Sort & Cull

Do Packers Sit With Enough Supply?

ShayLe Stewart
By  ShayLe Stewart , DTN Livestock Analyst
With weaker boxed beef prices, packers sitting with plenty of supply around them and holiday-shortened kill weeks looming, the cash cattle market may trade steady to somewhat lower again this week. (Photo by Baxter Communications)

After last week's negotiated cattle trade only amounted to a thin 50,010 head, one might assume that cash cattle prices could be higher this week. However, that may not be how the week's trade pans out.

Before last week's trade, the cash cattle market had seen an impressive run over the last month, with feedlot managers largely in control of the market and prices trading anywhere from steady to $5 higher week after week. During that time, packers were strategic in slowly committing a portion of their weekly sales to the deferred delivery option, which has now allowed them to regain some leverage and pressure cash prices to trade lower.

Last week, Southern live cattle traded for mostly $187, which is $3 lower than the previous week's weighted average. Northern dressed cattle traded for mostly $294, also $3 lower than the previous week's weighted average. Last week's negotiated cash cattle trade totaled 50,010 head. Of that, 83% (41,519 head) were committed to the nearby delivery, while the remaining 17% (8,391 head) were committed to the deferred delivery option.

While it may seem logical that after a week of thin movement, prices would trade higher as packers need to ensure they're not short-bought, there's more at play for the market to manage than just fed cattle prices. With the recent drop in boxed beef prices, it's likely that packers will be even harder to negotiate with, as they're managing their margins from multiple angles. Last week's choice cuts averaged $313.42 (down $6.08 from the previous week), and select cuts averaged $282.90 (down $5.47 from the previous week). Also, let's not forget that throughput will play a big role in packer demand. In two weeks, the market will have a holiday-shortened kill week, and December is always a lighter processing month, as packers have lighter kill weeks for the Christmas and New Year holidays.

So, seeing that only 50,010 head traded last week would typically mean that packer demand should be stronger in the following week -- there's a strong chance that fed cash cattle prices trade steady at best again this week.

ShayLe Stewart can be reached at shayle.stewart@dtn.com

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