Weekly Livestock Comments, May 10, 2013

FED CATTLE: Fed cattle sold mainly $2 to $3 lower compared to last week on a live basis. Prices on a live basis were primarily $126 while dressed prices were $202. The 5-area weighted average prices thru Thursday were $126.22 live, down $2.80 from last week and $202.74 dressed, down $3.81 from a week ago. A year ago prices were $120.88 live and $192.13 dressed. Fed cattle continue selling with a strong premium over the June futures price. However, this week was an indication that prices will start to rest a little bit and narrow the basis. Feeders were hoping for continued price advancements in the fed market in order to provide relief for the red ink pen, but it appears little relief was experienced this week. The one bright note for feeders is that the basis continues to be strong which means they will continue to push cattle through the system. This may further exacerbate prices and margins.

BEEF CUTOUT: At midday Friday, the Choice cutout was $205.55 up $0.06 from Thursday and up $4.70 from last Friday. The Select cutout was $191.11 up $0.08 from Thursday and up $0.84 from last Friday. The Choice Select spread was $14.43 compared to $10.58 last week. The Choice cutout continues to exceed the $200 mark which was considered resistance a year ago. The question now may be if consumers are willing to pay the elevated prices at the beef counter. The sustained price and the positive price movement over the past week are good indicators that retailers and restaurants think consumers will continue participating in the beef market. Temperatures have started warming which promotes grilling. May and June have traditionally been the two strongest beef demand months in the U.S. and the beef industry is counting on these two months to really support the market. It is not just the domestic market for beef that is being considered but also the international market and beef exports. Beef exports to Japan the first quarter of 2013 increased 26.4 percent compared to the same time period a year ago. This is largely attributed to Japan now accepting U.S. beef from cattle up to 30 months of age. On the flip side, Russia is closed to U.S. beef imports due to concerns of beta agonists being used in the live cattle finishing process. Russia is not a huge market, but grew significantly in 2012. The export market will continue to be a key player. TENNESSEE AUCTIONS: On Tennessee auctions this week, feeder steers and bulls were mostly steady. Heifers were steady to $2 lower. Slaughter cows were $1 to $2 higher while bulls were $1 to $3 higher. Average receipts per sale were 534 head on 12 sales compared to 573 head on 11 sales last week and 645 head on 11 sales last year.

OUTLOOK: Cull cow prices were slightly rejuvenated this week as we approach the seasonal peak price for slaughter cattle. Cull cow prices have been relatively flat the first four months of 2013 with little indication of improving. Much of the lackluster in the cull cow market was brought on by an influx of dairy cows from Canada. The increased harvest of dairy cattle out of Canada has kept the cull market depressed. It has also contributed to the decline in 90 percent lean trimmings price during a time period when they are normally seasonally strong. Alternatively, 50 percent lean trimmings from fed cattle are seasonally strong. Stocker calf movement has been relatively light and is expected to get lighter as weather starts permitting folks to get in the field. Hay is ready to be harvested in many areas of the state as seed heads have emerged and the plant protein will be diverted into the seed head as opposed to the leaf. Cattle prices appear weak as we trek through the spring, but expectations are for feeder cattle prices to gain some steam in late summer and early fall. This expectation has been reflected in August through November feeder cattle futures prices. Current futures prices for fall contracts are well below the contract highs of $164 to $165 which occurred in January, but if there is potential to price a profit on currently owned cattle that will be marketed in the fall of the year then it might not hurt to set a floor. Feeder cattle prices on most summer and fall contracts have fluctuated as much as $8 or $9 the past two months. The volatility in the market has been tremendous, and there has been little indication that the volatility will subside. Lower than “normal” spring prices for lightweights and expectations for relatively strong prices in the fall yearling market bode well for stocker producers.

TECHNICALLY SPEAKING: Based on Thursday’s closing prices, June closed at $120.55. Support is at $119.98, then $118.98. Resistance is at $120.98, then $121.98. The RSI is 43.05. August closed at $120.53. Support is at $119.93, then $118.96. Resistance is at $120.91, then $121.88. The RSI is 40.37. October closed at $123.75. Support is at $123.10, then $122.88. Resistance is at $124.30, then $124.43. The RSI is 38.15. May feeders closed at $135.75. Support is at $135.74, then $135.72. Resistance is at $135.77, then $135.79. The RSI is 31.87. August feeders closed at $145.98. Support is at $145.97, then $145.94. Resistance is at $145.99, then $146.02. The RSI is 39.88. October feeders closed at $149.78. Support is at $149.55, then $148.75. Resistance is at $149.93, then $150.75. The RSI is 41.10. Friday’s closing prices were as follows: Live/fed cattle – June $120.45 -0.10; August $120.78 +0.25; October $123.93 +0.18; Feeder cattle – May $135.38 -0.38; August $146.63 +0.65; October $150.75 +0.98; November $151.93 +0.93; May corn closed at $6.88 down $0.07 from Thursday.