— Feeders gain on spring prospects, corn decline.
— Calves stronger on grazing outlook.
Optimism that last week’s fed cattle prices would be stronger than the
previous week’s level of $92-93 live, $145 dressed still hadn’t come to
fruition as of Thursday. Fed trade was almost nonexistent last week with
packer bids and cattle feeders asking prices being spread up to $6
apart. Analysts said they were expecting fairly active Friday afternoon
trade, and that it would probably be at mostly steady money, if not a
little softer than two weeks ago. Through mid-afternoon Thursday, only
light trade had been reported in Nebraska at mostly $89-89.50 live,
$144-145 dressed. Southern markets were inactive.
Packers were not very active in the market last week despite seeing
profits going over $22 per head. Analysts said packers purchased more
than enough cattle during the first two full weeks of January to meet
depressed slaughter chain speeds for a majority of the month.
Between last Monday and Thursday packers had slaughtered 457,000 head of
cattle, 7,000 fewer than the previous week, and a daily average of just
over 114,000 head. Under normal circumstances, daily slaughter usually
ranges between 125-130,000 head. For the week ending Jan. 15, 587,000
head of cattle were processed, a weekday daily average of 117,500 head.
Several analysts were skeptical whether last week’s final slaughter
figure would hit 575,000 head, compared to a “normal” weekly kill volume
of 650-675,000 head. Year-to-date slaughter, through Jan. 15, totaled
1.161 million head, 137,000 head below a year ago.
“Packers just don’t need many cattle for nearby production runs,” said
Reed Zuhrmann, M&Z Livestock Analytics. “For the year packers have
processed more than one day’s worth of cattle less than last year. It
shows in their lackluster demand for cattle and their desire to still be
bidding under $90 live, $145 dressed.”
In addition, finishing weights of cattle are 20 pounds heavier than they
were a year ago at this time and average carcass weights are 17 pounds
heavier. “Fewer cattle are needed to produce even a similar amount of
beef, compared to last year, and right now we are at least 10 percent
off of total ‘normal’ demand, including pre-BSE export demand levels,”
Boxed beef markets were starting to soften last week, after a
significant spike in both Choice and Select beef prices the week prior.
At the close of business last Thursday, Choice beef was at $154.20,
compared to $157.32 on Tuesday. Select dropped about $2 from Tuesday’s
close, getting down to $149.84 at the end of business Thursday.
If boxed beef prices dropped much further, packers would be close to
going back to reporting red ink, and that was also influencing their
decision to wait on buying fed cattle, analysts said.
Live cattle futures were less than supporting to the cash market,
particularly on Wednesday when losses ranged between $1.25-2 on most
contracts, including February, which dropped $1.77 Wednesday, to $89.35.
While cattle feeders were looking at yet another week of negative
margins—mostly $40-60 per head—they were more than inclined to get into
the heavy feeder market last week and buy them at stronger prices than
the week prior. In most cases, 750-pound or heavier steers were bringing
mostly $2 more than the week ending Jan. 16.
There is still some optimism that the spring and early summer fed
markets could be stronger, and that bullishness got even stronger after
USDA indicated that beef trade with Japan could restart as soon as June.
In addition, corn prices cheapened further early in the week and several
sources said that it could be forward contracted at prices well below
$3.50 per cwt. The March corn futures contract fell below $1.95 last
The CME feeder steer index last Wednesday was at $106.36, compared to
$104.61 the previous Wednesday.
Stocker operator demand for calves and lighter stocker cattle was called
astronomical by several auction barn operators last week, and that
resulted in prices for calves ranging anywhere between $2-7 higher than
two weeks ago.
Grazing prospects across most major cattle producing areas are still
being called excellent, and several auction barn sources said most
stocker operators are buying calves now and not waiting to the last
minute when prices could be even higher.
The second week of January saw Southwest grazing areas get another 2-4
inches of measurable moisture, while more northern areas of the southern
and central Plains and the Midwest got another 1-3 inches. Northwest
markets were also strong as winter weather was hitting a lot of that
region as well.
According to Zuhrmann, cheap corn has helped stocker operators,
particularly in the central Plains and Midwest, get into the market
earlier than normal because feeding them corn and stalks the next two
months would be cheaper than paying another $8-10 more for grazing
cattle come late March, early April.
“This (price) run isn’t done,” he said. “I can sure envision $1.50
five-weights in some areas of the country. Canada’s influence on the
calf market won’t happen until the fall.”
Chad Kimball, an independent order buyer from Altus, OK, told WLJ that
he and several colleagues have had as many requests for heifer calves
and steer calves, and that they are being told to buy them at a discount
to steers of under $5.
“Stocker operators are not only bullish about the feeder steer market
come this spring, but they are also confident that a lot more heifers
will be demanded as cheaper alternatives to feeding out steers and there
is also that residual replacement female market that some of them could
be sold to,” Kimball said. — WLJ