After the packer buying spree of the previous week, fed cattle trade was all quiet in advance of last week’s much-anticipated cattle on feed report. Packers had a large supply of cattle procured and show lists at feedlots were generally smaller so both sides appeared content to wait until Friday to trade cattle.
As of Thursday afternoon last week, cattle were offered at $88-89 live basis and $140-141 dressed. Packer bids were very light and several dollars below asking prices at $83-84 and $134-135. Analysts last week were expecting trade to occur at prices mostly $1 higher than the prior week at $86-87 live and $138-139 dressed when it did finally occur.
According to Glenn Grimes and Ron Plain at University of Missouri, the American Agricultural Economics Association annual outlook survey for the remainder of the year and 2007 for livestock and the marketing year of 2006-2007 for crops shows the average Nebraska fed cattle price for 2006 at $83.20 and for 2007 at $81.82.
“If these estimates turn out to be accurate, the year 2007 will be a similar year to a little lower profits or more losses than 2006. The estimated decrease in cost of feeder cattle at a short $4 per cwt. would be about $26 to 28 per head. However, the increase in costs of corn would add nearly $18 per head for feed costs. The lower fed cattle price would reduce sale value by $16 to $17 per head,” they said last week.
Packer margins, estimated by HedgersEdge.com last Thursday, were still positive with a margin of $24.05 per head and plants were taking advantage of the profit by increasing harvest levels. Boxed beef cutout values moved higher much of last week with Choice trading up for the week to $151.09, higher by more than $3 from the previous Thursday. Select cutout values rose $3.81 from the prior week to trade at $139.92 last Thursday.
According to USDA data, the percentage of harvested cattle grading Choice or better has been increasing on a weekly basis and recently has been above 55 percent, although still averaging two percentage points below the average of 57 percent for July 2005. As a result, the spread between Choice and Select beef cutout values is getting smaller.
Harvest for last Thursday was estimated by USDA at 121,000 head, down 6,000 from the prior week and 4,000 from a year ago. For the week-to-date kill, USDA estimated packers harvested 497,000 as of Thursday, down 5,000 head from the prior week, but 3,000 more than the same week in 2005. Beef demand at the retail level last week was called moderate and it appeared that the cutout values were close to topping out for the near-term. Buyers for retail stores last week reportedly weren’t willing to pay any more for beef than in recent weeks and were wary of buying more than needed to meet immediate demand. Most wholesale purchases were being delayed in hopes that there would be some weakness in cutout values down the road. It appeared that may become a possibility last Wednesday, with middle meats dropping in price. According to USDA reports, the Choice rib and loin primal, specifically Choice ribeyes, fell $12 cwt. Choice strip loins lost $15 cwt. and choice top butts were down $10 cwt. which contributed to the losses Thursday in the cutout value. The only positive news in the boxed beef market could be found in the chuck and round primals.
Cow values last week moved higher with most trade moving up by $1 as a result of demand for cow beef from the grinding sector in advance of the Labor Day holiday and the start of the school year which adds strength because of the volume used by school lunch programs.
Cow carcass values were up 60 cents last Thursday to $106.47. The 90 percent lean product was also higher by more than $2, to $132.76.
As a result of the pending cattle on feed report and the absence of cash fed cattle trade, trading on the Chicago Mercantile Exchange was mostly sideways to slightly lower last week. In last Thursday’s session, the August contract trade was down 82 points to settle at $87.10. October was higher by 25 points, closing at $92.05 and December was off 5 points, closing at $90.90.
Compared to two weeks ago, feeder and stocker cattle sold steady to $4 higher with the best gains coming early in the week last week. Demand was reportedly best for yearlings which are in short supply as a result of the dry conditions that have sent cattle to feedlots early this year. Larger strings of calves are being weaned now and sent to town for sale and the runs are growing, particularly in the northern tier. Calves found solid demand because feedlots apparently have ample pen space available. The continuation of the hot and dry weather across the central U.S. has been taking its toll on health because of heat stress and that has caused sick pens to bulge.
On the upside for feedlots, the drought hasn’t taken its toll on the corn crop this year and the crop report issued by USDA showed this year’s crop is expected to be the third largest on record. That information was bearish for new crop December corn futures which slipped last week and lent strength to the feeder cattle market. The result has been prices which remain above last year’s levels, no doubt giving cow/calf producers something to smile about.
In auction market trade last week in Amarillo, TX, compared to the prior week, feeder steers and heifers sold at prices steady to $3 higher on a limited test. Trade was called active on good demand.
In Oklahoma City, OK, compared to the prior week, feeder steers and heifers were steady. Steer and heifer calves sold $1-4 higher, with the most advance on steers. Demand was good for all classes. Weather continues hot and dry across the state, however significant rainfall occurred in some areas Monday night which added to the positive sentiments of those on the seats.
In Dodge City, KS, compared with the prior week, feeder steers 350-550 lbs. and heifers 350-500 lbs. last week were steady to $3 higher on a light test. Steers 750-925 lbs. were called steady to weak on a light test. Heifers 500-800 lbs. sold for prices steady to $1 higher, with those in the 800- 900-lb. class weak to $1 lower on a light test.
To the east in Joplin, MO, steers and heifers under 600 lbs. sold steady to $2 higher with a heavy supply of calves weaned right off the cow as a result of some producers weaning calves earlier than normal due to lack of grass and high hay prices. Last week, yearlings sold steady to firm with several load lots trading and several carrying extra flesh. Demand and supply were called moderate.
In Bassett, NE, feeder steers and heifers trended predominantly steady, with only 750- to 800-lb. steers trading $1-2 lower. There was no appreciable test on weights over 900 lbs. from the previous sale, but it should be noted that demand was very good for the few offered lots. The run was comprised of good quality, yearling steers and mostly spayed heifers.
In the northern states, runs of cattle are still light, however, some states are starting to show increases in the number of cattle offered.
In Hub City, SD, last week, a good sized run of feeder steers and heifers sold steady to $2 higher with most of the offering comprised of long strings of feeder cattle coming off grass pastures.
Just as live cattle contract traded sideways, feeder cattle futures were also mixed last week despite good news on the upcoming corn crop and November through May feeder cattle futures reaching new contract highs in early trade last Thursday. August feeder contracts dropped 10 points to close at $115.57. September, October, November and January contracts were all higher with October feeder contracts as the biggest winner in last Thursday’s session, closing up 40 points at $117.22, just short of a contract record.