September 4, 2006
Again, fed cattle markets were slow to develop last week. Packers were
reluctant buyers looking into the Labor Day weekend, the last big
grilling holiday for summer. Labor Day is a pivotal point for market
direction and strong meat sales are often required for the market to
advance into positive territory during the following weeks.
Packers are at break-even levels and will be trying to get some positive
margin back into the picture. Packers were bidding $86 for cattle and
feeders were looking for $90 as of last Thursday. The boxed beef markets
were significantly softer last week, down $5 on the Choice cutout at
$145, which is considered a market threshold. Ironically, packers are
keeping processing lines moving rapidly, slaughtering 384,000 head
midway through last week. This was 3,000 head more than the week before.
The last major fed trade was Friday, two weeks ago, trading at $87-88
live and $138 dressed. As of Thursday, it looked as if trade would
continue the same pattern and any significant trade wasn’t expected to
take place until Friday at $88.
Slaughter volume, too, remained strong and had some perplexities going
into the Labor Day weekend. Most recently, slaughter data shows that
kill numbers are up 3.9 percent from a year ago. Much of that additional
slaughter is from increased cow slaughter. In addition, data shows beef
production up 6.1 percent.
Futures markets remain strong with a large cash discount. Across the
board, on the Chicago Mercantile Exchange, (CME) last Thursday,
contracts were down with the exception of August. August contracts
traded at $90.40, which was up 53 points from last Wednesday’s trade.
October and December contracts dropped five points. October settled at
$92.83 last Thursday and December closed at $92.85. Market watchers have
been waiting for the spread to correct itself, which was expected last
week, but wasn’t very dramatic.
Andy Gottschalk at HedgersEdge.com said the squeeze on August cattle
continues and should provide plenty of fireworks this week as the
contract expires. The squeeze on August has the “tail wagging the dog
and it appears the dog likes it that way.”
Gottschalk also said that the basis between the cash market and the
October board is the second largest in history, currently at $4.80. He
said the large commodity funds have invested heavily in cattle keeping
this basis wide. “If the funds become bearish, it could get ugly and
they don’t pay attention to the fundamentals of the cattle industry.”
Packers held what some called distressed meat sales last week, which
essentially go unreported on the cutout. This would indicate that
packers are forced to move product before it spoils. The cold storage
index showed that supplies were significantly larger.
It was also mentioned that packers were attempting to price November
product to wholesale buyers at substantially higher prices—$165 based on
the cutout. There were no takers, sources said.
The Choice/Select spread has narrowed quite a bit over the past few
weeks. Now at $10, the volume of Choice product hasn’t expanded at all
since the spread was at $22. The grading report has been fairly steady,
showing the industry is producing only 50 percent Choice product,
leaving packers to search for enough Choice product to fill demand,
which continues to grow. However, as prices continue to climb, retail
buyers may begin to look for values in the Select product rather than
continuing to pay higher prices for Choice cuts. The choice cutout was
at $145.61 and Select at $135.44.
Most auction markets across the country last week reported higher prices
for feeder cattle. Renewed rainfall and reports that the corn crop
yields are less drought stressed than anticipated added optimism at
auction markets last week. Rain in the southern Plains has improved the
grazing picture slightly as well as hopes that there is more on the
horizon. Also helping support higher prices was the continued strong fed
cattle market. As a result, most classes of feeder cattle moved $1-3
higher with some instances as much as $10 higher than the previous week
on lightweight steers and heifers.
On the CME, last Thursday’s feeder cattle contract trade was lower
across the board despite firm fundamentals early last week providing
support and a spillover effect from the live cattle contract trade.
According to Virginia Tech commodities marketing agent Mike Roberts,
live cattle prices, tight feeder supplies, and firm cash feeders lent
support to the market last week. Feeder supplies outside feedlots remain
tight amid improving grazing conditions in the southern Plains due to
rain. The CME Feeder Cattle Index for Aug. 25 was placed at
$117.02/cwt., up 82 cents per cwt., its highest level since Nov. 28,
2005. Last Thursday, the August contract went off the board at $116.90,
just 15 points lower than the prior day. September feeders shed 47
points to close at $116.37 and October feeders were down 65 points,
closing at $116.50. November contracts posted the day’s largest drop,
losing 80 points to close the session at $116.32.
In Oklahoma City, OK, last week, feeder steers and heifers sold $1-2
higher. Steer and heifer calves were generally steady although buyers
were being very selective for kind and flesh condition. Demand moderate
to good, especially good for thin fleshed steer calves. A cool front
pushed through the state over the prior weekend lowering temperatures
some 20 degrees and much of the state saw from one-half to seven inches
of much-needed rain. Maybe a little late for the hay crop, but
definitely beneficial to ground that will soon be planted in wheat.
In West Plains, MO, steers and heifers sold $2-3 higher last week, with
the majority of 350- 450-lb. heifers $2-4 higher. The exception was
700-lb. class steers, which were no better than steady, yet several
unweaned bull calves sold steady to $3 lower. Supply was called moderate
to heavy on good demand. Good rains had been hampering movement of
cattle, but according to reports from West Plains, several producers
took advantage of a break in the weather last week to use stockyard
facilities to begin the weaning process of their calves, while others
elected to use the new buyers’ labor and blade to steer their bull
In Dodge City, KS, last Wednesday, feeder steers from 300-600 lbs. were
$2-5 higher, with those 600-900 lbs. selling $3-4 higher on a light
test. Heifers 350-600 lbs. were called steady to $5 higher, and those
600-900 lbs., $2-3 higher on a light test.
In Philip, SD, where producers struggling through the severe drought
finally received some beneficial rain last week, steer and heifer calves
sold steady to firm. Feeder steers and heifers were called steady to $2
higher. Buyer demand was best for load lots of calves, and moderate on
Out west in Famoso, CA, last week, stocker cattle were called $2-3
higher and feeders were steady on a good quality run of cattle. Stockers
met with excellent demand, especially the greener kinds in the 500-
600-lb. range. Feeder cattle were also highly sought after, particularly
the 650- 800-lb. steers and heifers.