Weekly Livestock Comments Feb 22, 2013
FED CATTLE: Fed cattle sold mainly steady compared to last week with a few as much as $2 higher. Prices in the South were primarily $123 while prices in the North ranged from $195 to $196 with most trade occurring at $196. The 5-area weighted average prices thru Thursday were $122.76 live, down $0.05 from last week and $195.58 dressed, down $0.28 from a week ago. A year ago prices were $126.47 live and $201.14 dressed. Live cattle futures markets appear to be correcting themselves in a downward fashion. They have been on a downward pattern since the first of the year as it has been difficult for packers to pass higher beef prices along to the consumer. The supply issue that appeared so prominent and that was priced into futures contracts has yet to materialize, and thus the futures price is converging towards the cash price. It is not likely fed cattle will fall below current prices, but it is also not likely prices will strengthen to the level indicated by most industry analysts. The market will continue to price tight margins for both packers and feeders.
BEEF CUTOUT: At midday Friday, the Choice cutout was $182.74 down $0.39 from Thursday and down $0.09 from last Friday. The Select cutout was $180.53 down $0.33 from Thursday and down $0.18 from last Friday. The Choice Select spread was $2.21 compared to $2.11 last week. The cutout values held their own the past week with only slight losses in both the Choice and Select cutouts. There has been chatter across the beef industry about “beef demand” being slack compared to last year when it is really beef consumption and not beef demand. Beef production has been strong in the first two months of 2013, and it is difficult to push the same amount of beef through the system with higher prices. Consumers will pull back on consumption of beef as beef prices rise. Along those same lines, there has also been some talk about beef becoming a “luxury item”. It is unlikely we have to worry about beef becoming a luxury item. We have to remember that beef includes everything from the ribeye cut to ground beef. It is very unlikely ground beef is going to become a luxury item. What is more likely is that consumers will purchase fewer steaks and substitute roast and ground beef items. The first signs of warm weather may help the cutout as folks start thinking about firing up the grill.
TENNESSEE AUCTIONS: On Tennessee auctions this week, feeder steers and bulls were $1 to $6 lower while heifers were $2 to $5 lower. Slaughter cows were steady to $1 lower while bulls were steady. Average receipts per sale were 594 head on 12 sales compared to 533 head on 12 sales last week and 758 head on 12 sales last year.
OUTLOOK: Cattle markets continued their decline this week. Live cattle futures and feeder cattle futures have been spiraling downwards and that results in a weakening of the local markets. There are multiple factors playing this ballgame and very few of them are working towards price improvements. Drought conditions persist in large portions of the Plains states, which depress prices. Winter storms in the heavily populated Northeast and parts of the central portion of the nation have slowed beef movement which puts downward pressure on fed cattle prices which directly influence the feeder cattle industry. High retail prices of beef results in reduced beef consumption thus placing more pressure on fed cattle and the feeder industry. Then there are the high feed costs that continue to stress the industry. The reduced supply of cattle appears to be the only factor that contributes to a strengthening of prices, but it cannot overcome the factors that are putting downward pressure on prices. The factors related to negative impacts on price will subside at some point, but when that point occurs is not known. March will bring price improvements as we move away from many of the winter storm related issues and grass starts growing, but high beef prices are likely here to stay a while. Stocker producers may want to think about making some of their purchases before prices escalate and reduce the profit margin significantly.
The February cattle on feed report for feedlots with a 1000 head or more capacity indicated cattle and calves on feed as of February 1, 2013 totaled 11.1 million head down 6% compared to a year ago and on target with pre-report estimates. January placements in feedlots totaled 1.88 million head, up 2% from a year ago and within the range of pre-report estimates. January marketing’s totaled 1.92 million, up 6% from 2012 while pre-report estimates had marketings up about 4.7%. Placements on feed by weight: under 700 lbs. down 4.0%; 700 to 799 lbs. up 1.9%; over 800 lbs. up 12.1%. Similar to January’s report, fewer lightweight animals are entering the feedlot as heavier animals are desired given feed costs. Many of these animals are being grown outside the feedlot and placed at heavier weights which should result in lower costs of feeding. However, the industry is finishing cattle at heavier weights. Increased marketings in January and fewer total cattle on feed is bullish for the market and indicate price support for fed cattle. Increased placements may hold prices in check, but that will be on the front end as we saw an increase in heavier weight cattle being placed in the feedlot. Overall, there were no surprises with the report.
TECHNICALLY SPEAKING: Based on Thursday’s closing prices, February live cattle closed at $125.30. Support is at $125.10, then $124.65. Resistance is at $125.55, then $126.00. The RSI is 37.45. April closed at $127.82. Support is at $127.53, then $126.78. Resistance is at $128.28, then $129.03. The RSI is 29.19. June closed at $124.08. Support is at $124.00, then $123.50. Resistance is at $125.85, then $126.25. The RSI is 31.02. March feeders closed at $140.70. Support is at $140.18, then $139.50. Resistance is at $141.58, then $143.18. The RSI is 27.57. May feeders closed at $146.50. Support is at $146.50, then $146.20. Resistance is at $149.13, then $149.85. The RSI is 31.02. August feeders closed at $153.48. Support is at $153.42, then $152.80. Resistance is at $154.43, then $156.43. The RSI is 33.45. Friday’s closing prices were as follows: Live/fed cattle – February $126.35 +1.05; April $128.23 +0.40; June $124.48 +0.40; Feeder cattle – March $141.25 +0.55; April $143.78 +0.60; May $148.13 +0.63; August $154.28 +0.80; March corn closed at $6.90 down $0.01 from Thursday.
