Calf and feeder prices surge higher

Seasonally and cyclically snug harvest-ready cattle supplies continue to bolster markets, helped along by increasing feedlot marketing currentness, which is helping to keep a lid on carcass weights.

Overall, steers and heifers traded steady to $7 per cwt higher, according to the Agricultural Marketing Service (AMS): steady to $4 higher early in the week and then $3-$7 higher.

It was Superior’s Wednesday Fed Cattle Exchange that seemed to spark added optimism. The weighted average of $133.35 per cwt on 2,195 head was $2-$5 higher than negotiated trade the previous week.  

Already simmering, cattle futures charged higher, finally making some fundamental sense and feeling like old times when some of us could at least make believe that we thought we understood what was going on.

Feeder Cattle futures closed an average of $4.23 higher week to week on Friday ($2.05 to $5.22 higher).

Live Cattle futures were an average of $2.13 higher week to week ($1.00 to $3.17 higher).

Stronger cash and futures prices were also reflected in forward sales of calves and feeder cattle. Consider this week’s Superior Livestock video auction. The average price of $132.13 for May delivery on 700 head of Medium and Large #1 steers from the South Central region mirrored prices paid for the same weight and class sold at cash auctions this week.

“It is possible that the current market strength is more than just a seasonal first-quarter price rally,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Domestic beef demand appears to be continuing stronger though March data are not yet available. However, February retail beef prices were stronger with both retail Choice and all-fresh beef prices higher. The ratio of retail all-fresh beef price to poultry price increased in February despite a slight increase in poultry prices as well. Retail pork prices were also higher in February.”

Even with higher wholesale beef values, sales of boxed beef more than 21 days out continue to run ahead of last year. Last week, there were 1,105 negotiated loads reported for delivery 22 days ahead and more, according to USDA’s National Comprehensive Boxed Beef cutout report. There were 687 loads reported during the same period last year. For perspective, a total of 6,546 loads were reported last week compared to 6,067 the same week last year.

So, markets appear positioned as favorably as possible ahead of inevitable supply increases.

“As increases in meat production outpace increases in meat exports, the domestic market will have more meat available,” say analysts with the Food and Agricultural Policy Institute at the University of Missouri, in the recent 2017 U.S. Baseline Briefing Book. “This will limit the volatility in projected prices relative to the volatility exhibited between 2013 and 2016. If demand strength deteriorates or feed prices rise unexpectedly, the financial situation for livestock producers could become very difficult in a short amount of time.”

The latter part of the week served as a reminder.

After the bullish line in the dirt drawn by Wednesday’s fed cattle auction, packers and cattle feeders mostly were at an impasse for country trade. A smattering of live sales were reported from $131-$136, including $133 in the western Corn Belt and $134.50 in Nebraska for delivery at 1-14 and 15-30 days. Likewise, there was a smattering of dressed sales at $215 in Nebraska. But, there were too few transactions to trend. Live sales the previous week were at mostly $128-$132 with dressed trade at mostly $210.

Although still at their highest levels since last June, wholesale beef values lost some steam as the week progressed. Choice boxed beef cutout value was $1.81 lower week to week at $221.62 per cwt on Friday. Select was $1.07 higher at $215.55.

“Fed cattle and boxed beef markets have rallied nicely the past month,” Peel explains. “After a strong January, fed cattle prices dropped below $120 per cwt in February before the recent rally. Mid-March live fed cattle prices pushed up to $128 per cwt with some trades over $130 reported.

"Choice boxed beef has increased from a February low below $188 per cwt to a recent high over $223 per cwt. There is no clear indication that the rally is over, but a top or at least a plateau in these markets is likely soon before markets move seasonally lower in the second quarter.”

In the monthly Livestock, Dairy and Poultry Outlook (LDPO) released last week, analysts with USDA’s Economic Research Service (ERS) forecast the first-quarter feeder cattle price at $127-$131 per cwt, up $1.20 from the fourth quarter. That’s for steers (Medium and Large #1) weighing 750-800 pounds.

“The 5-Area all grades fed steer price, which bottomed in October 2016, has recovered in the face of higher fed cattle slaughter,” ERS analysts say. “Although remaining below year-earlier levels, the January and February 2017 prices increased to $119.99 and $121.54 per cwt, respectively. The first-quarter 5-Area fed steer price is forecast in the range of $121-$124.”

Heading into next week, markets should find Friday’s Cattle on Feed report neutral, perhaps bullish (see “Feedlot placements trend lower” below).

Feedlot placements trend lower

February placements of cattle on feed (1.69 million head) were almost 1% less than last year, according to the monthly Cattle on Feed report released by USDA on Friday. That’s the first year-to-year decline since October and follows three months of increases (11-18%).

This was likely the most-scrutinized estimate. There was a wide range of projections heading into the report, from several different organizations. Those responding to the Urner Barry Survey, reported by the Steiner Consulting Group’s (SCG) Daily Livestock Report on Wednesday, were close. They foresaw a reduction of 1.2%.

The bulk of placements were at 700-799 pounds (29.0%) and 800-899 pounds (23.4%).

Marketings in February of 1.65 million head were 3.6% more than last year. Average estimates of the Urner Barry Survey were for an increase of 3.5%.

As of Mar. 1, there were 10.8 million head of cattle on feed, 0.7% more than a year earlier, close to estimates from the aforementioned survey.

Although the inventory is slightly more than a year earlier, SCG analysts say that front-end cattle supplies remain tight.

“We calculate that on Mach 1, the supply of +120 day cattle on feed was 3.248 million head, 16.3% less than the same period a year ago,” SCG analysts explain. “In March 2012, this supply was well over 4 million head and in March 2013 it was +3.7 million head.”

The folks at Steiner Consulting Group used the average of analyst estimates for total cattle on feed (+0.1%), along with inventories and placements from previous months.

“Tight front end supplies and robust cutout values remain supportive of cattle prices,” they say.

Beef in cold storage lower than expected

Similarly, the monthly Cold Storage report released by USDA this week should offer no opportunity for market gloom.

Total pounds of beef in freezers at the end of February were down 7% from the previous month and down 1% from last year.

For further perspective, beef production last month of 1.93 billion pounds was 3% more than the same time last year, according to USDA’s monthly Livestock Slaughter report. Cattle slaughter of 2.37 million head was also 3% higher. The average live weight of 1,360 pounds was down 12 pounds from the previous year.

“The main reason we view the beef cold storage numbers as supportive is the pace of stock drawdown in February, according to SCG, in its Daily Livestock Report on Thursday. “Inventories declined by 35.5 million pounds from January levels or 6.6%. This is far more than we normally see at this time of year. And inventories declined even as beef supplies continued to increase.”

“Robust exports, a notable decline in imports and favorable weather conditions likely all contributed to the larger than expected stock depletion,” say the SCG folks.

Rounding out the Cold Storage report, frozen pork supplies were up 9% from the previous month but down 9% from last year.  Total red meat supplies in freezers were up 1% from the previous month but down 6% from last year. Total frozen poultry supplies were up 5% from the previous month and up 2% from a year ago.

CATTLE MARKET WEEKLY by Wes Ishmael

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