Klamath Basin cattle prices heat up 122505

Cattle prices heat up

Tam Moore
Capital Press Staff Writer 12/23/05

KLAMATH FALLS, Ore. – On a chilly December evening, after last week’s Klamath County Cattlemen’s Association meeting, veterans of the ups and downs of cattle price and supply cycles hung around to talk markets.

The next day, February contracts for live cattle delivery hit a record high on the Chicago Mercantile Exchange. The price packers received for boxed beef – a measure of consumer demand – went over $160 a hundredweight after averaging $150.92 for the week.

In short, it’s a hot time for those selling cattle into a market short on supply and long on demand. Despite the run-up in retail beef prices during 2005, packers are moving beef, more of it than they did in 2004.

“The market’s going to be good for a while,” said Eric Duarte, the Klamath Basin representative of the national Superior Livestock video auction service.

“Numbers are way down,” said Butch Hitch, manager of Lost River Ranch.

So far this year, 30,656,000 head of cattle have gone through federally inspected slaughter plants. That’s down 1.4 percent from the kill at this time in 2004. However, those 30.6 million head have yielded nearly 23.5 million pounds of beef, up one-half percent from the yield of the larger number of animals killed in 2004.

One year ago, the average Choice-grading steer in the United States was worth $85.50 cwt. to the packer. Last week’s average was $94.44, an increase of $3.32 over the prior week.

The U.S. Department of Agriculture had a warning in the December Livestock and Poultry Report issued last week: “Packer margins hover at or below break-even levels” as tight cattle supplies and plentiful inexpensive feed mean solid prices for cattle producers and feedlot operators.

The CME live cattle contract for delivery next week reached $96 cwt. in trading the morning of Dec. 20, showing buyers in the pits are betting live cattle cash markets will improve by another $2 before the year is over. The record February future price, $97.25, is already history, with Tuesday trade dropping to $96.925. Boxed beef, on the other hand, had a value over $161 in morning trading on Dec. 20.

“Funds keep buying every day, so how can I call it lower,” one pit trader told Jim Cote of Dow Jones after the Dec. 19 rally.

The CME January feeder cattle futures contract, based on an index from across the country, hit a high of $117.90 Dec. 1, and traded the morning of Dec. 20 at $114.875.

Les Aldrich and Curt Thacker, two longtime Dow Jones commodity reporters, put a warning in their Dec. 19 report, saying the live cattle contract is “in rarified air and could be vulnerable to long profit taking.”

Confounding market watchers, as cattle futures moved up, the February contract for lean hogs hit $64 cwt. on Dec. 16, the lowest it’s been since the end of October.

Both futures and live cattle markets remain sensitive to impacts of news events related to bovine spongiform encephalopathy, or mad cow disease.

One of this winter’s big unknowns is how the combination of reopening the U.S. border to limited Canadian live cattle movements in July and the December reopening of Japan to U.S. and Canadian beef imports will play out over the months. U.S. Meat Export Federation President Phil Seng said this week that regaining the Japanese market closed for two years will be a “slow” process.

In Canada, where BSE was first confirmed in May 2003, there are additional factors. Heading the list is an expansion of beef slaughter capacity in reaction to the prolonged closure of the U.S. border. Pre-BSE, live cattle movements were a part of business, with numbers of feeder cattle, finished steers and heifers and slaughter cows traveling both directions spurred by price and currency differentials.

CanFax, the Canadian cattle market information service, said for the 25 years prior to 2003, 550-pound Canadian steers shipped to U.S. feedlots averaged $2.34 (U.S.) cwt. more than U.S. calf prices. This year, after the border opened, Canadian steer prices didn’t recover. The CanFax numbers show Alberta steer calves worth $12.98 (U.S.) less in Alberta than on this side of the border.

U.S. calf prices, reported this past week by the USDA, were as high as $160 cwt. for some 450-pound animals, with $150 prices for 500-pound steer calves in northern Great Plains auction markets. In the Pacific Northwest, 800-pound feeder steers for delivery between now and March traded between $108 and $111 cwt.

News of those prices brought smiles around the table in Klamath Falls.

Then someone observed that bred heifers sold for as much as $1,500 a head recently, an indication that some producers are still trying to expand their herds when the herd buildup into this cattle cycle is about two years old. That probably means that the supply of feeder cattle will increase by 2007, driving prices downward once again about the time that heifer’s first calf comes to market.

Said Duarte, “Don’t look too far down the road, you’ll get depressed.”

Dow Jones Newswires and CanFax, the Canadian cattle market information cooperative, contributed to this report. Tam Moore is based in Medford, Ore. His e-mail address is tmoore@capitalpress.com.