This past week, the markets were all about hope, courtesy of slow-moving rains spawned by Hurricane Isaac that made it to parts of the parched Midwest.
Along with improving attitudes, the moisture boosted prospects for fall and winter forage, including cereal grains like ryegrass and wheat pasture.
Keeping in mind the lighter auction receipts due to Labor Day, yearling feeder cattle sold mostly steady to $2 higher, according to the Agricultural Marketing Service (AMS). Calves trended firm to $3 higher.
Flyweights continue to receive increasing buyer demand with the prospects for fall grazing. The highest price we heard at auction last week was $230/cwt. for some mid-three-weight steers in Ogallala Thursday.
“Planning ahead farther and farther, heifers are bringing a premium on fall deliveries of reputation calves, and pee-wee stockers are currently being heavily sought-after for next spring’s grass cattle,” AMS analysts say. “Profit opportunities have been rare but lucrative in the beef cattle sector and trade members don’t want to miss the boat when it sails again...”
Andrew Griffith, University of Tennessee agricultural economist, pointed out in his weekly Livestock Comments Friday, “…the larger increase in lightweight feeder cattle prices relative to heavier feeder cattle has caused a larger spread that narrows the profit margin when feeding lightweights to heavier animals. There may be an opportunity to purchase middleweight feeder cattle and market them heavier than normal and not be squeezed by the price slide.”
High feed costs continue to pressure Feeder Cattle futures. Week-to-week, they closed lower across a wide range, from 5¢ lower to $1.12 lower.
“The unprecedented spike in feed costs this summer is causing drastic production cuts in the swine, poultry and dairy industries,” say AMS analysts. “Meanwhile, cattlemen are struggling to hold on to what’s left of their herds in the face of feed shortages.
Last week, neither cash fed cattle nor Live Cattle futures are offered much of a spark to markets.
Week-to-week Live Cattle closed mixed, as much as 52¢ higher through the front half of the board and as much as 70¢ lower through the back half. That was despite the lower dollar and hope-fueled, latter-week financial markets, spawned by a concrete plan proffered by the European Central Bank to buy bonds from member countries in order to reduce those nations’ borrowing costs. Major U.S. financial indices blasted ahead to multi-year highs on the news Thursday.
Live Cattle also received some support mid-week with chatter about Japan presumably leaning toward relaxing the age restriction on U.S. beef imports. As always, there’s nothing definitive, least of all any kind of time table.
Bottom line, hopes couldn’t overcome the lack of momentum in the wholesale beef market. Choice boxed-beef cutout values ended the week $1.11/cwt. higher and Select was up $2.24. But there’s no momentum that traders are ready to chase.
Similarly, cash fed cattle trade offered no direction. There were a few early dressed sales in Iowa-Minnesota Friday at $190-$192 , compared to $187-$188 there the previous week, according to USDA’s slaughter cattle review. But there were too few sales in any region to trend.
“The fed cattle market has gained a little headway the past couple of weeks and if seasonality is being considered then the market should continue its march north,” Griffith says. “The fed cattle market generally follows a pattern of a spring high with a summer low, which is then followed by a late fall/early winter rally. The fourth-quarter high tends to be about 13% higher than the summer low resulting in projected fed cattle prices in the upper $120’s.”
Nevil Speer of Western Kentucky University sums up the current tug of war between supply and demand forces in his Monthly Market Profile that you can find at beefmagazine.com/markets/no-relief-sight-market-volatility.
“The futures market has seemingly priced in shrinking supply as we transition into next spring,” Speer says. “The April ’13 contract (Live Cattle) has been consistently trading around the $135-$136 range while this fall’s December contract has made a push back up against $129. The focus upon supply constraints has fueled the rally-of-late and further buoy hopes for solid markets in the coming months…”
On the other hand, Speer points to the broader economic worries helping cap domestic consumer beef demand. “Some of the broader worries from a food system perspective were recently articulated by William Delaney, Sysco CEO, in the company’s Aug. 13 earnings call,” Speer says. “Delaney was asked about food inflation, the general state of the economy and potential influence on the consumer: ‘Until this economy shows more consistent improvement, until our customers participate in that, there’s going to continue to be a lot of pricing pressure up there. So I’m not saying that we can’t improve our margins over time, I’m just saying we need to take it one step at a time and right now, our goals are to reverse the trends that we saw this past year..”
Heading into the coming week, the monthly USDA Crop Production report and World Agriculture Supply and Demand Estimates – scheduled for release Wednesday – will likely contribute to the price volatility defined by the current tug of war.