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Friday, August 29, 2008

Competing proteins pose renewed concerns for beef

by WLJ

Competing proteins pose renewed concerns for beef

Trade issues could flood the U.S. market with lower-priced pork and poultry, limiting beef gains in the fourth quarter.

Fed cattle trade wrapped up early last week at mostly steady money despite weakness in the boxed beef complex and a steady decline in the futures market. In Texas and Kansas, cattle traded at $99 live with good volume moving ahead of the holiday. Corn Belt trade was in a spread of $154-156 dressed, with most trade reported at the top of that range.

Beef cutout values last week were moving lower for much of the week with disappointing movement out of cold storage warehouses. Midweek trade was light with only 96 fab loads trading, according to last Thursday’s mid-day report. Choice boxed beef was steady with the previous day at $160.98 while Select cuts were off slightly at $154.23. Slaughter volume last week remained robust with 505,000 head processed for the week through Thursday. That number was down from the previous week’s harvest, but it remained above the year-earlier level of 500,000 head.

Cow slaughter numbers for the year remain well above year ago totals, indicating that the current downward slide in calf production and total domestic herd size is likely to continue for at least the next year. For the week ending Aug. 9, cow slaughter stood at 132,292 head, sharply higher than year earlier totals of 106,950 head. High input costs are pinching producers and strong cull cow and calf markets are making liquidation and heavy culling an attractive option. The strong cow and cow beef markets are largely the result of a sharp decline in the amount of beef being imported to the U.S., making domestic cull cows a more attractively price option for ground beef producers. Last week’s cow cutout value stood at $139.38, down slightly from the previous week as a result of a decline in demand after buyers met their pre-holiday needs. The 90 percent lean traded at $174.23 while the 50 percent trim was also down slightly from the prior week at $92.71.

Most of the wholesale fabricated cut trade for the holiday weekend demand had been filled the previous week, so the light movement was of little surprise to analysts last week. The next key factor in determining market direction will be weekend clearance levels. There have been some excellent beef feature prices advertised recently which should help support retail sales and future packer buying interest. If movement at the retail level is strong, it could provide support going into the fourth quarter.

Of particular concern during the last three months of the year will be competing meats. Pork and poultry supplies are expected to surge for the last few months of 2008 and pork especially will pose a significant threat to beef prices. There were reports last week that Russia and China, both large importers of U.S. pork and poultry, will sharply curtail purchases. That could flood the domestic market with cheaper protein options for U.S. consumers who will be the key to sustaining beef prices during the expected tight supplies later this year. Exports have been highly supportive of the domestic beef market this year when consumers have slowed their discretionary spending as a result of a weak economy. Exports have largely picked up the slack with an increase of 31 percent in volume for the first half of the year, totaling 831 million pounds.

If consumers, faced with higher living expenses, turn away from beef in favor of pork and poultry, the improvement in cutout prices needed to sustain profit margins in the beef industry could falter. News that China and Russia would cut back their pork buying was adding to the gloom in the hog trade last week and futures markets were trading limit down. To make matters worse, the delisting of several processing plants in Mexico by USDA was adding to trade concerns last week. Analysts noted that the request to block exports from plants that did not meet U.S. standards could cause Mexico to curtail purchases of product from the U.S. As the largest buyer of U.S. beef, Mexico’s withdrawal from the market could have severe consequences for beef prices in the U.S.

Feeder cattle

Last week’s cash feeder cattle market marked the first time in recent weeks that feeder cattle prices have slipped lower, even as lower corn futures made buyers more optimistic. The trend towards placing heavier feeder cattle continues, with yearlings continuing to be in heavy demand, although quality runs of lighter weight calves have also become a source of appeal to many buyers at local auction markets.

"This marks the first time in over two months that the weekly nationwide yearling trend came in lower," points out USDA Market Reporter Greg Harrison. "In fact, several markets noted that the buyer demand for calves was actually better than the yearling feeder demand for the first time in recent memory."

Harrison noted that good rains in southern winter grazing regions have given many operators reason to get back into the market for lighter weight calves which can be backgrounded and resold as heavy, placement-ready feeders come spring.

"Heavy rains across the southern Plains have perked up the late grass that many backgrounders will use to warm-up lightweight calves before turning them out on early wheat pasture, which should have a good start this year from ample subsoil moisture," he said.

Potential feeder cattle buyers are beginning to get used to the roller coaster corn markets, which Wall says now draw less attention than they have during recent periods of high grain futures.

"However, drastic grain market volatility is now the norm where only a few years ago, a nickel change would stir attention," said Harrison. "The CBOT [Chicago Board of Trade] September corn contract has settled with more than a 10-cent move on every August trading session but one this month. This has feedlot owners shaking their head in confusion on when is the best time to secure feed inventories."

Last week’s auction at the Oklahoma National Stockyards in Oklahoma City, OK, saw 8,583 head of feeder cattle available for sale. Compared to the previous sale, feeder steers and heifers were $1-2 lower, with steer and heifer calves steady with good demand. Recent rains across most of the region, along with cooler temperatures, have revived the grass and improved wheat pasture prospects. Quality of the feeder cattle offered continued to decline with several full or lighter muscled cattle included. Steers weighing an average of 679 lbs. sold for $113.44, while heifers weighing 654 lbs. sold at $108.75.

The Joplin Regional Stockyards near Joplin, MO, received 4,900 head for sale last week where steers remained steady and heifers under 500 lbs. were $2-5 lower. Heifers weighing 500-700 lbs. were $1-3 lower, with weights over 700 lbs. steady. Demand and supply was moderate, with the bulk of the offerings being weaned calves and yearlings. Feeder steers weighing 682 lbs. sold for $115.04, while 674 lb. heifers brought $104.40.

There were 2,627 head of feeders received last week at the Winter Livestock Feeder Cattle Auction in Dodge City, KS, where compared to the week prior, steers and heifers from 700-950 lbs. sold $1-3 lower, mostly $2 lower. There were not enough steers and heifers of 700 lbs. and under for a good market test, though a lower undertone was noted. Buyers paid $113.22 for steers weighing an average of 738 lbs., and $105.32 for heifers weighing 711 lbs.

To the north in McCook, NE, at the Tri-state Livestock Exchange, there were 1,850 head of feeders offered for sale last week, though no comparison was available due to no recent sale. Steers weighing 704 lbs. brought an average of $116.25, while feeder heifers weighing 669 lbs. sold at $113.94.

Last week’s sale at the Winter Livestock Auction in La Junta, CO, saw receipts of 1,187 head where trade was active on calves and yearlings and included good demand for both classes. No price comparison was available as the last covered auction was in July. Steers weighing an average of 687 lbs. sold for $116.75, while 669 lb. heifers brought $102.70.

There were 961 head available for sale in a light run last week at the Stockland Livestock Auction in Davenport, WA, where feeder cattle were firm in the light test. Trade was active with moderate to good demand. Steers weighing 739 lbs. sold for $100 at this sale, while 731 lb. heifers sold for $98.19. — WLJ

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