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Monday, September 13, 2004

Cash feds at impasse

by WLJ
Last weeks fed market started out with packers and cattle feeders being $5-7 apart, which didn't produce much through Thursday, only 50,000 head had traded nationwide. Nebraska dressed trade was light and traded at mostly $80 live, $127 dressed, steady with a week earlier.
Most cattle feeders were asking $83-84 live, and $132 dressed, while packers seemed content to bid $78-79 live, $126-128 dressed. Packers raised bids to $81 late in the week but still didn't produce much trade.
Larger than expected beef supplies, and less-than-normal beef demand continue to wreak havoc on seller's abilities to reach cattle breakevens.
"The past three months has seen U.S. net beef supplies as large, or larger, than a year ago, and we have 10 percent less demand because of no exports," said Jason Kraft, analyst with CattleHedging.com. "A major (positive) turnaround, isn't in the cards right now."
Kraft and several market analyst colleagues agreed that beefed-up product supplies are resulting from Canadian beef imports into the U.S., with no ability to absorb them internally.
"Domestic beef production is still well below last year," said Reed Marquotte, M&Z Livestock Analytics. "However, we are being taken over the top by the amount of beef coming from north of the border. It's not a matter that it shouldn't be coming across, but more a matter that the amount of Canadian beef is putting us in a beef supply glut, that we are having a hard time digging out of."
There was a little glimmer of hope coming out of last Wednesday's boxed beef market, as almost 500 loads of fabricated cuts were sold on an immediate cash basis. Another 200 loads of grinding product and trimmings were also moved that day. However, the choice cutout was at 129.28, the lowest it has been for quite some time.
Analysts said that last Wednesday's meat trade should allow packers to get back into the market and buy fed cattle for immediate processing and fill up some emptying cooler space. In addition, that movement was said to be an indication that consumers are about ready to increase their beef consumption, which normally happens following Labor Day, and kids getting past their first few weeks of "back-to-school."
"We should be starting to turn this boxed beef market around, but it isn't going to be a real fast turn around, but we are close to bottoming out, or have already done so," said Marquotte.
Along with boxed beef movement improving, packers are expected to get back to "more normal" processing rates starting September 13, particularly since it follows up a four-day kill week.
Through Thursday, 375,000 head of cattle had been processed last week, and analysts thought the end-of-week total would be right around 525,000 head, including a moderate run on Saturday. The daily average of 125,000 head is 3-5,000 head below "normal chain speeds."
While boxed beef volume was picking up last week, prices for beef in cold storage hadn't improved, and that was keeping packers from coming to the table at steady money earlier in the week.
Additional price pressure was being put on fed prices due to concerns that showlists were 10-15,000 head larger than the previous couple of weeks, particularly in Kansas and Texas. Fed cattle marketings in those two states have been around 40-45,000 head each, the past two weeks. Market analysts said volumes needed to be 55-60,000 head the past few weeks to keep cattle feeders "remotely current."
Live cattle futures were an up-and-down roller coaster ride last week, and were waiting on cash cattle to determine which direction to really go. Last Thursday, October closed at $82.60; December closed at $86.47; and February settled the day at $87.35.
Feeders
losing
steam
While prices for feeder calves and yearlings are still running $10-15 per cwt higher than the same time last year, they have fallen $5-12 over the past few weeks, including a $3-6 decline last week.
Continued softness in the cash fed cattle market is resulting in cattle feeders starting their third straight month of significant losses, and that is forcing cattle feeders to rethink their ability to purchase feedlot replacements.
Even though feeder cattle markets are softer they are still well in the $1 range. Superior livestock Auction showed 870 lbs. steers trading at $105, which is still respectable. The light calves are not seeing as much decline, ultra lights, 350 lb. calves are trading in the $160 range, and the 550 lb. are between $110 and $130 range.
Feeder cattle futures have been under a great deal of pressure the past several weeks. With the fall contracts reaching a high of $118 and the September contract down to $110.55, subsequent months are discounting from there. The latest CME feeder cattle index showed average cash trade at $112.89 down $4 from a week ago. Ron Plain economist at University of Missouri points out that feeder cattle imports from Mexico in June were up nearly 84 percent from a year earlier. Feeder cattle imports for January-June were up 17.2 percent compared to the same period last year. However, total cattle imports were down 39.2 percent for the first six months of 2004 compared to 2003 because of the ban on live cattle imports from Canada.
Questions are continuing to surround fall corn prices, USDA's corn production report released last Friday had market watchers on hold to see whether or not the 2004 harvest will be as large as once expected, or if it will be 200-250 million bushels below earlier projections.
If the latter situation happens, traders expect corn futures could spike 20-30 cents within a week's time, which could put feeder cattle under additional pressure. — WLJ


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