If this isn’t the seasonal bottom or near it, hopefully you can see it from here.
Cash fed cattle trade broke loose with moderate trade on light to moderate demand in all major cattle feeding regions on Thursday. Live prices were mainly $3-$7 less than last week at mostly $110/cwt. Dressed trade was $8-$10 less at mostly $175.
Choice boxed beef cutout value was $1.88 lower Thursday afternoon at $195.63/cwt. Select was 84¢ lower at $194.20.
Continued deterioration in fed cattle prices and wholesale beef values, along with sharply lower outside markets, supported bears’ doubts about the near term and fueled further liquidation in Cattle futures.
Live Cattle futures closed an average of $2.16 lower through the front three contracts and then an average of $1.19 lower (87¢ to $1.67 lower); an average of about $2.75 lower across the board in the last two sessions.
Feeder Cattle futures closed an average of $1.87 lower ($1.37 to $2.40 lower), a little more than an average of $5 lower in the past two sessions.
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Major U.S. financial indices closed sharply lower on Thursday. Besides profit taking, pressure was ascribed to the business backlash against President Trump—fears that it will make it more difficult to garner their cooperation—as well as increased geopolitical unrest.
The Dow Jones Industrial Average closed 274 points lower. The S&P 500 closed 38 points lower. The NASDAQ was down 123 points.
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Increasing ethanol production is likely to exceed domestic and export demand, according to a new report from CoBank’s Knowledge Exchange Division.
The report, Ethanol’s Growth Path: Output and Export Uncertainties Both Rising, outlines how an ethanol market fueled by corn prices at multi-year lows, coupled with reinvestment into production capacity, will push supply past demand growth. As U.S. ethanol producers reinvest last year’s strong profits in increased production and capacity, the report suggests profit margins could turn negative, prompting consolidation.
“Forecasts indicate that total ethanol production by 2020 will have increased by approximately 850-900 million gallons, compared to 2017 levels,” says Tanner Ehmke, CoBank senior economist. “Without a substantial increase in domestic demand or exports to clear excess supplies, ethanol producers are facing a downturn over the medium term. Those who have access to multiple transportation markets and have invested in new technology will be leaner and more cost efficient, enabling greater flexibility to endure prolonged periods of low prices.”
Domestic demand for gasoline blended with ethanol was strong over the last 18 months, as low fuel prices resulted in consumers driving more. Consumers are increasingly buying higher ethanol-gasoline blends like E-15 (15% ethanol), too.
There are a number of challenges ahead, however, according to CoBank. Among them:
- Exports of ethanol, particularly to Brazil and China, were during the past year, but that picture has changed significantly and the outlook for future ethanol exports suggests a continued decrease over the foreseeable future.
- China effectively ceased ethanol imports from the U.S. following its implementation of a 30% tariff on U.S ethanol. Exports to Brazil are also expected to erode as Brazilian sugar refiners come back online following a sugar crop failure in 2016, which led to the country’s heavy reliance on ethanol imported from the U.S.
- Growth of U.S. exports to new markets such as India, Mexico and Indonesia, where governments are seeking to improve air quality, is possible, but will likely take time to fully materialize.
Tight margins, limited profitability and consolidations are anticipated for the ethanol industry in the near future, according to CoBank. But, analysts there expect the correction to be less severe than previous ones.