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Expect Imports To Resume Within Next Several Days

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CattleCo

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Today 7/15/2005 6:50:00 AM


Vetterkind Cattle Comments: Expect Imports To Resume Within Next Several Days



Late yesterday afternoon the U.S. Ninth Circuit Court of Appeals in Seattle, WA overturned a ruling by the U.S. District Court for the District of Montana, that granted a preliminary injunction to the implementation of the BSE minimal risk regions rule. In other words the border is open. Secretary of Agriculture Mike Johanns said in a statement that the ruling is effective immediately, and that the USDA was already in contact with the Canadian Food Inspection Agency to work on the certification process for shipments of live cattle under 30 months of age into the U.S. Because many in the industry were expecting the border to be opened in March, much of the preliminary work has already been done, so we should expect imports to resume within the next several days. The question becomes what impact will it have on our domestic cattle market. Certainly futures contracts will be sharply lower this morning on the news, with the biggest declines likely to occur in the feeder pit. Naturally northern packers will likely have Canadian cattle hanging in their coolers within a week, which will help alleviate their margin problems. Again, however, due to the fact Canada has increased their kill capacity we will most likely not see a huge influx of fed cattle into our country. Canada currently has the capacity to kill 85,000 head per week; expansion is underway at its two biggest plants in Alberta (Cargill in High River, and Tyson in Brooks) plus several other small plants in the country to kill 95,000 head per week by the end of the year. With a couple of new plants under construction and further expansion at existing plants, Canada hopes to have capacity to kill 100,000 to 105,000 head per week by 2007. The average annual slaughter cattle exports from Canada from 1998 to 2002 were 936,000 head (642,000 fed cattle and 294,000 cows and bulls), take out the cows and bulls because they aren’t allowed in, and that leaves you with 642,000 head of fed cattle exported annually. They have already increased their kill capacity by 700,000 head per year from last year, so you can see that fed cattle numbers are not going to be burdensome coming from the north. The latest cattle on feed numbers out of Canada indicate that there was 804,294 head on feed as of July 1,2005, which is 18% higher than a year ago. Marketing’s during June were 161,825 or 5% above last year, and placements were 109,108 or 20% above a year ago. We can see their numbers are quite a bit larger than those of a year ago, however keep in mind the numbers are going to be skewed due to their industry being in such turmoil last year. The point being is that they certainly have cattle that are ready to come across into our country to suffice the needs of our northern packers, however they don’t have the numbers to send over in order to cripple our market like back in the early to mid 90’s. Feeder cattle are a different story, as there are probably more feeder cattle outside of feedlots in Canada than what they have capacity for due to their cow numbers being up 4% from a year ago. In the past we have averaged 140,000 head of feeder cattle imports annually from Canada, with the exception of 2002 when we imported 450,000 head. So we should expect to see more feeder cattle come across the border than fat cattle due to their calf and feeder numbers growing substantially over the last couple of years and a lack of feeding capacity for them in Canada. We will most likely see cash markets for feeder cattle be on the defensive for the next several weeks, as cattle feeders look towards Canada for their replacement needs.



Yesterday we saw cash cattle trading get underway in the southern plains, with prices a little softer than most thought including myself at $80 to $80.50 live. Texas feedlots reported 26,000 head being sold at that money, with Kansas reporting 35,000 head being sold for $1.27 ½ dressed or $80 to $80.50 live. There were some cattle that sold on a grid in both areas for $1.28 ½ dressed. Nebraska sold another 12,000 head at $1.26 to $1.27 dressed and $80 live, with Colorado showing 1,500 head sold at $80 live. That should clean things up in the north for the week, and any type of cleanup sales in the south will likely be marked at the low end of yesterday’s market. Packers will likely use their newfound leverage to walk the market lower next week, however we would not expect anything more than a couple of dollars off as outlined above. Feeders will probably be a different story and we should expect bigger declines in the auction market circuit next week.



Yesterdays kill was estimated at 123,000 head, which would be 6,000 head above last week at this time, and 4,000 head below last year on this date. Week to date we have killed 487,000 head compared to 359,000 head last week to date. The extra production and less than stellar demand has certainly taken its toll on the boxed beef market this week and yesterday was no exception. The choice boxed beef lost another $.66 to settle at $132.98, while the selects lost $.84 to settle the day at $128.37. There were 597 loads of cuts, trim, and grinds sold and the choice/select spread widened back out to $4.61. Offerings of beef cuts at the packing house level has been weighing on prices all week, as packers are having to discount product in order to keep it moving out the door. It is interesting to note however that buyers have stepped up to the plate on the break in prices as we see a load count of over 600 on Wednesday and another 597 yesterday. This shows that there is demand underneath the market; it is just a buyers market as they are comfortable with the inventory positions that they currently keep. We could most likely see prices firm a bit coming out of the weekend depending on the level of clearance at the consumer level, and most likely taper off as we go through the mid to latter part of next week. Would assume that buyers will be reluctant to jump aggressively into the market until they see just how many cattle will actually be available for slaughter coming out of Canada, and this could keep a lid on prices in the coming weeks.



Futures had a mostly lower session yesterday, with feeder cattle again taking the biggest brunt of the selling. Fat cattle contracts ended the day steady to $.27 lower, with the feeder issues losing $.75 to $1.42. For the third session in a row fat cattle contracts managed to stage a late session rally to close well off their lows of the day, as traders continue to find value at the lower price levels and were in place to absorb the last of the Goldman Roll. Feeders couldn’t find as many buyers at the end of the trading day as higher corn futures at the CBOT and the pending decision out of Seattle had buyers cautious, and as it now appears for good reason. We have likely priced in at least some of the border news since the first of the week, however more is sure to come today. We will most likely see a $.50 to $1 lower open in the fat cattle pit this morning, with a $2 to possibly $3 lower open in the feeders. As mentioned earlier the feeders have the most to loose in this deal and we could see prices under pressure here for a couple of days, with the fat/feeder spreads narrowing considerably. Deferred fat cattle contracts could also come under some pressure as spreads out there have gotten a little fat over the last couple of weeks, and there is likely going to be more of a steady stream of fat cattle coming into the market place a month or so out as opposed to immediately. Nearby fat cattle contracts will find some support near their contract lows of $78 basis the August and $80 basis the October. Probably wouldn’t be afraid to be long the front end of the board versus something short in Dec and Feb for a while as those spreads correct. The feeders will likely have some support down around the $100 level, and would be careful selling them at limit down today. As a matter of fact it could be somewhat of a hedging opportunity for cattle to be purchased in late summer and fall if prices fall much below $100 in the near term. I think the biggest risk to the feeder cattle market will be next spring where we could see both cash and futures test major support at the $90 level. If I were going to sell anything in the feeder contracts it would be the March, April, or May as those prices have the most to lose. Have a Good Weekend!





There is risk in trading futures and options.



Have a Good Day,



Troy Vetterkind

E-Hedger, LLC

141 West Jackson Blvd.

Suite 1520A

Chicago, IL 60604

1-866-433-4371
 

RobertMac

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Does this guy think feeders and fats are unconnected markets...when these feeders become fats, their impact will be multiplied!!!! :???:
 

Sandhusker

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"...however they don’t have the numbers to send over in order to cripple our market like back in the early to mid 90’s."

Notice the words "cripple our market". That is why some are not ready to embrace this North American partnership that is being sold to US producers. You generally pair up with an outfit that benefits you. This arrangement certainly is favorable for the large packers, but the US producers?
 

alabama

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On one hand the USDA says we need to open the border to imports to save the beef market and on the other hand they say we need to open the border to exports to save the beef market.
Why import when you can't export? The answer is so that the packer can buy beef for less from the producer. Once again, the big bucks that back the large packers have bought out politicians.
 
A

Anonymous

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Alabama: "The answer is so that the packer can buy beef for less from the producer."

The packer is the middleman. What he pays for live cattle is determined by what consumers pay for beef. It's never been any different.

I'm sure they would prefer boxed beef prices were higher so they could pay more for fat cattle without listening to the constant bitching.

They are going to make a long term profit whether boxed beef prices are high or low.

They are going to make a long term profit whether fat cattle prices are high or low.

Either they make a profit no matter where boxed beef prices and fat cattle prices are OR THEY CLOSE THEIR DOORS.

What is so hard to understand about that simple concept?



~SH~
 

feeder

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I think all too well I understand that simple concept. If there is not a profit the cattle producers will have to close shop. Unless we learn to "adapt" to lower margins or buy our grain, hay,electricity, water, equipment,etc. cheaper. The standard of living will decrease nationwide if every entity has to do with less. One good aspect is that our gov't will have to do with less due to decrease taxes paid, and we won't have to give out billlions to other countries.
 

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