September 18, 2006
The contract versus cash basis levels that had
been encouraging feedlots to hold cattle and add weight finally reversed
last week and cash is once again “king.” The live cattle contract trade
slipped below cash prices in a big decline on Wednesday last week and
the move almost immediately spurred sales of live cattle last Thursday
Cash trade in the north developed in a range of
$138-140 live. Bids in the south, as of press time, were narrowing the
gap between ask and offer. Bids were up to $88 and offering prices stood
in a range of $90-91. Trade was expected in the $89-90 range in the
southern tier. Prices last week were expected to be down $1.50 to $2.50
from the previous week.
According to HedgersEdge.com, packer margins
slipped solidly into the red. On Thursday last week, packers were
estimated to be losing $20.15 per head harvested. Losses were created by
the high prices paid by packers over the last several weeks and failures
at the packer level to boost carcass cutout values. Despite cutbacks in
slaughter volume last week, including reports of dark plants, the Choice
and Select cutout values turned sharply lower last week. Thursday's kill
was scaled back to 128,000 head. For the week to date, USDA estimated
harvest at 499,000, up from 388,000 head the prior week which was
shortened by the Labor Day holiday. Large cuts in the harvest speed over
the past several weeks haven't achieved the desired results and Choice
cutout values had slid to $146.36 by Thursday last week. That's a
decline of more than $2 from the previous week when USDA estimated
harvest at 591,000 head the week ended Sept. 9. Select values were also
lower, trading at $136.85, down $1.27 from the week prior. Despite the
slump in cutout values over the last week, prices remain well above year
ago levels. The same week in 2005, Choice boxed cutout values were
$140.56 and Select was trading at $129.39. There were some reports last
week of large supplies of Select product in the pipeline leading to
additional weakness in the boxed beef cutout. If those prove to be true,
it is likely to add to the decline in cutout values in the weeks ahead.
Some of the strength can be attributed to rising
prices in other proteins. Jim Robb, director of Livestock Marketing
Information Center, said increases in the boneless, skinless chicken
breast prices, as well as stronger pork values, had lent some support to
the beef market. This is particularly true with the end meats, which
will continue to gain favor with retailers and consumers as the weather
"Competing meats are certainly less of an issue
than they were early in the year. Now with boneless, skinless chicken
breasts up around $1.50 per pound, beef prices don't seem quite as high
for consumers," Robb said.
Unlike the competing meats, the market opening
in South Korea did little to move the markets last week. Because export
volumes are expected to be very small for the near-term, as are
shipments to Japan, it is doing little to boost prices. However, as
volumes begin to increase, so will the value added to beef values
domestically. Just two weeks ago, the popular beef bowl made with U.S.
beef was added to the menu at Yoshinoya, a leading Japanese fast food
chain. Demand for the product was so strong, a million servings were
expected to sell out in a single day.
As previously mentioned, the Chicago Mercantile
Exchange (CME) trade last week was mostly lower for the week as cash
values declined. Fund selling as contracts dropped below critical
support levels added to the weakness in the market. Last Thursday's
session saw both the October and December contracts close below their
40-day moving averages. Contracts were down across the board with
October leading the way down, off 107 points to $89.25. December was 60
points lower, to $89.25, and February was also down 60 points, to
$90.27, at the end of the session.
Economists say feeder cattle have appeared to have reached their
seasonal highs but far later than most analysts had anticipated. Feeder
cattle have been on fire, according to livestock auction markets, and
the reasoning is up for speculation. The CME shows futures down
significantly from the week prior but auctions are still rolling on and
even up $2-3, and as much as $7 in others.
In Carthage, MO, at the Joplin Regional
Stockyards, steers of all weight classes and heifers over 550 lbs. were
$1-3 higher, heifers under 550 lbs. were $1-3 lower. Demand was moderate
to good, supply moderate to heavy. Market officials said dry pastures
are still the norm and chances of rain are in the forecast, but it "may
be too little, too late."
In the country's largest livestock auction market, Oklahoma National
Stockyards, 11,500 went through the ring last week, up nearly 250 from
the week prior. Feeder steers and heifers were up as much as $7 per cwt.
For the most part, steers and heifers were $3-6 higher. Steer and heifer
calves in Oklahoma City were steady to $2 higher with good demand.
In Philip, SD, at the Philip Livestock Auction,
4,763 sold, up significantly from the prior week’s 1,897 head. Feeder
calves and yearlings sold mostly steady with the 950- 1000-lb. heifers
selling $3. Feeder cows sold $1-2 higher. Market officials said like
“usual, calves with all the shots were in demand.”
Last Tuesday at the Live Oak Livestock Auction
located in Three Rivers, TX, 2,205 head sold compared to only 752 last
week. Compared to last week, feeder steers and heifers were steady to
firm. Feeder cattle accounted for 77 percent and slaughter cows and
bulls, 23 percent of the run. In the feeder supply, steers made up
approximately 57 percent of the run, heifers 43 percent; steers and
heifers over 600 lbs. totaled approximately 6 percent.
At La Junta Livestock Commission in Lajunta, CO,
steer and heifer calves sold steady to $1 higher. This week's supply in
La Junta included 80 percent feeders, 20 percent slaughter cows and
bulls. In the feeder supply, steers made up approximately 75 percent of
the run, heifers near 30 percent.
Although prices suffered on the board last
Thursday, auction markets still witnessed very positive prices. Markets
also witnessed a higher number of head go through the ring as a result
of producers trying to take advantage of the very positive market prices
before they begin the downward cycle, according to Jackie Moore,
co-owner of the Joplin Regional Stockyards. Due to recent rains in the
central Plains, producers are purchasing stockers to get ready for
winter grazing. In drier areas, the prices are staying strong due to
increasing demand, in part due to South Korea opening their doors to
On CME, prices were lower across the board.
September contracts traded 85 points lower to settle last Thursday at
$117. Even lower were October contracts, which dropped $1.45 when
compared to the prior day's $116.75. October closed at $115.30. November
contracts suffered the most, dropping nearly $1.60 from $116.50 last
Wednesday. Thursday trading stopped at $114.93.
Futures are predicted to have gone as high as
they are going to go for the season, but in reality, livestock markets
are strong, with few predictions as to how long this can keep going on.