Cattle futures rally week to week

Feeder prices trend lower

Few are overly confident that lows are in for Cattle futures, but the week’s rally and renewed trade optimism have many hoping Monday’s trough carved out a hard bottom.
Week to week on Friday, Feeder Cattle futures closed an average of $3.29 higher ($2.55 to $3.77 higher). That was with Corn futures closing an average of 12 cents higher through the front six contracts week to week.
Although the rally added some zest to some cash feeder prices later in the week, increased trade volume and lingering uncertainty continued to weigh heavy.
“Cattle feeders have been hammered by much lower cash fed cattle prices and now a futures complex that continues to plummet even further,” explained the AMS reporter on hand for Monday’s auction at Sioux Falls Regional in South Dakota—before the rally. “This negativity is making it very difficult to discern at what price level feeder cattle should be bought.”
Nationwide, steers and heifers sold mostly $2-$6 per cwt lower, with calves trading as much as $10 lower, according to the Agricultural Marketing Service (AMS).
Heavy Supply and Less Capacity Pressure Fed Cattle
Negotiated cash fed cattle prices continued to waver. The only trend reported by USDA through Friday afternoon was $1 lower at $99 per cwt in the Texas Panhandle.
Week to week through Thursday afternoon, on lighter trade, the Five Area direct average steer price was $2.82 lower at $99.49 per cwt on a live basis; $6.69 lower in the beef at $159.50.
Even so, Live Cattle futures erased the previous week’s losses, closing an average of $3.91 higher week to week on Friday ($3.45 to $4.70 higher). Besides oversold conditions, limit-up moves in Lean Hog futures provided fuel.
Despite lower fed cattle prices, it appears fed cattle basis should continue encouraging timely marketing.
“Strong basis can help pull cattle through the supply chain, even at low prices, because producers who hedged their cattle want to take advantage of the additional revenue that larger basis provides,” says Josh Maples, Extension livestock economist at Mississippi State University, in the latest issue of In the Cattle Markets. “That is likely the case in recent weeks even as fed prices have deteriorated.”
Maples points to the previous week for illustration. The Five Area direct weekly weighted average cash price for all grades of live steers was $101.73 per cwt. October Live Cattle futures (the spot month) averaged $97.76. So, the average basis was a positive $3.97.
Thus far, carcass weights continue to suggest feedlot currentness.
The average dressed steer weight for the week ending Aug. 31 was 4 pounds less than a year earlier at 884 pounds, according to USDA’s Actual Slaughter Under Federal Inspection report. At 811 pounds, the average dressed heifer weight was 7 pounds lighter.
With that said, Andrew P. Griffith, agricultural economist at the University of Tennessee notes that deferred Live Cattle futures contracts are trading at a premium to the spot month. In his weekly market comments, Griffith explains that provides incentive to feed cattle longer.
On the other side of the business, wholesale beef values continue to adjust to fundamental levels prior to the Tyson plant fire. Choice boxed beef cutout value was $6.43 lower week to week on Friday at $220.88 per cwt. Select was $3.34 lower at $198.60.
“Prices are closing in on $20 lower than their weekly peak but remain $5 higher than where they were prior to the fire,” Griffith says. “It is likely boxed beef prices will continue to moderate as fall approaches since the market is typically soft compared to the summer…The beef market may finally see some support from the African Swine Fever issue as the Chinese government is looking for pork to purchase.”

Cull cow prices higher

Long suffering cull cow prices are finally showing signs of life and may continue to improve, according to David Anderson, Extension livestock marketing specialist at Texas A&M University.
“Prices in the Southern Plains reached their high of the year, so far, at $54.36 per cwt at the end of August. That was 12.5% higher than a year ago,” Anderson explains, in the latest issue of In the Cattle Markets.

In fact, cutter cow prices (90% lean) have been unable to breach $60 per cwt since September of 2017, according to analysts with the Livestock Marketing Information Center (LMIC), in the most recent Livestock Monitor,
“There is some good reason to think that prices may continue to be above a year ago,” Anderson says.
For one thing, dairy cow slaughter, which helped drive total cow slaughter to decade-high levels earlier in the year, is back to year-ago levels. Dairy cow slaughter over the last month was almost 1% less year over year, according to Anderson.
As well, beef cow slaughter is showing signs of moderation following cyclical national herd inventory adjustment. For the last two months, Anderson says beef cow slaughter is also 1% less.
In 2018, U.S. Federally Inspected cow slaughter was nearly 6.2 million head, according to LMIC. That was 405,000 head more (+7.0%) than the previous year and the most since 2013.
“Also tied to slaughter levels, it appears that U.S. cow slaughter capacity is limited, which contributed to low animal prices in recent years, especially in some regions of the country,” say LMIC analysts. They add that Australian drought helped increase U.S. imports of lean and manufacturing-grade beef, which is 8% higher year to date.
Lighter dressed cow weights are adding support. So far this year, Anderson says weights averaged 7.6 pounds less than the same time period last year.
“The overall effect has been less cow beef production in recent weeks, supporting the 90-lean fresh beef price, the wholesale cutout value, and the cull cow price,” Anderson says.

Supplies will keep weighing on markets

Cattle producers face more price pressure for at least another year before cyclical transition offers support, according to the U.S. Baseline Outlook Report Update issued by the Food and Agricultural Policy Institute (FAPRI) at the University of Missouri (MU).
FAPRI estimates the Five Area direct average fed steer price this year at $116.58 per cwt., falling to $113.64 and $113.83 in 2020 and 2021, respectively. After $116.72 in 2022, prices increase from $121.28 in 2023 to $130.29 in 2028.
For feeder cattle (basis 600-650 pounds, Oklahoma City) FAPRI pegs prices at $153.61 this year. The next three years (2020-2022) estimates are $145.28, $149.66 and $154.20. After 2022, prices are forecast at $163.61 in 2023, then increasing to $181.35 in 2028.
In the meantime, cow-calf returns continue under pressure from cyclically high cattle numbers, according to Scott Brown and Daniel Madison—MU Department of Agricultural and Applied Economics—in the FAPRI companion update for livestock and dairy markets.
“Though pasture and range conditions have been much improved this spring and summer relative to previous years, cow-calf returns have reached the lowest level in a decade as feeder steer prices decline with cattle on feed numbers continuing to exceed year-ago levels,” say Brown and Madison. “Fed steer prices had been steady for most of the first half of the year, with recent weakness noted, due to the Aug. 9 fire at a Tyson cattle processing plant in Kansas. This has strained already tight beef packing capacity, resulting in higher beef prices along with depressed demand for cattle. Cattle and beef prices will remain under pressure as beef production grows through 2020. Good domestic demand for beef, particularly higher-quality product, continues to prevent even larger price declines.”
For recent perspective, the World Agricultural Supply and Demand Estimates (WASDE) for September project beef production for this year at 26.95 billion pounds, which would be 81 million pounds more (+0.30%) than last year.
Beef production for next year is estimated to be 2.66% more than this year at 27.67 billion pounds.
Projected total red meat and poultry production next year of 106.78 billion pounds would be 2.18 billon pounds more (+2.10%) than this year’s forecast. Keep in mind forecast total red meat and poultry production this year of 104.60 billion pounds is 2.12% more than last year.

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

North Central

South Central

Southeast

CME Feeder Index

CME Feeder Cattle Futures

CME Live Cattle Futures

CME Corn Futures

CME Oil Futures (WTI)