Weekly Livestock Comments, July 5, 2013

FED CATTLE: Fed cattle traded steady to $1 lower compared to a week ago. Live prices ranged from $119 in Kansas and Texas to $122 in Iowa while dressed trade primarily took place between $191 and $194. The 5-area weighted average prices thru Thursday were $119.58 live, down $1.24 from last week and $192.59 dressed, up $0.59 from a week ago. A year ago prices were $117.05 live and $187.67 dressed. Live cattle cash trade is carrying a negative $2 to negative $3 basis compared to the August futures price. It is not uncommon for the basis to be negative this time of year, but the average basis is generally closer to negative $1 this time of year. Some people are wondering if the live cattle market has reached its bottom. It is hard to tell given that live cattle prices tend to bottom out between the end of June and the first of September. It would not be surprising if fed cattle dipped another dollar or two over the next month.

BEEF CUTOUT: At midday Friday, the Choice cutout was $196.63 down $1.10 from Thursday and down $0.89 from last Friday. The Select cutout was $188.02 down $0.45 from Thursday and up $0.73 from last Friday. The Choice Select spread was $8.61 compared to $10.26 last week. Independence Day has now passed and the cutout is being adversely affected by the “dog days of summer.” Hamburgers and hotdogs tend to be the hot commodities on the fourth of July. The hope for the beef industry is that consumers are taking a four day weekend and grilling a few extra hamburgers to help support beef prices. Middle meat purchases tend to slow down from now through Labor Day weekend when purchases take off which is more than a month down the road. It may be hard for the Choice cutout to receive much support until temperatures cool a bit. This is evident in that the Choice Select spread has narrowed the past five weeks with Choice prices softening more than $10 since the end of May and Select prices being fairly steady over the same time period. Packers have had most of the control over the beef complex as cutout prices remain relatively strong and live cattle prices have softened. This combination has resulted in improving margins for the packer while feeders continue to fight through elevated feed costs and lower output prices. Leverage may shift this fall, but doubtful in the near future.   TENNESSEE AUCTIONS: No Tennessee auctions were reported this week due to Independence Day. Most markets will resume their regular schedule next week. However, the Oklahoma City Feeder Auction reported feeder cattle values increasing $3 to $5 from last week while calves were not well tested.

OUTLOOK: The outlook remains positive for feeder cattle to be sold late summer and early fall. The key drivers will be corn price and low feeder cattle numbers. It is certain that feeder cattle numbers will be down compared to last year, but corn yield and corn price will be highly dependent on the weather. States east of the Mississippi River have generally had abundant rainfall, but much of the western United States as well as many of the Plains states could use another drink or two to better solidify corn prospects. If corn prices fall to somewhere around $5 then the fall market is likely to be very favorable to sellers. Lower feed costs mean the feedlot can pay more for feeder cattle which may result in a tremendous bidding war between buyers to obtain quality feeder cattle. Precipitation will also be a key player in the fall calf market as many southeastern cattle head west for wheat pasture. Last fall’s local markets were extremely weak due to the lack of wheat pasture. It may seem early to be thinking about fall and winter wheat pasture but rest assured that wheat farmers in Kansas, Oklahoma and the Texas Panhandle are already gearing up and making preparations for the fall and winter. Regardless of what happens out west, the prospects of retaining ownership of fall weaned cattle this year and selling them as yearlings next spring looks positive. For some producers this may not be a feasible option due to current resources. However, if rainfall is plentiful and provides grazing and the opportunity to stockpile forage or harvest larger quantities of hay than average then it will be beneficial to put pencil to paper to determine if a larger return can be had by backgrounding calves weaned this fall and then marketing them in the spring of 2014. If there are concerns related to a potential price collapse during the retained ownership period then livestock risk protection (LRP) insurance can be purchased. LRP is an insurance policy that can protect against adverse price movements in the feeder cattle market.

TECHNICALLY SPEAKING: Based on Wednesday’s closing prices, August closed at $121.95. Support is at $121.72, then $121.10. Resistance is at $122.35, then $122.97. The RSI is 56.12. October closed at $126.22. Support is at $125.95, then $125.45. Resistance is at $126.45, then $126.95. The RSI is 60.67. December closed at $128.25. Support is at $127.73, then $127.50. Resistance is at $128.30, then $128.35. The RSI is 60.96. August feeders closed at $150.95. Support is at $150.58, then $149.91. Resistance is at $151.26, then $151.93. The RSI is 65.66. October feeders closed at $154.83. Support is at $153.40, then $153.15. Resistance is at $154.85, then $154.90. The RSI is 67.47. January feeders closed at $157.03. Support is at $156.58, then $156.53. Resistance is at $157.50, then $158.25. The RSI is 72.12. Friday’s closing prices were as follows: Live/fed cattle –August $121.95 +0.00; October $126.25 +0.03; December $128.10 -0.15; Feeder cattle – August $151.80 +0.85; October $155.78 +0.95; November $156.78 +0.65; January $157.73 +0.70; July corn closed at $6.85 up $0.07 from Thursday.