“The cattle market has shifted into another gear and there’s no stopping it, at least not yet,” commented Cassie Fish of the Beef Report early last week. For the first part of the week, the market was in high gear. Thursday saw the futures downshift, but the rest of the market continued on full steam ahead.
The cash fed trade was the talk of last week. Given the surprise gains seen in the cash trade the week before, expectations were for a higher trade last week. The market did not disappoint, even if it did take its time about it.
By close of trade Thursday, over 13,000 head had been confirmed sold—almost entirely in Thursday’s trade—at $119-121 live, steady to up $2 from the top end of the prior week’s high. Dressed cattle sold for $190-192, up $10 from the prior week’s high.
“The next level of cash price resistance is at $125 followed by $128-130,” commented Andrew Gottschalk of Hedgers Edge on Thursday morning.
Troy Vetterkind of Vetterkind Cattle Brokerage observed that showlists last week were quite a bit larger than the week before, “but I think the need to own and kill high-quality grading cattle might override that,” he said.
“Recent changes in USDA beef carcass grading procedures is expected to shrink the supply of Prime- and Choice-graded beef and as such packers are going to need to pay premiums for true grading cattle in order to cover their forward sales of said beef.”
As mentioned, the live cattle futures shifted course throughout the week last week. They came out of the gate on Monday with triple-digit gains, particularly in the expiring October contract. October live left the board at noon on Tuesday at $120.50 (up $5.13 compared to the prior Friday’s close), just shy of the contract’s high of $121.55, set back on June 5.
Thursday’s trade gave back some of the gains seen throughout the week, but even $1-2 one-day losses could not wipe out the gains already achieved in the week. The near-term contracts of December and February gained a net $3.50 ($124.32) and a net $3 ($128.75) over the course of the week.
Rick Kment, DTN analyst, credited the Thursday futures losses to “concerns surrounding fundamental support holding through early November.” However, Gottschalk had called the whole complex overbought and likely due for a correction earlier that morning. Vetterkind also predicted a slow in the rally the day before.
Choice beef prices last week did not slow down, though they did leave Select prices ever farther behind. Compared to the prior Friday closes, the Choice cutout gained a net $4.85 to close Thursday at $208.25. The Select cutout gained a modest net 68 cents to close at $193.16, but that price represented losses from an earlier high of almost $194 seen on Tuesday.
“Retail beef margins remain very favorable,” said Gottschalk last Wednesday. “The composite beef cutout would need to advance 10 percent to minimize retail beef margins at current average retail beef prices. The composite beef cutout [during the week of Oct. 23-28] averaged $198.80.”
“Domestic GDP growth could exceed 3.5 percent this quarter,” he added while discussing economic drivers of beef demand alongside rising employment and wages.
“The lead Safeway feature in Denver is a Choice CAB T-Bone for $5.47 per pound. Meat cutters will need to work overtime to fulfill consumer demand at that price.”
Feeder cattle
“The sharp advance in fed cattle prices will quickly translate into higher feeder cattle prices,” predicted Gottschalk early last week. His prediction came true.
Most of the surveyed auctions saw larger sales volumes, higher percentages of feeder cattle on offer, and higher prices on feeder cattle sold. Prices in the low $170s were seen in a few sales on medium and large 1-class (#1) steers weighing between 700-800 lbs.
The persistent two-tiered market between yearlings and calves was evident last week.
“The spread between yearling and calf prices provides the economic signals for buying calves and moving them to wheat pastures instead of selling the calves directly to feedlots,” explained the CME Daily Livestock Report. “A lower calf cost relative to yearling value gives pasture programs the ‘green light,’ which delays the timing of when cattle go into feedlots from the fall to late this year or the first half of the following year.”
Colorado: Sales volumes were down by 1,000 head at the La Junta Livestock Commission Company last week, but prices were almost unanimously steady to higher. Pee-wee steer calves and those over 550 lbs. were steady to up $1, while those in the middle were up $5-8. Heifer calves were steady to up $5 with instances of up $8 up on 4- and 5-weights. Yearlings lightly tested but called steady to down $2. For the first time in a while, the #1, 7-weight calf offering brought in more money than the yearlings at $151 and $148 respectively.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City sold more cattle last week with midweight feeder steers selling steady to $8 higher on a light test. Calves were called $6-15 higher for steers and $3-5 higher on heifers. Benchmark yearling steers sold between $155-169, while a group of calves averaged $152.
Missouri: The impressive gains in the futures market were credited for the $1-5 increase in feeder cattle at the Joplin Regional Stockyards. Number 1, 7-weight steers were a divided market, with yearlings averaging in the low $160s, and then two small groups of calves averaging $140 and $155.
Montana: The Miles City Livestock Commission sold over 7,000 head last week, up about 800 head from the week before. Feeder steer calves were called an uneven steady while yearling steers sold with “higher undertones” on a very light test. The same was true of heifers, but with calves being called firm. Only weaned calves with two sets of vaccinations were said to get any attention, with buyers even bypassing calves with branding vaccinations. Few offerings of #1, 7-weight steers were reported with prices ranging from $158.50-166.25, inclusive of calves.
Nebraska: At the Sheridan Livestock Auction, all classes of feeders over 500 lbs. sold up $6-9. Lighter heifers sold steady to up $3. The big strings of preconditioned, home-raised calves drew crowds, and benchmark calves actually set the high of the $161.25-165 price range.
New Mexico: Feeder steers were called unevenly steady at the Roswell Livestock Auction, except for 4-weights, which were down $5. Heifers in that weight group saw the same discounting. Heavier heifers were up $3. Calves set the bottom of the range for #1, 7-weight steers, but not by much. The calf offering ranged from $140-143, while the yearling offerings ranged from $142-145.
Oklahoma: After its second day of sales last week, the OKC West-El Reno sale sold almost 10,600 head of feeder cattle. All yearling feeders were called up $2-4, while calves were up $4-7. Demand was said to be especially good for long-weaned calves, whereas demand was “light” for bawler or short-weaned calves. Numerous lots of #1, 7-weight steers sold, with calves and “fleshy” yearlings ranging from $140-155, and yearlings ranging from $161-170.
South Dakota: The Philip Livestock Auction sold over 10,000 head, roughly steady with the week before. Steers were up $3-7 with preference given to midweights, and heifers were up anywhere from $2-12, with most of the advance coming from the lighter classes. This sale offered a lot of load lots, which buyers appreciated. Calves were the stars of the benchmark steers, with a group of 277 head of 725-lb. calves averaging $170.58. The small 11-head group of yearlings averaged $166 by comparison.
Texas: Sale volume was down at the Amarillo Livestock Auction, and there were too few comparable sales for a market trend. However, the report noted a higher undertone and very active trade and good demand on yearlings. Calves that had not been preconditioned saw heavy discounting. In the benchmark steers, the 69-head lot of 739-lb. yearlings averaged $159.77, while the 20-head lot of 714-lb. calves averaged $135.65.
Wyoming: The Riverton Livestock Auction saw steady sales volume at its special calf and yearling sale. Feeder calves of both sexes saw prices up $2-6 on calves over 400 lbs. with steers seeing preference. Lighter calves were discounted $1-4. No comment on yearlings. Very few #1,7-weight steers sold, and again the calf offering beat the yearlings, averaging $152.50 for a nine-head lot of 763-lb. calves compared to an average of $146.40 on a 14-head lot of 775-lb. yearlings.
Feeder futures also saw rapid growth throughout the first part of the week, only to give back a couple dollars in Thursday’s trade. By settlement, the spot month of November gained a net $1.42 with $157.92, while the January contract gained a net $2.27 with $158.22. — Kerry Halladay, WLJ editor
