As we hopefully move in to milder weather, packers are starting to plan and get their late spring beef needs sold ahead.
Packers have been buying cattle with 15- to 30-day terms, which is making a mess of orderly flows. Cassi Fish at Consolidated Beef Producers said, “Each week the industry sells more cattle to deliver in the 15-30-day window, allowing packers to maintain their leverage until the larger fed cattle supplies arrive seasonally.
“This inventory ownership is what has allowed packers to buy a modest number of cattle weekly and resulted in some feedyards being unable to clean up their lists. It raises the question whether or when the industry will see a large transfer of ownership from feeders to packers.”
Cash trade broke out earlier than usual last week, which we assume both packers and feeders wanted to get ahead of the latest winter weather that has plagued the Northern Plains and Corn Belt feeding areas.
Just over 34,500 head of negotiated cash fed cattle had traded through Thursday afternoon last week, trading between $123-128, to average $124.91. Dressed cattle saw light trading between $204-206, to average $204.56. It could be another light cash trade week as winter weather has shown its ugly face once again. Sources said Southern Plains trade was done by Wednesday.
Live cattle futures have been a bit erratic. The consensus is that managed money is long on live cattle due to pending Chinese trade deals and that China is starting to buy U.S. pork in a big way, up 10 percent over last year, to date.
The African swine flu has caused much damage to China’s pork supplies with conservative estimates of a 19 percent decline. Pork values have advanced quickly, which will pinch retail pork margins, giving beef a distinct advantage in retail featuring.
Near-term live cattle futures settled last Thursday at $126 for April and $120.43 for June. Despite the ups and down throughout the week, this was basically flat compared to the prior week.
Fish also pointed out that “The only relevant question before traders is whether current prices have already factored in the aforementioned fundamentals or not. Even if cash prices do manage to stage one more rally, will futures accompany the cash or not?
“Certainly, there are other examples of the cash running and the board watching. A cash rally does require the packers to pay up and give chase, though some packers have stayed long-bought the entire year to avoid that very action. Will a ‘hole’ in availability due to the lateness of the calves force the issue? The north is already carrying a premium to the south where supplies are plentiful. Perhaps the spread just widens?”
Carcass weights will become a bigger issue as packers work at increasing beef production. Steer and heifer weights are down 12 and 11 pounds, respectively, from a year ago average carcass weights including cows are down 17 pounds. Carcass weights should continue their seasonal decline into early May.
Many additional cattle will need to be slaughtered in order to meet production levels. Slaughter was estimated to be 630,000 head for last week and will likely grow from here on out.
The beef cutout has strengthened this past week to $229.05 for Choice and Select is $219.62, indicting stronger demand. Slaughter schedules are also starting to pick up. The current packer margin index is a $132.20 per head.
Feeder cattle futures were moving sideways most of the week with the April contract at $145.42 and all the deferred contracts much higher throughout the balance of the year. The latest CME feeder cattle index was at $143.35.
Nearly all signals are pointing to stronger calf and feeder cattle markets going forward. Grass growing conditions are the best they have been for quite some time and cattle feeders will be wanting to fill up pens after a sloppy winter has deferred some regional placements.
Andy Gottschalk at Hedgers Edge advised the industry to “expect demand to remain strong for replacement cattle this week, both feeders and calves, as feedlot conditions improve.
“Once the movement of feeders from wheat is finished, expect offerings to decline significantly. Grass conditions nationwide are the best in decades. Currently, only 2 percent of the nation’s cattle herd is in a drought area, a dramatic turnaround from a year ago. Excellent grass conditions may encourage additional heifer withholding for breeding.” — Pete Crow, WLJ publisher
