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Calf Prices Pressured By Seasonality And HarvestCalf Prices Pressured By Seasonality And Harvest

The seasonal increase in auction receipts, increased percentage of freshly weaned calves and farmer-feeders returning to harvest added pressure to calf prices. Cash fed cattle trade, on the other hand, was at a record $170/cwt.

Wes Ishmael

October 25, 2014

6 Min Read
Calf Prices Pressured By Seasonality And Harvest

Notwithstanding the fact that calf and feeder prices remain amid the historic ether and that supplies remain exceedingly tight, situational economics pressured calf prices this week.

For one thing, there is the seasonal increase in auction receipts, comprised of more spring-born calves.

“Another factor playing into a slightly weaker market is due to the fact that these freshly weaned calves are high risk with an immature immune system,” explains Andrew P. Griffith, University of Tennessee agricultural economist, in his weekly market comments. “An immature immune system and increased temperature variability in October and November generally result in an increase in death loss during these months. Thus, stocker producers are not as willing to pay premiums for high-risk calves especially with each one costing between $1,200 and $1,300/head.”

With that in mind, analysts with the Agricultural Marketing Service (AMS) said there were instances of lightweight calves (lighter than 450 lbs.) selling $10-$15/cwt. lower this week.

Un-weaned bawlers will continue to be scrutinized with additional discounts for being fleshy or having a snotty nose as health issues will always be a concern,” AMS analysts say. “Most cattle growers would love to fill their orders with calves weaned at least 45 days and an extensive preconditioning program, but many calves are coming to the auction right off the cow and, in many cases, with little use of knives or needles.”

On the other side of the buying equation, fewer farmer-feeder buyers were in the market this week as they returned to fields that were dry enough to renew what has become a delayed harvest in some parts of the Corn Belt. Until then, farmer-feeders looking to walk more of their corn crop to market had been providing extra spark to the already-steamy market. Harvest delays are also credited with adding some strength to the grain market this week.

At 450-650 lbs. or so, calves traded from unevenly steady to $5 higher to $5 lower, according to AMS. Yearlings sold steady to $5 lower early in the week, and then steady to $5 higher as the week progressed.

Volatility in Feeder Cattle futures also added uncertainty to the market.

Although Feeder Cattle futures ended little changed and mostly higher week-to-week, the trip included more wide swings. Other than 55¢ lower and 75¢ lower at either end of the board, Feeder Cattle futures closed an average of 57¢ higher.

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“Cattle have traded in a wide range in recent sessions, hitting record peaks and then tumbling to recent lows as traders assess the strength of demand for cattle and beef amid tight available supplies,” says John Otte, Penton market analyst.

Although Live Cattle futures were also volatile again this week, they made record-highs in some contracts as steam built for what turned out to be a record-setting cash trade.

Tight supplies and beef demand that continues to defy expectations helped propel cash fed cattle prices to a record-high $170/cwt. in every cattle feeding region. Depending on the region, that was $4-$7/cwt. higher than the previous week. Dressed sales were $6-$7 higher in Nebraska and the western Corn Belt at $264-$265/cwt.

After $3.20 in soon-to-expire Oct, Live Cattle futures were an average of $1.73 higher week-to-week.

“Only so many cattle are available, so if processors have to step into the cash markets to buy, they have to push prices a little. Cattle have become a very sensitive market,” Otte says.

Record prices were achieved with Choice boxed-beef cutout value remaining below $250/cwt. Though it increased most of the week, Choice boxed-beef cutout value ended $1.75/cwt. lower week-to-week at $247.41/cwt. Select was $2.07 lower week-to-week at $232.71. But, the warm autumn thus far continues to boost grilling opportunities. Plus, the holidays are approaching in a hurry.

“Current fed cattle prices bode well for cattle feeders who have continued to pay monumental prices for feeder cattle,” Griffith says. “Higher and higher feeder cattle prices have not reared an ugly head at cattle feeders yet as feedlot managers have had abundant success with regards to pushing fat cattle prices higher. This means many cattle feeders have been able to maintain strong margins and even improve feeding margins in a time of record prices. At some point, this thrill ride will turn into a horror movie but not in the imminent future.”


Packers feeling pressure

Packers are the ones taking their lumps currently.

“Strong demand has been underpinning cattle markets, but cash fed cattle gains outpacing gains in wholesale cutout values squeeze packer margins,” Otte explains. “Traders remain uncertain how much longer packers will continue to pay up for market-ready animals, leading to wide swings in prices (futures).”

So far, Griffith explains packers have been unable to push boxed-beef prices higher in tandem with fed cattle process.

“Pushing cutout prices higher will be a constant struggle in the months and years to come as consumers will have to adjust to record-high retail beef prices, or they may be forced to do without,” Griffith says. “It is evident that some consumers have started walking past the beef counter to spend more time in the pork and poultry sections of the grocery store. However, not all consumers are as willing to give up beef for other meat alternatives. Consumers will continue to be diligent with disposable income and food purchases, but they will keep close tabs on beef prices. One factor that may benefit beef sales is the decline in fuel prices. It will free up some disposable income and some consumers will spend it at the meat counter.”

Outside markets were generally as supportive this week as they were ugly last week. The Down Jones Industrial Average closed 425 points higher week-to-week. The broader S&P 500 was a strong 77 points higher.

Heading into the coming week, traders should have more confidence about cattle supplies in the short-run. As the week progressed, some of the uncertainty in the futures market seemed tied to wonderments about the monthly Cattle on Feed report issued Friday. It turned out to be in lockstep with average expectations.

Cattle on feed of 10.1 million head on Oct. 1 were 1% less than the previous year. Heifers and heifer calves on feed were 3% less than the previous year. Otte notes this is the 26th consecutive month of year-over-year declines in feedlot inventory.

Placements in September of 2.01 million head were 1% higher than the previous year. That makes for the second-least placements since the series began in 1996.

Marketings in September of 1.68 million head were 1% less than the same time in 2013.

“Stout retail beef demand, despite historically lofty prices, supported cattle markets this week. Strong demand gives processors more incentive to aggressively bid for available cattle to fill orders,” Otte emphasizes. “Tight supplies have buoyed cattle for months. Lower post-drought feed prices boost profit margins. Profits lure producers to expand production. Producers holding heifers to add to breeding herds will further tighten near-term fed cattle supplies.”


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