Live cattle prices show weakness

The fed cattle market showed a little weakness with early trade at $92 live and $147-149 on moderate volume in Nebraska last Wednesday. Although volume was not enough to call a trend some analysts pointed out that it would make the expected increase to $94 difficult to achieve despite underlying strength in the market. Choice boxed beef continued to hover at $155.32 last Thursday, up 32 cents from the previous day and Select was steady at $152.61. Packer margins were firmly on the positive side of the equation and slaughter volume was heavy for the week as a result.

Adding support to the fed cattle markets has been a sharp decline in steer and heifer carcass weights over the past two weeks said Livestock Marketing Information Center (LMIC) Director, Jim Robb.

"The decline in carcass weights shows that we have done a good job of moving cattle and are clearly pulling from the supply of calf-feds," Robb said. "We’re not going to drop as low as we did last year, because the winter wasn’t as bad this year and we have been placing heavier cattle, but there is definitely going to be a seasonal decline in steer and heifer weights which is going to be supportive of prices."

He said USDA data shows that steer carcass weights had dropped sharply from two weeks earlier, falling by 9 lbs. in that period while heifer carcass weights have dropped from 760 lbs. to 747 lbs. in the same period. The reduction in average carcass weights means that packers will have to keep the pace of harvest up to meet better than expected demand from the export and wholesale sectors. Robb said demand has picked up quickly this spring as the weather improves and retailers begin to feature more beef offerings to draw consumer dollars. The result has been robust movement of beef out of cold storage as grilling season approaches.

Robb said the retail pipeline is mostly full now and the real test for beef will come once retailers gauge demand and purchasing at the consumer level. Once consumers have an opportunity to pick up some beef, when it comes time to refill the pipeline, that’s when we will be able to better determine consumer demand, Robb said.

In the interim he said he expects fed cattle and beef prices will trade mostly sideways to perhaps slightly lower into June.

"Right now there are a number of things, such as wholesale and speculative demand, supporting the market at current levels, but once we get past this point we’ll have to wait to see how effectively retailers can move beef. There has been some attractive featuring recently in Denver, so we’ll have to see how effective that is," said Robb.

The cattle on feed report due out May 16 also appears to be shaping up to support the market as a result of expectations that fed cattle marketings will be up sharply as a result of increased purchasing and the benefit of one additional marketing day during April. Placements and cattle on feed numbers are also expected to drop for the month. According to Robb, LMIC estimates project a drop in placements during April in the area of nearly 5 percent. Likewise, he said their projections show about a 2 percent decline in the total on feed numbers.

"On feed numbers at 98 percent of a year ago levels is a 3 percent transition over the last month. That, combined with the drop in carcass weights shows that cattle feeders are doing a good job of moving through cattle, which is important. We expect marketings will be up between 9 and 10 percent," Robb said. "We expect that placements in Texas are going to be down significantly due to the decline in the number of Mexican feeder cattle coming across the border, but the wildcard is going to be in Colorado. With the pending purchase of Five Rivers Cattle Feeding, there could potentially be a big drop there since the feedlot could be changing hands soon."

He said the uncertainty surrounding the nation’s largest feedlot operation could potentially result in a sharp drop in the number of cattle being placed in the yard, leading to another sharp drop in placements for the state and potentially pulling numbers lower.

Robb pointed out that the number to watch as the industry moves toward summer and the certainty of higher corn prices is the turnover rate in feedlots as the industry adjusts to higher feed costs by placing heavier cattle. December new crop corn prices topped the $6.45 per bushel mark last week on the Chicago Board of Trade. Those prices mean that more feedlots will opt to send lighter-weight cattle back to grazing programs in an effort to defer costs, meaning shorter on feed times.

Large runs of heavier feeder cattle dominated many auction markets last week as the bulk of offerings include heavy cattle coming off of winter pasture. Due to the high cost of gain in most feeding operations, buyers have preferred the larger cattle as a way to reduce the number of days on feed. Wariness of corn futures has caused a number of feedlots to scramble for cattle at current prices, even though prices remain quite high when considering the elevated cost of gain.

"The only visible hesitancy to be seen by feedlots seems to be on contract prices, later this summer for grass yearlings and for fall delivery calves," noted DTN analyst Walt Hackney. "The reluctance centers around gain costs made uncertain by the CBOT traders’attitudes toward cash corn values after July and August."

Hackney said that many feedlots are still purchasing cattle based on cost of gain figures using cheaper stored corn.

"It seems the larger feedlots and some of the medium-sized yards may have enough pre-bought corn to carry them into or through July, and are able to forecast feed costs accurately enough to gamble on the current prices being paid for feeder cattle," Hackney said. "However, the real reluctance in contracting cattle for delivery later depends on where corn may go after the mid-summer periods."

Darrell Mark, professor of agricultural economics at the University of Nebraska agreed, saying that the management strategies used by feedlots varies widely, depending on where they are sourcing their feed from.

"The ones with the low feeding cost of gain have been aggressive about managing corn price risk, but also ingenious about finding alternative feedstuffs, contracting them below market average prices, and learning how to store and feed the products," Mark explained. "The question I’m often asked is why are some feeders making money and others are losing so much money. While there are a myriad of possible reasons, it appears that one likely difference among these operations is how they manage price risk."

Last week’s sale at the Oklahoma National Stockyards in Oklahoma City, OK, saw a total of 10,136 head received on sale day. Compared to the previous week, feeders steers and heifers were steady to $1 higher, with the full advance on heifers. Calves were near steady in a light test. Demand was noted as being improved for Brahman-influenced cattle. Cattle quality was less attractive with several number ones and twos available as well as cattle in fleshy and full conditions. More clean-up type of cattle showed up, and the run continued to include fairly large numbers of heavy feeders, though the May feeder runs are expected to be lighter than normal as record high wheat prices have discouraged graze-out. Steers weighing 674 lbs. sold for $110.68, while heifers weighing 679 lbs. sold well at $103.17.

The Joplin Regional Stockyards near Joplin, MO, had 6,000 head sold last week with steer and heifer calves and yearlings steady to $2 higher. Demand was moderate to good, with a moderate supply. Feeder steers weighing an average of 675 lbs. sold for $108.58, while 684 lb. heifers sold at $99.26.

In Dodge City, KS, a higher undertone was noted on the few sales of steers and heifers from 300-700 lbs. Steers from 700-850 lbs. were steady to $2 higher on a light offering, with weights of 850-900 lbs. dropping $2-3 lower. Heifers weighing 750-850 lbs. were $1-3 higher, while 850-900 lb. offerings sold $5-6 higher. Steers weighing 711 lbs. averaged $109.85.

The Huss Livestock Market in Kearney, NE, received 1,550 head for last week’s sale, where a steady to firm undertone was noted despite too few comparable offerings to establish an adequate market trend. Demand was moderate to good and trade activity was moderately active. Feeder steers weighing 718 lbs. sold for an average of $109.91, while heifers weighing 730 lbs. sold for $98.85.

Last week’s sale at the La Junta Livestock Commission Company in La Junta, CO, had 1,132 head available, where a trend was not established due to the light seasonal run of feeder calves and yearlings. Trade and demand were both noted as moderate. Steers weighing 550 lbs. sold for $121 at this sale, while fancy 532 lb. heifers sold for $110.50.

At Miles City, MT, Compared with the last reported auction, feeder steers and heifers sold with steady to higher undertones. Demand was very good for light-fleshed cattle to go to grass. Steers weighing 724 lbs. sold at $110.34, while 727 lb. heifers sold for $95.67.

The Stockland Livestock Auction in Davenport, WA, received a total of 1,146 head last week, where compared to the previous sale, feeder cattle were uneven, with steers going $2-4 higher and heifers moving $2-3 lower. Trade was active with good demand for steers, while trade was slow with light demand for heifers. Steers weighing 672 lbs. sold for $112.06, while feeder heifers weighing an average of 674 lbs. sold for $91.35. — WLJ