June 29, 2009

Pressure from a weak economy, continuing dairy herd liquidation and sale of heavier animals because of the excessive heat in the Plains could curtail fed cattle markets into August, with live cash prices slipping below US$80 per hundredweight.

 

Fed cattle were trading actively Friday (June 26) at a steady US$82, and traders said packer buyers were picking up large volumes. This was after sales in Nebraska at steady to lower prices Thursday and into Friday morning.

 

Market analysts said the active sales could help support prices next week, but that it doesn't remove the background weakness that could pressure prices in the following weeks.

 

Packers may have been a little short on slaughter inventories coming into the week, but there isn't enough product demand to a major rebound in cattle prices, said Brian Hoops, market analyst for Midwest Market Solutions. He expected fed cattle prices to hold within a US$2 to US$4 range over the next two months, meaning prices could get down to the upper US$70s.

 

Hoops blamed the pressure on the ample meat supplies from active hog slaughter rates to increased dairy cow slaughter from the industry's herd buy-out program. Beef demand just isn't up to the task, he said.

 

One cattle trader expected selling interest among cattle feeders to remain heightened by the hot, humid weather in the Plains states. Since the most vulnerable cattle are the fattest ones, feeders will have an incentive to sell them as soon as possible and limit hard-nosed price negotiations that can leave them in the feedlots.

 

Rich Nelson, livestock market analyst for Allendale Inc., predicted cash cattle prices to do a slow grind downward into the second half of July or the first weeks of August. His target price was US$80, but he wouldn't rule out a US$78 bottom.

 

Nelson also said that pressure from the dairy cow slaughter along with seasonally lower product prices and complications from the recession will pressure select beef cutout prices. He admitted, however, that even though dairy slaughter in the latest reporting week was up 38 percent from a year earlier, it had not been "a major issue" in beef markets.

 

Support will come as fed cattle supplies tighten enough to make a difference to the fed cattle market, Nelson said. The beef market also has already factored in the extra pork prospects from projections of continued heavy slaughter rates, he said.

 

Robin Fuller, president of Tallgrass Consulting, said she was "not a big fan of cattle in the US$70s unless beef demand really gets a lot worse." The market is "coming into a lot tighter cattle numbers in August, and everybody knows it," including packer buyers.

 

Fuller said that meat buyers could step up their out-front purchases to get ahead of the tighter cattle supplies, which could support cattle demand and prices.

 

"I'm not convinced it will be as bad as a lot of people think," Fuller said.

 

Daniel Bluntzer, livestock market analyst for Frontier Risk Management, said if prices get into the US$70s, "we won't stay there very long."

 

If that happens, it will be in late July with a lower degree of probability that it will be delayed into early August, Bluntzer said. There will be psychological resistance to selling below US$80, too.

 

Once the dairy buyout is out of the way in late July, the beef industry should be getting into lower fed cattle supplies, based on previous placement data, Bluntzer said.

 

Bearish influences already are in the market, Bluntzer said. Traders already have dealt with them, so assuming the economy doesn't free fall and hog and dairy slaughter doesn't put unexpected pressure on the market, cash cattle prices could hold in the US$80s, he said.