Courtesy of The Maxfield Report

www.themaxfieldreport.com

Sellers flexed their muscles last week and with the aid of a slaughter levels that continue to run below 600,000 animals, were able to ward off attempts from buyers looking to purchase hides at lower levels. Overall, it appears the trade agrees that it is highly unlikely that sellers collectively as a group liquidated the slaughter last week. However, with slaughter levels running approximately forty-thousand head lower than normal levels, coupled with the fact that the vast majority of sellers possess a strong sold forward position, it should not be a problem for sellers.

As to what we can expect for the week ahead, it is very likely that we will see another week of sparsely populated offer lists and we would not be surprised if sellers did not attempt to “test the waters” and tried asking for more money for their hides this week. In the meantime, it is widely agreed there are still some tanners who attempted to out-guess the market and delayed buying decisions during the first quarter of 2012. These tanners now find themselves in need of hides and although they may not be purchasing large volumes, there are enough of these buyers to allow sellers to hold the market at current levels, if not even obtain some incremental price improvements.

After four years of decline, the USDA is forecasting world beef production will be up a slight 0.2% this year. Most of the increase is coming from India that is predicted to be up 10.6%, while other major beef producing countries, which are expanding, include Argentina up 2.8%, Australia up 2.3% and Brazil up 2.0%. Meanwhile, forecast are calling for US beef producer to be down 4.2% compared to 2011.

Calculated domestic beef demand during February was up 1.7% compared to a year earlier, while export demand for US beef was down 4.6% in February. Reports call packer demand for fed-cattle down 3.7% lower this February than last. Meanwhile, the average grocery store price of choice beef was $5.053 per pound in March. This is up 0.8 cents from February, up 30.6 cents from March 2011, and the second highest retail monthly average price ever behind January 2012.

The 5-area live price for slaughter steers in March averaged $126.80 per hundredweight, up $1.10 from February, up $10.20 from March 2011 and record high for the second consecutive month. Beef cutout value was a strongly higher last week. By the end of last week, the choice boxed beef carcass cutout value was $188.10 per hundredweight, up $9.94 from the previous Friday. The select carcass cutout was up $7.04 from the previous week to $184.38 per hundred pounds of carcass weight.

Fed cattle prices were slightly higher again last week. The 5-area average price for slaughter steers sold on a live weight basis was $122.68 per hundredweight, up 60 cents from last week and up $3.38 per hundredweight from the same week last year. Steer prices on a dressed basis averaged $198.52 per hundredweight last week, up $3.59 from a week ago and up $7.15 from a year ago. Steer dressed prices are $10.42 per hundredweight above the choice cutout value.

The average dressed weight for slaughter steers for the week ending on April 7 was 843 pounds, up 7 pounds from the week before, up 24 pounds from a year ago, and above a year earlier for the 13th consecutive week. Oklahoma City feeder cattle prices were mostly steady to $5 higher this week

Live cattle futures contracts were slightly lower for the week. The April contract ended the week at $120.55 per hundredweight, up 3 cents from last Friday. The June contract settled at $115.45 per hundredweight, down 62 cents for the week. The August fed cattle contract ended the week at $118.85 per hundredweight, down 20 cents compared to the week before. October settled at $124.60 per hundredweight.

THE LOOK AHEAD

Sellers enter the week buoyed with confidence and laying claims to a strong sold forward position and there is no question a cattle slaughter well below even the most pessimistic of expectations is only extending the sold forward position of many sellers. However, what we find interesting are reports by some of the major tanners who report that they are not experiencing any delays in shipments.

Of course, this is leading to speculation that some sellers may not be sold as far forward as they are claiming, while we have heard from a couple of sources that they have experienced some delays in shipment from one of the packers.

In the meantime, a few members of the trade are of the opinion that if sellers truly want to get the “attention” of tanners and get all of the mileage they can out of the reduced slaughter. They are of the opinion that sellers should raise prices by $2 or more this week and although we certainly understand this mentality, this is without a doubt a risky move.

This especially would be considered a bold move, as there is a very good chance we could see slaughter levels change their course of direction in a heartbeat, as warmer weather and the traditional start of the barbeque season in the US easily could result in a significantly change in slaughter numbers without much warning. Thus, leaving us of the opinion, we would prefer to be well sold at current levels or slightly better, as opposed to being greedy and registering some “fancy” sales at significantly higher levels in limited volume.

THE SLAUGHTER

Monday’s slaughter at 120,000 head is the largest Monday slaughter in three weeks, while it is an eleven thousand head improvement versus the same day last week, while it is twenty-seven thousand head better when compared to the same day last year.

Worth noting is that the three-year running average slaughter for this week is 648,000 head; however, considering the current profitability for most packers, it is likely we will fall well short of this number this week. Early guesses by pundits for this week’s slaughter are looking for a number more in line with last week’s 598,000 head; however, we will be a bit more optimistic in our guess and believe we will see something closer to 612,000 head for the week.

Last week’s cow slaughter check in at 124,000 head, which is ten thousand head improvement versus the week prior and is the lion share of the improvement we saw in the slaughter last week over the week prior. However, worth noting is that last week’s total is eight thousand head lower than the same week last year and it finally appears that we are seeing the lower cow slaughter than many pundits were predicting at the start of the calendar year. Year-to-date, we have seen 2,085,000 head slaughtered and we trail the pace we set a year ago by 33,000 head or 1.558%.

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