Cattle prices continue stronger than last year

Markets continued on mostly solid footing this week, although the sudden and steep drop in cattle futures at midweek added to wariness of increasing cattle and beef supplies.

Calves and feeder cattle sold from $2 lower to $3 per cwt higher, according to the Agricultural Marketing Service (AMS). Part of the pressure stemmed from winter weather and an ice storm that curtailed receipts and demand at some auctions in the Southern Plains and parts of the Midwest.

Feeder Cattle futures basically gave back about what they gained the previous week, closing an average of $3.44 lower week to week on Friday ($2.82 to $4.02 lower).

More feedlot placements than the trade expected (see below) will likely add to uncertainty at the beginning of the coming week.

The hard break in futures prices on Wednesday enticed some cattle feeders to pull the trigger early, while the recent jump in wholesale beef values encouraged packers to do the same.

Choice boxed beef cutout value was $8.49 higher week to week on Friday at $218.37 per cwt. Select was $7.70 higher at $212.82.

Cash fed cattle trade was mainly $2 lower on a live basis at $128 per cwt. Dressed trade was steady to $1 lower at $204-$205.

Live Cattle futures closed an average of $1.76 lower week to week on Friday ($1.07 to $2.80 lower).

Prices remain higher than last year

Compared to last year, cattle and beef prices continue at a significantly stronger pace.

For instance, year to year, steers weighing 500-600 pounds were from $23.82 per cwt higher in the Southeast region to $25.59 higher in the South Central region. That’s according to the National Weekly Feeder and Stocker Cattle Summary from AMS. Steers weighing 600-700 pounds were from $22.47 per cwt higher in the South Central region to $29.33 higher in the North Central.

Likewise, fed steers averaged $123.35 per cwt. in January of this year (Five Area monthly), compared to $119.99 a year ago.

Beef prices continue higher, too. Choice boxed beef cutout value on Friday was 11.3% higher year to year. Select was 10.4% higher.

“In January, Choice retail beef prices were $575.8 per cwt, down from December but 1.7% above one year ago,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “All fresh retail beef prices were $560.4 per cwt., up 2.0% year over year. This despite the fact that per capita beef consumption was up 2.4% year over year in 2017.”

Headwinds ahead

Although markets are off to a strong start this year, Peel cautions that plenty of challenges remain.

“Beef production, already up over 3% so far this year, is expected to be up 4.5-5.0% for the year,” Peel says. “Increased beef production will result from increased cattle slaughter and likely higher carcass weights. Feedlots are carrying larger inventories of feedlot cattle into the year and the 2% increase in the 2017 calf crop ensures that feeder numbers will continue to grow in 2018.”

So far, frozen beef inventories continue to reflect increased active product movement rather than stockpiling. Although total pounds of beef in freezers Jan. 31 were 2% more than the previous month, they were 7% less than the previous year, according to the monthly USDA Cold Storage report issued Friday. However, frozen pork supplies were 16% higher month to month and 8% more than the previous year. That left total red meat supplies 9% more than the previous month and 1% more than the previous year. At the same time, total frozen poultry supplies were 4% more than the previous month and 12% more than the previous year.

Peel points to several supply and demand factors that will be critical as the year unfolds.

“Carcass weights will be the key to just how much supply pressure will affect beef markets in the coming year,” Peel says. “Currently, average cattle carcass weights are higher year over year as a result of heavier heifer and cow carcasses; with steers about equal to last year. Carcass weights are likely to bounce back some from last year’s sharp drop, but just how much will determine total beef production. Along with increased beef production, growing pork and poultry production will result in record total U.S. meat production in 2018 adding to the supply challenges for all meat industries.”

As well, uncertainty surrounding trade policy hangs over the industry.

“Decisions regarding the North American Free Trade Agreement and the United States-Korea Free Trade Agreement could have a major impact on meat trade and U.S. cattle and beef markets,” Peel explains. “Simmering trade tensions between the U.S. and China could have ripple effects across many agricultural markets. U.S. macroeconomic and global economic conditions, generally, could rise up to be a more prominent factor in beef markets. Recent volatility in the stock market is a reminder that external factors can jump up quickly and may impact agricultural markets. Interest rates are likely to rise faster and more in 2018.”

Cattle on feed up almost 8%

Cattle feeders keep placing more cattle than some expect, according to Friday’s monthly Cattle on Feed report.

There were 2.07 million head placed in feedlots (1,000+ capacity) during January, which was 4.4% more (+87,000 head) than the previous year. Most expected placements to be even with last year or slightly less, given the drought-forced early placements of recent months.

Analysts with the Livestock Marketing Information Center (LMIC) note in the most recent Livestock Monitor that the number of cattle grazing small grains pastures at the beginning of the year (Kansas, Oklahoma and Texas) was 300,000 head (17% less) than a year earlier.

Some also expected rising feedlot breakevens to slow placements.

Heading into the report, analysts with Allendale, Inc. explained, “Finished cattle from January through March are estimated with a $123 breakeven, according to Kansas State University. This increases to $127 and $130 for April and May. From June on out, $120-$124 breakevens are noted.”

In terms of placement weights, 39.9% went on feed weighing 699 pounds or less; 50.4% weighed 700-899 pounds; 9.7% weighed more than 900 pounds.

“In recent months, the number of cattle placed into U.S. feedlots has been bolstered by the large 2017 calf crop, poor small grains (e.g., wheat) grazing conditions in the Southern Plains and rather good demand for animals to put on feed,” say LMIC analysts. “The spike up in placements is a double-edge sword. In the short term, feeder cattle supplies outside feedlots as of Jan. 1, 2018, were calculated to be below a year earlier (down 2.3% or 607,000 head), which tends to support prices.

“However, the placement pattern since last fall has put more slaughter cattle in the marketing window of late-May through mid-August than a year ago. Note that many of those animals are heifers. Those large marketings will likely pressure slaughter-ready steer and heifer prices, which are forecast to be below 2017’s. Those prices suggest dampened demand for feeder cattle late this spring on into the summer months.”

Unsurprising, given the expanding cowherd, was the increased total on-feed inventory and fed cattle marketings.

LMIC analysts explain USDA’s recent Cattle report pegged last year’s U.S. calf crop at 35.8 million. That was 2% more (751,000 head) than the previous year and the largest since 2009. This year began with 1.6% more beef cows than last year.

Total cattle on feed Feb. 1 was 11.63 million head (+848,000 head), which was 7.9% more than a year earlier, which was at the upper end of estimates ahead of the report.

Fed cattle marketing in January of 1.86 million head were 6.1% (107,000 head) more than the previous year.

Incidentally, cattle and calves on feed for slaughter in feedlots with capacity of 1,000 or more head represented 82% of all cattle and calves on feed in the United States January 1 of this year, compared to 81.2% at the same time 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)