The Canadian border situation played a role in advancing cattle trade
last week, with both fed and feeder cattle markets turning sharply
higher last week. Fed cattle moved up $3-4 live, to $94, and dressed
cattle were $6-8 higher, hitting $150 in the Northern Plains.
Nebraska feeders moved 64,000 head on Wednesday.
Southern Plains feeders were slower to trade and started trading
Thursday afternoon at $92-93.50 and moved 90,000 head. Feeders were
pricing cattle at $94-95.
There was a great deal of anticipation that the Canadian border would be
open to cattle trade on March 7, packers were clearly waiting for a
fresh supply of fed cattle and meat traders were also expecting to see
some better buys on boxed beef.
Canadian feeders were starting to get over their initial market impact,
fed cattle were trading at $92 Canadian two weeks ago. Just after the
injunction was announced fed markets quickly moved down to $80. Feeder
cattle took a similar hit and the heavier the cattle the bigger the hit.
There was speculation that this injunction may take as long as nine
months to get the legal process started.
The boxed beef markets turned stronger as Choice product advanced to
$153.06 at the close of business Wednesday, and Select was trading at
$147.58 on good volume. Meat buyers looking to fill Easter holiday beef
specials were expecting the market to move lower but were caught on the
wrong side of the market and had to pay more for boxed beef, which
advanced several dollars last week.
Higher boxed beef values gave packers the opportunity to enjoy a few
days of positive margins with their average breakeven at $91 against an
average buy for Wednesday’s slaughter at $89.49; they were earning
$18.55 per head, however, that was expected to be short-lived.
Estimated slaughter for the week ending March 4 was 598,000 head, up
24,000 head from the prior week. This was also reflecting a seasonal
increase in beef demand. Slaughter through Thursday of last week was
running 4,000 head larger than the week earlier, which should push
weekly slaughter over 600,000 head for the first time in several weeks.
As a result of the border remaining closed, several packers have
announced slaughter reductions. Excel announced slaughter reductions in
seven of its slaughter plants. Swift also indicated some reduced
Andy Gottschalk at Hedgersedge said that he “ fully expects other
packers to reduce their weekly slaughter levels. The demand base for
March is estimated to be 548,000 head a week”
Gottschalk also said the judge’s ruling disallowing the resumption of
Canadian live cattle imports served as catalyst to the higher fed cattle
prices achieved last week.
He said the net of this action will be to reduce annual domestic beef
production approximately 400 million pounds. The reduction in annual
domestic beef production resulting from the judge’s ruling will add
approximately $2 to the average annual fed cattle prices. It is now
likely that fed cattle prices should not trade under $87 through
Wayne Purcell, ag economist at Virginia Tech, said, “The courts are in
charge in the cattle markets right now, and it is hard to offer advice
in this type of environment. I have been bullish on cattle, live cattle
and feeder cattle futures, and perhaps we can just look to what has
happened and stay off short hedges on the live cattle contracts starting
with June and beyond and stay on long hedges in the feeder cattle, both
the March and the August.”
With the federal court action blocking the scheduled opening of the
Canadian border on March 7, it may be months before the border issue is
resolved, Purcell added. “If by that time we have seen beef shipments to
Japan starting again, we could see fed cattle prices in the summer
months near $100 again, perhaps even higher. But if the Canadian border
is opened and there is a reserve of cattle ready to come into the U. S.,
then we could see prices pushed down again. It is a difficult time to be
trying to read these cattle markets.”
USDA lowered its beef production forecast partially because of the court
injunction keeping the border closed. USDA is expecting beef production
to move down to 25.69 billion pounds. Also weather related feedlot
performance has reduced slaughter levels and carcass weights.
Jim Robb, chief economist at the Livestock Marketing Information Center
(LMIC), said he anticipates beef imports to increase to four billion
pounds this year, roughly a 20 percent increase.
Robb said that he expects markets to be volatile for the next several
Ron Plain, economist from the University of Missouri, said BSE continues
to dominate beef trade. Plain said, “The U.S. exported $3.9 billion of
beef and beef variety meats in 2003 but only $808 million worth in 2004.
In 2003, 9.6 percent of U.S. beef production was exported, but only 1.9
percent of 2004 production. U.S. beef imports increased from the
equivalent of 11.6 percent of 2003 beef production to 15 percent of last
Feeder and stocker steer and heifer prices trended anywhere between $2-5
stronger last week, as demand was called very good for moderate to light
offerings of calves and yearlings nationwide.
On the calf side, Southern auction barn managers indicated that weather
in the Southwest and southern portions of the Far West continue to be
abnormally wet and spurring thoughts of extended spring grazing of
calves and yearlings. Similar grazing prospects are being touted in the
eastern half of the central Plains in the Midwest, with several auction
barn reports from those states reporting not nearly enough cattle to
Texas and Oklahoma auction barns said that supplies were short last week
due to wet weather making it difficult for producers to get into their
cattle, load them and ship them to town.
Northern Plains and Intermountain West auction facilities are reporting
“very few” calves and stocker cattle being offered for sale, and those
that are being sold are moving to buyers in the Southwest or Missouri
and further east.
Heavier, more feedlot-ready prospects, were also seen bringing stronger
money last week as cattle feeders are starting to need more U.S. cattle
to make up for what they were anticipating buying from Canada. Auction
managers and sale reports from Colorado, Nebraska, the Dakotas and
Montana especially indicated that cattle feeders in those areas were
starting to feel short of cattle for spring entry into feedlots.
Market analysts credited the delay in Canadian feeder cattle entering
the U.S. for 50-60 percent of last week’s price rally on yearlings and
other placement-ready cattle. Stocker cattle prices weren’t affected by
that ruling, according to analysts, because USDA had not planned on
allowing feeder calves to go anywhere but feedlots.
Feeder cattle futures rallied last week, and that also helped cash
prices for heavier yearlings and calves. The March and April contracts
both got back over the $106 per cwt mark last week, while May found
itself eclipsing $105. Thursday’s market was a little softer. However,
analysts said that was the result of southern state fed cattle trade
being slow to get started.
In addition, cattle feeders in more northern areas of the country were
starting to report $25-50 per head profits, which helped them justify
spending a little more on feeder cattle. Southern cattle feeders were
still struggling to meet breakevens, market analysts said, and that was
slowing demand on heavier, more-placement ready cattle.
The CME feeder cattle index, for 700-850 pound steers, was at $103.16
last Tuesday, compared to $101.60 the previous Wednesday.
Slaughter cows & bulls
The prices paid for slaughter cows and bulls last week followed a
similar trend as most auction barns across the country reported $2-4
gains on all classes of slaughter cows and bulls.
The cow beef cutout was stronger at $111.41 up $6 from the prior week
and the 90 percent lean was $152.09.
Retailers are expecting demand to pick up on ground beef products,
particularly with the “grilling season” starting over the next couple
weeks. There is also expected to be a seasonal increase in fast food
demand, especially for burgers, as colleges and universities start to
send students off for spring break and a larger number of families plan
vacations over the next few weeks. — WLJ