattle. Steers weighing an average of 726 lbs. brought $115.15, while fleshy heifers weighing 718 lbs. sold at $106.
The Joplin Regional Stockyards near Joplin, MO, received 3,500 head last week where compared to the previous sale, steers and heifers sold steady to $2 higher. Demand was good for the moderate supply, with the quality of calves and yearlings being good. Buyers paid an average of $111.28 for steers weighing 724 lbs. and $106.53 for heifers weighing 730 lbs.
There were a total of 2,423 head of feeder cattle received last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where steers from 300-600 lbs. and heifers weighing 350-600 lbs. were steady in a light test. Steers from 600-1,050 lbs. were steady to $3 higher, with the bulk of the trade happening at prices steady to $2 higher. Heifers from 600-850 lbs. were steady to $1 higher in a light test. Feeder steers weighing 717 lbs. sold for $117.24, while heifers weighing 708 lbs. averaged $110.83.
Last week’s sale at the Huss Livestock Market in Kearney, NE, saw a total of 1,615 head received, where compared to the last sale, steers and heifers trended fully steady to $3 higher. Demand was very good for an overall attractive offering of feeders. Trading was noted as moderate to active. Steers weighing 726 lbs. brought $116.44, while heifers weighing 728 lbs. sold at $104.
The Sterling Livestock Commission Company in Sterling, CO, offered 1,413 head of feeders for sale last week where demand was good, with the best demand being for cattle weighing over 700 lbs. No trend could be established due to no recent sales. Steer calves weighing 737 lbs. sold for $117 while heifer calves weighing 730 lbs. sold for $109.75.
A total of 811 head were received last week at the Stockland Livestock Auction in Davenport, WA, where compared to the last sale, feeder cattle sold $1-3 higher. Trade was active with good demand. Steers weighing 724 lbs. were good for $105.89 at this sale, while 707 lb. heifers brought an average of $97.97. — WLJ