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Published May 30, 2011, 04:00 AM

Cattle futures signal slowdown

Cattle futures have showed signs of slowing since the sharp sell-off that started from the contract highs made April 4.

Cattle futures have showed signs of slowing since the sharp sell-off that started from the contract highs made April 4.

Steer carcass weights the week of May 23 increased 6 pounds to 822 pounds, which is 15 pounds more than the same week a year ago. One should note that this is the heaviest steer carcass weight for that week in history. Heifer carcass weights were unchanged from the previous week and are 6 pounds heavier than the same week a year ago, but 7 pounds less than the same week in 2009.

While slaughter during June for both classes of carcasses is expected to increase during the month of June, the increase in tonnage could add another round of pessimism to the market once a correction is fulfilled from the current lows. However, within a two-month span, the decline in fat cattle and feeders has reached beyond a wave three. It would seem as if this market has moved too far too fast. Wave three can stop a market in its track, but wave fours have become so prevalent in many markets that we need to keep watch.

Canadian cattle imports continue to be well below last year, as are Australian imports of beef. As we enter the last half of this year, the dollar’s behavior will affect many commodity markets and exports and imports of commodities. In this case, a rally in the dollar would enhance imports of beef. Imports are down nearly 25 percent from a year ago. Meanwhile, again because of tight world supplies of beef and a weak dollar, U.S. beef export sales have increased this year by 30 percent from the same period a year ago. In fact, demand for U.S. beef is good, and reasonable to the world buyer, but domestic consumption is suffering. While gasoline prices have ebbed some, prices still are not far from record levels, and that, comingled with a cool, wet spring, has the grilling season off to a poor start. This was exemplified in the latest cold storage report that shows stocks of beef in coolers are down 1 percent from March in April but up nearly 11 percent from a year ago.

Hamburger prices remain strong, but young families can stretch a pound of hamburger farther via casseroles than a steak or roast. Furthermore, as corn prices increase, overseas demand for U.S. beef should increase because of higher overseas feed costs. It is much cheaper with a weak dollar to import the product than to feed the animals themselves.

Canadian and Argentine numbers for cattle remain down, so competition from those countries is not great.

Drought in the Southwest is another cause for a healthy correction in cattle prices as lack of wheat pastures pushed light weight calves into the feedlots sooner than normal. Feeder calves weighing 600 pounds or less going into the feedlots increased 23 percent in April.

Packers recently should have seen a nice move to processing margins in the black. Cash cattle prices fell $3 to $5 recently, while wholesale boxed beef improved. Perhaps warm, sunny weather would help give the fat market a rally correction on optimism of a grilling season finally getting a good start.