Beef Cutout Reverses, But Trend Remains Bullish

5-1-14 – The USDA’s boxed-beef cutout values reversed Tuesday’s direction Wednesday, with choice prices dropping and select moving higher, reflecting the differing agendas of major buyers.\r\n\r\n Wednesday’s choice boxed-beef prices were up only $0.46 per cwt from a week earlier after dropping $1.26 from Tuesday to land at $233.10. The select cutout rose $1.87 Wednesday to end at $222.29, a gain of $1.62 from a week earlier.\r\n\r\n Prices continue to swing higher from a weekly low of $224.27 set the week ended April 18. And if forecasts for clearing skies and warmer temperatures in major parts of the country are accurate, prices could retest the weekly high of $242.41, set the week ended March 21. \r\n\r\n And while the choice/select spread narrowed Wednesday to $10.81 and is below last week’s $11.49, the general trend is to widen. The 5-year average trend is to move gradually higher from late March into late June or early July before declining into August where it begins a climb into the holiday season.\r\n\r\n However, last year, the spread widened sharply to a record-high $19.75 the second week of June, whereupon it fell just as sharply into that late-July/early August period. The problem for traders is that the average summer high in the choice/select spread is only $8.64, and the spread is already $10.81 and trending higher as it did last year.\r\n\r\n The spread’s widening process also began earlier than either last year or the average, bottoming in February rather than late March.\r\n\r\n The questions now are: Will pent-up grilling demand push choice to even greater heights over select to challenge last year’s extreme highs, or will consumers refuse to pay this year’s record-high retail prices and switch to select, thus capping the choice/select spread?\r\n\r\n \r\n\r\nFEEDER CATTLE KEEP MOVING HIGHER\r\n\r\n \r\n\r\n US feeder cattle prices continue to move higher as supplies tighten with a declining cow herd. The lower-than-expected March feedlot placements still haunt the minds of many who now feel calf availability is declining faster than they thought.\r\n\r\n Part of that may be because ranchers are trying to hold heifers back for breeding with the On-Feed report showing a disproportionate ratio of steers to heifers on feed in the first quarter.\r\n\r\n Tuesday, lightweight steers at the La Junta, CO, Winter Livestock market sold $3 to $5 per cwt higher at $240 to $265. Heavy steers sold $3 to $7 higher at $225 to $250. Lightweight heifers sold steady at $200 to $222.\r\n\r\n Medium and large No. 1 steers at McAlester, OK, Tuesday, weighing 671 pounds sold at $189, and in Boonville, MO., medium and large No. 1 steers, weighing 655 pounds sold at $199.50.\r\n\r\n Feeder cattle futures finished higher Wednesday, with new contract highs from August forward. Overnight prices are up again.\r\n\r\n Technical traders say May holds a bullish bias.\r\n\r\n The CME Feeder Cattle Index for the seven days ended Tuesday was $179.62, up $0.03, while the May futures contract settled Wednesday at $181.20, up $0.62. April live cattle expired at $145.82, up $0.32. June settled at $137.20, up $0.17.\r\n\r\n \r\n\r\nFED CATTLE TRADE QUIET AS APRIL EXPIRES\r\n\r\n \r\n\r\n No cash cattle trade was reported through Wednesday as the April contract expired and pointed to a steady Plains market. Cattle traded last week at $145 to $146 per cwt on a live basis and $235 to $236.50 dressed.\r\n\r\n Feedlot asking prices were holding at around $147 to $148 live and $238 dressed.\r\n\r\n June, which assumes the role of lead contract, is at a significant discount to the latest cash market, which could attract speculative buying interest, especially if beef markets continue to move higher.\r\n\r\n \r\n\r\nIN OUR OPINION\r\n\r\n \r\n\r\n–The feeder cattle market is technically overbought, but the fear of even higher prices is likely to keep it that way.\r\n\r\n–The backlash against antibiotic use in livestock and poultry will increase after the WHO’s warning about resistant bacteria and the possibility that simple infections could kill again.\r\n\r\n–A freeze warning for southwestern Kansas and some parts of Colorado, Oklahoma and Texas likely will bull wheat futures amid yield threats – adds to support from continued dry weather and poor crop conditions.