Cattle trade last week was expected to get underway following the release of the cattle on feed report last Thursday with trade steady to slightly higher priced than the previous week’s $89.50-90 live and $142-143 dressed range. At mid-day, buyers and sellers were still a few dollars apart last Thursday with cattle priced at $91-92 live and $144-146 dressed basis. The USDA’s cattle on feed report, released after the close of the Chicago Mercantile Exchange, showed mostly bullish numbers for the industry and was expected to add support to the positions being taken by feedlots. Total numbers of cattle on feed were up just 2 percent over March 1, 2007, at 11.9 million head. Placements of cattle and calves into feedlots during February were reported below analysts’ expectations, totaling 1.72 million head, up just 4 percent above February 2007. Meanwhile, marketings of fed cattle during February beat analysts’ pre-report expectations, increasing 4 percent over 2007 totals to reach 1.78 million head. That number is 11 percent better than the February 2006 number.

Much of the rise in marketings can be attributed to better than expected beef demand and increasing exports, two significant keys to maintaining and increasing the sagging beef cutout values. University of Nebraska economist Darrell Mark pointed out that the export picture continues to improve, boosting fed cattle prices and adding support to the beef cutout values.

“The U.S. dollar index futures averaged $75.285 in January 2008, down from $76.70 in December 2007 and $84.43 a year ago,” he said. “The weakening dollar is likely contributing to lower beef imports as well. January 2008 beef imports, for example, were down 20 percent compared to January 2007.”

Mexico and Canada remain the two largest buyers of U.S. beef with 68 percent of all shipments going to those two countries, particularly in light of the sagging U.S. dollar, Mark explained. “In January, beef exports to Canada and Mexico were up 89 percent and 15 percent respectively. Compared to the five-year period prior to the BSE trade disruptions (1999-2003), beef exports to these countries were 44 percent and 8 percent higher in 2007,” Mark said. “However, the U.S.’ two largest beef export customers prior to 2003 (Japan and South Korea) continue to lag in U.S. beef purchases compared to these historical levels. Japan and South Korea’s beef imports from the U.S. were less than 20 percent of the 1999-2003 average. Still, beef exports to Japan and South Korea were up 16 percent and 171 percent in January compared to a year ago. Significant increases in exports to Russia and other countries also occurred in January.”

The rise in export volumes bodes well for cattle producers who are facing a tough domestic market for products which are higher priced than competing proteins. The summer grilling season, which is just around the corner, will help bolster demand for Choice middle meats and add some support, but with household budgets constrained somewhat and a pulse of calf-feds coming in another month, the export markets will be key to building additional value into the cutout this year, which last week stood about $20 per cwt. below year earlier levels.

Slaughter volumes continue to add pressure to beef cutout prices. Last week through Thursday, packers harvested a total of 503,000 head. That is 1,000 head more than a week prior and 6,000 more than the same period a year earlier. The volume of cattle being harvested by packers is outstripping current demand in the marketplace and the result of the situation is a declining cutout value. Choice last Thursday fell another 41 cents from the previous day, to $141.51, while Select prices fell 64 cents to trade at $139.71. The volume of Choice-grading cattle in the slaughter mix is also adding to the dampened Choice cutout. Last week, 58 percent of the slaughter mix was grading Choice, well above the traditional 52-53 percent normally seen. The additional volume of available Choice product is resulting in a Choice/Select spread which has been extremely slim for the past several weeks. As summer demand increases with warmer weather, the spread could begin to widen, provided consumer discretionary income isn’t reduced any further.

Feeder cattle

Receipts at major auction markets around the country were variable last week, as the tail end of the March feeder cattle run straggled into some sale barns, while other markets experienced significant jumps in the number of cattle marketed.

Most prices trended lower but remained fairly solid overall when considering the large seasonal supply. Most buyers recognize that there will be fewer cattle marketed this year when compared to normal, as drought in the southeast and a lack of available winter wheat pasture in the southern Plains forced many to hold calves over.
“Feeder cattle trading maintained an active pace, possibly with the exception of Oklahoma City, which was called lower,” noted Walt Hackney of the Hackney Cattle Company. “Some of this could have been quality driven, because the run from the wheat fields is winding down and more tail-enders may have been in the mix. Strong buyer interest remains in most of the other market areas.”

Jim Sartwelle, livestock economist for the American Farm Bureau Federation, said buyers will have to begin searching harder for good deals on cattle of lesser quality, and that heifers may begin to become more attractive once the large spring supplies begin running out.

“Everybody sees the high feeder cattle prices even in the face of this expensive corn,” said Sartwelle, “but I do think there’s a cloud inside the silver lining. The wide price gaps between steers and heifers and between number one steers and number two steers is a little bit too big in a lot of places, especially in some of the markets out west.”

Sartwelle said that because buyers are so picky for the type and kind of cattle they choose to feed, they may be driving the price to a point where the higher quality feeders stand a smaller chance of making money.

“I just don’t think that $5 corn can continue to be a reality for the cattle which are the cream of the crop,” he said. “Buyers at some of these markets will have to start feeling a little better about taking some of the heavily-discounted cattle to put on feed because they sure won’t make any money on the best quality feeder cattle.”

Despite fears of what the recent economic downturn might do to the cattle markets, Sartwelle says the industry is looking at a situation where cattle markets may continue to hold steady even in the rough times ahead.

“It’s a total supply-driven market right now,” Sartwelle explained. “Our calf crops aren’t getting any bigger because there’s no expansion in the cowherd, and it seems that as long as there are buyers willing to pay a premium for feeder cattle, we should continue to see strong undertones in most local markets.”

At the Oklahoma National Stockyards last week, cattle sold mostly $1-2 lower, closing at the full decline. Steers weighing 726 lbs. sold for $102.18, and feeder heifers weighing 725 followed behind at $91.64.

The Joplin Regional Stockyards near Joplin, MO, sold steers under 600 lbs. and heifers under 650 lbs. $2-5 lower. Steers over 600 lbs. and heifers over 650 lbs. went $1-3 lower.

In Bassett, NE, the Bassett Livestock Auction saw a total of 3,088 head at last week’s sale, where a fairly steady undertone was noted. Good cattle quality and good buyer demand was noticed. Steers weighing 740 lbs. sold for an average of $111, while heifers weighing 777 lbs. sold for $91.90.

At La Junta, CO, last week, feeder steers and heifers under 600 lbs. were $3-5 lower, with weights from 600-700 lbs. going $1-3 lower. Yearling feeder steers were steady to $1 lower, while yearling feeder heifers were steady. Steers weighing an average of 723 lbs. sold for $103.50, with heifers weighing 710 lbs. lagging at $94.50.