Good trade volume broke out early last week at
mostly lower prices after a sharp sell-off on the futures market early
in the week. According to reports, trade as of last Thursday was light
to moderate in the southern tier and light in Nebraska, Colorado and
Iowa, with light to moderate demand from packer buyers after Texas
feedlots came to the table last Tuesday to accept lower money.
Prices in Texas were mostly steady to $1 lower
from $90-91.50 live basis. Sales in Kansas were mostly $1.50 lower at
$91 live and dressed sales sold $2.50-3 lower from $142.50-143. The few
live sales in Colorado sold $1 to $1.50 lower at $91. In Nebraska and
the western Corn Belt, sales were in a range of $90-90.50 live basis and
$143-144 dressed last Thursday.
Falling beef cutout values and a steep drop were
responsible for the unexpectedly lower cash market last week. Many
analysts had been expecting trade to develop in steady to higher
territory before the sell-off in the Chicago Mercantile Exchange (CME)
live cattle issues last Tuesday. However, by Thursday, the market had
stabilized at $91.40 for the August contract. The October and December
contracts, which had been selling over $100 for a brief period allowing
a good hedge opportunity, were also lower last Thursday. At mid-day,
October was down slightly at $95.50 as was December, which ended the
session at $97.90.
Futures markets last week showed that good
prices for fed cattle are likely well into 2008, however, corn remains
the wildcard. Last week’s USDA crop estimates, due out Aug. 10, were
expected to be a major market mover. If corn prices remain in check into
next year, sustained fed cattle prices over $1 in the spring are not out
of the question. This year’s small calf crop combined with the currently
ample pen space in the country is going to translate into a good fall
marketing season for cow/calf producers as well.
The beef cutout, which suffered last week from
ongoing retail demand, was further hampered by the fire sale pricing of
products which were initially intended for the South Korean market.
Since the sudden stop implemented after officials with the Korean
Agriculture Ministry found prohibited beef products, some end meats have
been piling up in cold storage. Chuck, loin and round were all
noticeably weaker last week as a result of the heavy offerings as
packers tried to clear some of the inventory. Select and Choice ribs
were about the only bright spot last week when even the recently popular
beef trimmings moved lower, despite very light offerings.
Beef slaughter for the week was still running
relatively strong, despite the lower cutout and packer margins estimated
at $11.60 per head in the red by HedgersEdge. com. The weekly harvest
through last Thursday totaled 497,000 head, even with a week earlier and
6,000 lower than last year’s pace.
Despite the soft market for domestic product and
the packer’s ability to push the cutout higher, cow beef prices remain
at comparatively high levels when viewed from a historical perspective.
Last week, the 90 percent lean was moving at $141.60, compared to
$130.74, while the 50s were holding steady with 2006 levels at $57.17.
The cow beef cutout price has been well above year ago levels as well.
Last week it was steady at $115, compared to the same day in 2006 when
it traded at $105.33. The high prices being paid for cull cows is a
result of a combination of factors including the apparent consumer
demand for ground beef and a decline in cow slaughter. With an expected
increase in herd growth on the horizon, many analysts believe that cull
cow prices are heading higher over the course of the next year, possibly
hitting record prices early next year.
The Superior Video Auction sale, held two weeks
ago in Winnemucca, NV, once again provided good prices for calf sellers.
In addition to the high prices being paid for yearlings that have been
typical this year, ultralight calves also sold well, with prices into
the $160s being paid for 3 and 4 weight calves. Five-weight steers in
the north central region were in the mid $120-130 range, while farther
west, the price of trucking kept prices closer to $120. University of
Utah Economist Dillion Feuz said last week that the corn market will
continue to be the biggest driver of calf prices.
“In mid June when December corn was trading at
$4.20 per bushel, October feeder cattle were at $107 per cwt. December
corn declined to $3.36 on Aug. 1 and October feeder cattle had increased
to $118 per cwt. The expectations for winter and next spring fed cattle
prices also increased during that time which also provided added
strength to the feeder cattle market,” he said. “Since Aug. 1, December
corn has been increasing again, live cattle contracts have been
declining, and not surprisingly, feeder cattle have also declined and
closed at $115.25 on Aug. 8.”
Feuz said the historical tie between corn and
feeder calf prices remains true today despite the changes in market
dynamics created by the ethanol industry.
“The old adage of a dime increase in a bushel of
corn will lead to a dollar decrease in the price of a 5 weight calf
still seems to hold true. I recently completed an analysis of feeder
cattle prices from 1991-July 2007 and that was the relationship I
found,” Feuz said. “Obviously, as the price, or expected price of fed
cattle increases/decreases, feeder cattle prices also tend to
increase/decrease. Right now in the corn market there is equal money bet
on December corn prices being below $3.30 or above $4 per bushel this
fall. That is a swing of $.70 per bushel which could swing calf prices
$7 per cwt. The next few weeks’ weather in the Corn Belt will help
determine where the corn market will end up this winter.”
Last week, it appeared as though the traders on
the CME were anticipating that feeder prices might slip back as they
pushed contract prices into what some analysts believed was oversold
territory. Last Thursday there was some sign of recovery however, as the
market moved higher. August feeder cattle contracts closed the day up 37
points at $114.95, while September contracts added 52 points to close at
$114.97 and October feeders gained 45 points to end the day at $115.70.
November calves were also higher, moving up 25 points to finish the
session at $115.30.
Meanwhile in auction markets across the country,
the trend also worked higher last week in many sales, despite continued
seasonally light runs of cattle, as producers continue to busy
themselves with summer projects like haying. In El Reno, OK, last week,
feeder steers sold steady to $2 higher, except for those thin enough for
grass which were $5-10 higher as cattlemen with ample grass worked to
take full advantage. Feeder heifers, which were present in limited
quantity, sold steady. Demand was reportedly extremely good for feeder
cattle, especially for those in thin flesh. The few available steer and
heifer calves were called steady to $2 lower. Demand was called moderate
to good for calves as summer’s heat is taking its toll on the short
weaned calves. To the north in Joplin, MO, compared to last week, steers
under 600 lbs. were $1-2 higher despite 100-degree heat and a lack of
precipitation in the region. Heifers under 600 lbs. were steady to $2
higher; steers and heifers over 600 lbs. were steady after last week’s
sharp upturn. Demand was reported to be moderate to good on moderate
In Hub City, SD, last week, feeder steers and
heifers sold mostly steady to $1 higher on a run which was reportedly
made up of heavier fleshed cattle. The offering also included several
loads of feeders off grass, as well as several consignments of
In Davenport, WA, compared to the prior week,
feeder cattle were steady to firm in a light test on active trade and
South along the coast in Famoso, CA, market
prices were steady for stockers and feeders. There was reportedly big
demand for the stockers and feeders on offer, particularly the quality
greener kinds in the 450-550 lb. class. There was also strong demand for
feeders in the 700-800 lb. range.