Weekly Livestock Comments, Feb 1, 2013
FED CATTLE: Fed cattle sold mainly $3 higher on a live basis compared to last week. Live prices were primarily $125 while limited dressed trade occurred between $199 and $200. The 5-area weighted average prices thru Thursday were $124.96 live up $2.43 from last week and $197.63 dressed down $0.30 from a week ago. A year ago prices were $123.77 live and $200.00 dressed. Fed cattle caught traction early this week as two pieces of bullish information hit the airwaves. First the January cattle on feed report, reported December live cattle marketings higher than what industry specialists had projected. The report also had January placements lower than industry specialists had projected. An increase in December marketings and a decrease in January placements point to a bullish market since it further supports limited cattle availability. On the demand side of the picture, Japan announced this week that they would start accepting beef from cattle under 30 months of age on February 1st which is also supportive of price increases in the fed market. Japan was only accepting beef from animals 20 months of age or younger.
BEEF CUTOUT: At midday Friday, the Choice cutout was $183.99 down $1.33 from Thursday and down $3.61 from last Friday. The Select cutout was $179.56 down $0.69 from Thursday and down $2.62 from last Friday. The Choice Select spread was $4.43 compared to $5.43 last week. The Choice and Select cutouts continue to flounder. Beef demand in January is always week, but few folks probably fathomed the cutout prices would struggle this much given low cattle inventory. It should not be a big surprise though if talking about total beef production. Cattle inventory is 32 percent lower today than in 1975 when it peaked. However, total U.S. beef production has increased 18 percent. One large reason for this change is the average carcass weight (steers, heifers, cows) has increased from 589 pounds in 1975 to 791 pounds today. A secondary reason is fewer calves are being processed for veal. If calves are not being slaughtered for veal then the majority of them are being grown to heavier weights which increases beef production. Support for the cutout will eventually arrive, but we may see them lose a little more ground before a recovery is possible.
TENNESSEE AUCTIONS: On Tennessee auctions this week, feeder steers where $4 to $9 higher while steers over 700 pounds were steady to $2 higher. Bulls under 550 pounds were $9 to $10 higher while bulls over 550 pounds were $1 to $5 higher. Heifers under 400 pounds were $7 to $8 higher while heifers over 400 pounds were $2 to $4 higher. Slaughter cows were called $1 to $2 higher while bulls were $1 higher. Average receipts per sale were 480 head on 11 sales compared to 570 head on 10 sales last week and 895 head on 12 sales last year.
OUTLOOK: Conditions for purchasing stocker cattle might not be ideal, but it appears producers are willing to take the risk. Freezing rain and snow followed by 70 degree weather with some more cold rain on the back end is very favorable weather conditions if the objective is to make stressed cattle sick. Most of the time stressed cattle do not need much help becoming sick, but conditions have been ideal for the situation. Regardless, all classes of cattle strengthened this week as the largest gains were witnessed in the lightweight arena. Stocker producers appear willing to take risk of sickness early to maybe avoid paying higher prices over the next couple of months. The one benefit, as always, is if we get moisture and have favorable weather then cheap gain can be added to these early purchased calves and there is a high likelihood of favorable returns when marketed in the summer. The slaughter cow and bull markets have also regained some swagger and price strengthening. The cull market is likely to strengthen into May as seasonality of cull prices would generally suggest. However, prices may increase more than usual due to lean beef demand and low inventory numbers.
The January 1 cattle inventory report was released today with all cattle and calves inventory down 1.6 percent which is close to pre-report estimates. Inventory fell from 90.8 million on January 1, 2012 to 89.3 million head which is the lowest inventory since 88.1 million head in 1952. Cows and heifers that have calved is down 2.2 percent from 39.4 million head a year ago to 38.5 million head this year. Again, this is the lowest January 1 inventory of all cows and heifers that have calved since 1941 when there was only 36.8 million head. Beef cow inventory declined 2.9 percent over the past year from 30.2 million head to 29.3 million head while dairy cows remained the same at a little over 9.2 million head. Beef replacement heifer estimates are up 1.9 percent from 5.26 million head a year ago to 5.36 million head. Markets should be pretty well aligned with the results of the January 1, 2013 cattle inventory report, and therefore we should not see any drastic price changes. The report however does reiterate the reduced cattle supply, and the difficulty of retaining heifers to enter the breeding herd. It will be a long hard drive to rebuild the herd even if we have favorable weather conditions the next few years.
TECHNICALLY SPEAKING: Based on Thursday’s closing prices, February live cattle closed at $127.63. Support is at $127.27, then $126.22. Resistance is at $128.32, then $129.37. The RSI is 41.76. April closed at $132.80. Support is at $132.45, then $131.55. Resistance is at $133.35, then $134.25. The RSI is 45.22. June closed at $128.30. Support is at $128.25, then $127.85. Resistance is at $129.05, then $129.10. The RSI is 43.93. March feeders closed at $149.55. Support is at $152.37, then $151.89. Resistance is at $152.84, then $153.32. The RSI is 46.08. May feeders closed at $155.03. Support is at $154.40, then $153.78. Resistance is at $155.73, then $156.23. The RSI is 49.78. August feeders closed at $160.25. Support is at $160.13, then $159.98. Resistance is at $160.65, then $161.38. The RSI is 50.92. Friday’s closing prices were as follows: Live/fed cattle – February $127.10 -0.53; April $132.18 -0.63; June $127.75 -0.55; Feeder cattle – March $149.20 -0.35. April $152.13 -0.45; May $154.70 -0.33; August $160.08 -0.18; March corn closed at $7.36 down $0.05 from Thursday.
