—Turmoil on Wall Street could
spill over into the cattle market.
The big picture economic status in the U.S.
appeared to be playing a larger role in the beef market last week as
concerns in the stock market looked to threaten commodities as well.
Three straight weeks of volatility on the New York Stock Exchange, which
has erased the equity market’s gains for the year, spilled over into
other areas as investors moved money to safer investments.
That shift in investments led to sharp drops in
the live cattle contract trade last Thursday on the Chicago Mercantile
Exchange (CME) and at the closing bell, August contracts had fallen more
than 172 points to end at $90.40. October was the biggest loser of the
day, with contracts slipping 222 points to finish at $93.70, while
December live contracts gave up 190 points to end the session at $97.
The decline on CME erased most hope for higher
fed cattle trade last week. By mid-day, fed trade was fully developed in
Iowa at $142 and in Nebraska at $90 live and $142-143 dressed basis.
There were also live cattle trading hands in Kansas and Texas in a
narrow range of $90- 90.50, steady to slightly lower than the previous
There was a bright spot last week in the fed
cattle market as newly formed JBS-Swift announced it was making slow
progress toward its planned second production shift at its Greeley, CO,
plant. The company intends to hire 1,300 more workers by the time it
reaches full production in January 2008. At full capacity, the plant is
capable of processing 5,900 head daily, up from its current daily
average of 3,700. In a report, JBS, the Brazilian-owned parent company,
reported second quarter financial results that illustrate the company
has the financial strength to be a major player in the marketplace. JBS
reported a 25.2 percent increase in net revenue over the same period a
year earlier. Total net profits were reportedly $82.9 million.
Despite the solid performance of JBS, things in
the U.S. domestic market last week were a little less rosy. Continued
difficulty in boosting the cutout had packers slowing chain speeds last
week in an effort to trim available supplies of beef and raise prices.
Last Thursday, the Choice boxed beef cutout was up 5 cents to a mid-day
price of $144.66, while the Select gained a penny to reach $138.85.
Week-to-date harvest through Thursday was estimated at 491,000 head,
lower than the same period a week earlier when the tally reached 497,000
head, and 2006 numbers of 495,000 head.
Market analysts last week cautioned producers to
pay close attention to the big picture during the weeks ahead. The
recent downturn in the market has quickly sapped the economy and last
week, a few economists were beginning to speak about the possibility of
a recession if the market isn’t able to regain its footing after sharp
losses. The possibility of a long-term downward trend or, worse, an
actual recession, could quickly impact the beef market as consumers pull
back on their spending.
“The supply side of the market is pretty well
established right now. We expect on feed numbers and placements to be
below a year ago,” said Livestock Marketing Information Center Director
Jim Robb. “What isn’t well established is the demand side. Consumer
spending trends are notoriously difficult to pinpoint and the big
picture is important. Some of these shocks to the market could be
difficult to absorb because the economy is on much thinner ice now than
it was a year ago. The livestock industry needs to pay attention to the
macro-economic situation in the U.S. right now.”
The impact of last week’s stock market
instability could quickly spill over to other areas of the economy,
scaring consumers enough to cause a cutback in household spending which
accounts for two-thirds of all economic activity in the U.S. Robb said
that could contribute to a sharp drop in the beef cutout and,
subsequently, a decline in fed cattle prices.
“In other countries, consumers tend to cut back
on the amount of protein they purchase when money is tight, turning to
other foods. In the U.S., consumers don’t necessarily cut back on their
protein intake, instead they tend to trade down for lower priced cuts of
meat or cheaper proteins, so things like less expensive cuts of beef,
pork or poultry become the protein of choice and that has a pretty
immediate effect on the more expensive middle meats which causes a drop
in the Choice cutout and the result is a drop in fed cattle prices,”
Robb said. “Now, I’m not saying we’re going to
drop to $80 fed cattle, but it could have an impact.” Robb said the
international market, which has played a key role over the past year in
supporting the market, was also starting to show signs of weakness.
“Exports to Mexico, which had been one of the
only bright spots, are increasingly a concern in the meat complex. The
June numbers continued to show a downward trend in the amount of all
meats being shipped to Mexico,” Robb said. According to USDA data for
the month of June, the latest statistics available showed that beef
exports were down 20 percent from the same period in 2006. Likewise,
pork exports dropped 43 percent and broilers were down 11 percent from
Western Video Market (WVM) held their video
auction with a 90,000-head run in Cheyenne, WY, last week and saw strong
sales and good demand. Heavy feeders sold mostly for immediate delivery,
though some sold a few dollars higher with later delivery dates, mostly
in September. The north-central region saw 1,015 head of 850-875 lb.
steers sell for an average of $113.64, with an Aug.-Sept. delivery date
attached. The same region also saw 4,655 head of five-weight steer
calves selling for as much as $134.50, with an average of $127.91 with
an Oct. delivery date.
Ellington Peek of Shasta Livestock and
co-founder of WVM, said the sale demonstrated an extremely strong calf
market, with good sales on the yearlings across the board. Peek also
explained that heat and drought in some areas made a few calves tough to
“The calf market is just excellent, but they
were a hard sell on the West Coast,” said Peek. “We had probably 92
percent of the calves sell, which is still good demand, but anything for
near delivery wouldn’t sell. It’s so dry in the far western states that
you just can’t believe it. There’s a lot of guys out there that just
flat don’t have any grass to go to,” he explained. Peek also mentioned
that sale attendance was very strong, and that somewhat dry conditions
in other areas didn’t seem to hamper overall demand.
“We had a packed house there in Cheyenne,” he
said. “I think we served close to 400 meals on one day. For most areas
of the West, everything just sold really well. Even the Intermountain
West, where places had been dry, there seemed to be some fair demand,”
Extreme heat and humidity continue to take their
toll on auction markets in other areas of the country, mostly affecting
receipts, but also depressing prices in some cases. The effect of USDA’s
13.1 billion bushel August corn report has mostly been mitigated by the
low movement of cattle due to the high temperatures.
Oklahoma State University Extension Livestock
Marketing Specialist Derrell Peel said last week that cow/calf producers
need to look closely at the market when making decisions about whether
or not to feed their own calves this year. He said high demand for heavy
weight feeder cattle and a cost of gain in the 75 cent per pound range
for steers presents an opportunity to add weight before selling calves,
which remain in high demand due to short supply.
“What this means for stocker and cow/calf
producers is that there is an opportunity to look at putting additional
weight on animals before they go to the feedlot. Rather than selling
calves at weaning or turning over stocker cattle at lighter weights,
producers should evaluate the potential for additional time and gain in
stocker or retained ownership programs,” Peel said. “Obviously, it will
depend on having viable production programs, feed resources and other
management considerations, but the incentive is quite strong. When feed
grain prices are high, the returns to forage-based gains improves.
Responding to this incentive is precisely the mechanism by which the
cattle industry exercises the flexibility we have to utilize less grain
and increase the competitiveness of beef relative to other meats.”
Meanwhile in the cash market at El Reno, OK,
last week, feeder steers were $1-2 higher than during the previous
week’s sale, with feeder heifers $1-3 higher. Demand continues to be
very good as the number of feeders remains low this summer. Steer calves
were steady, while heifer calves were steady to $2 lower. Demand was
moderate for calves. Feeder cattle were in thin to moderate flesh
In Bassett, NE, 3,400 head were sold last week
and the bulk of feeders trended steady, with a higher undertone noted on
seven-weight fall calves. The run consisted of average to good quality
fall calves and yearlings. Demand was good on all classes and weights.
Compared with the previous sale, feeder steers
and heifers sold steady in Hub City, SD, last week. Demand was good with
several consignments offered in load lots. Supply was 98 percent over
In Davenport, WA, last week, 625 head sold, and
compared to the last sale, feeder cattle remained firm in a light test.
Trade was active with good demand, with feeders making up only 25
percent of total receipts. — WLJ