Packers bought back some price leverage last week with reduced slaughter.  

“Based on the daily estimates from USDA, cow and bull slaughter is currently running at a pace of about 120,000 head/week, about 10% below year-ago levels,” explained Len Steiner and Steve Meyer in a mid-week CME Group Daily Livestock Report.  

In fact, analysts with the Agricultural Marketing Service (AMS) point out that last week’s cattle harvest was the paltriest since February of 2005.

After sinking to their lowest level in eight months the previous week, Choice boxed beef cutout values rallied last week, gaining $9.50/cwt. week-to-week to $188.01. Select was up $6.66/cwt. week-to-week to $184.39.

However, traders aren’t necessarily convinced the price low has been established. At least not judging by futures prices, which struggled to maintain the previous week’s gains.  

“Current retail prices for beef and beef products have met with consumer resistance,” say analysts in last week’s monthly USDA Livestock, Dairy and Poultry Outlook. “While high in relative terms, retail prices are not providing margins down the chain that support the cattle feeding and packer sectors. With packers caught in an intense squeeze between the cost of fed cattle and wholesale cutout values, either cutout values will have to increase—pressuring retailer margins or resulting in higher retail beef prices, and counter to recent price movements—or fed cattle prices will have to remain relatively weak compared with the past quarter. Lower fed cattle prices will continue to squeeze cattle feeders’ profit margins.”

Cash fed cattle trade last week was steady to $2 lower in Texas at $120-$122. Live sales in Kansas traded fully steady at $122. Up north, dressed sales jumped $5 ($198-$200) while live sales traded at $123-$124, compared to the previous week’s $122-$125.

Calves and feeder cattle traded steady to $3 higher last week, according to the Agricultural Marketing Service (AMS).

“Calf and feeder cattle prices are at record-high levels, but have been volatile and in a general downtrend for the last several weeks,” says Tim Petry, livestock economist at North Dakota State University, in last week’s In the Cattle Markets. “The CME Feeder Cattle Price Index, which is a good barometer for 650-850-lb. feeder steer prices in the U.S., has declined about $8/cwt. since peaking at $157.45 February 14. Likewise, September CME feeder cattle futures were trading at $163-$164/cwt. in early March, and declined to $151-$152/cwt. in early April…”

Heading into this week, the market will decide how to react to Friday’s monthly Cattle on Feed report. Total cattle on feed April 1 (11.5 million head) are estimated to be 2% higher, dead even with the average pre-release estimates. March placements, estimated at 1.72 million head, are estimated to be 6% less than the previous year, about 1.7% more than the average estimate. On the other hand, estimated marketings of 1.92 million head are 4% less than a year earlier, compared to an average guess of 5.5%. So, logic suggests a neutral market reaction.

Looking further out, tightening supplies could linger even longer than some currently anticipate.

As it is, Petry explains, “… The 2011 calf crop was down 1% and estimated feeder cattle supplies outside of feedlots on January 1, 2012, were estimated to be down about 4%...However, feeder cattle prices over the summer will be influenced by fed cattle prices and corn prices which have been volatile, and will likely continue to be volatile.