Although too few to trend, except in Colorado, early negotiated cash fed cattle trade on Wednesday was mainly $3 lower at mostly $107 on a live basis.
For the second consecutive week no cattle traded hands in the weekly Fed Cattle Exchange auction on Wednesday. There were 1,067 head offered.
Choice boxed beef cutout value was 70¢ lower Wednesday afternoon at $192.33/cwt. Select was $1.42 lower at $189.47.
With traders apparently squaring positions in the previous day’s positive session, and perhaps in some defensive positioning ahead of this Friday’s monthly Cattle on Feed report, Cattle futures moved lower again on Wednesday. Prospects of ample near-term supplies and eroding wholesale beef values continue to apply pressure.
Live Cattle futures closed an average of 94¢ lower (65¢ to $1.55 lower).
Feeder Cattle futures closed an average of 77¢ lower across a broad range (15¢ to $1.20 lower).
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Major U.S. financial indices closed lower on Wednesday. Lots of attention was paid to President Trump’s comments about his willingness to see the government shut down in order to get the border wall, and his doubts about the North American Free Trade Agreement. But there was also fundamental news digested by traders, including declining new home sales in July (see below).
The Dow Jones Industrial Average closed 87 points lower. The S&P 500 closed 8 points lower. The NASDAQ closed 19 points lower.
New home sales in July were 9.4% less than in June, according to the U.S. Commerce Department yesterday. Sales were 8.9% less than the previous July. The median sales price was $313,700.
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“It is likely that feedlots will be forced to continue to bid less aggressively on feeder cattle than during the past few months as they closely monitor the profitability of their operations,” explains Josh Maples, a livestock economist at Mississippi State University.”
Maples refers to increasing breakevens and dwindling profit potential as illustrated in the latest Historical and Projected Kansas Feedlot Net Returns (KFNR) from Kansas State University.
“Current and expected fed cattle prices have declined by approximately $10/cwt. over the past five weeks,” Maples explains in the latest issue of In the Cattle Markets. “This decline has eroded the projected profitability for feedlots through the rest of 2017. According to K-State’s Kansas Feedlot Net Return series, the projected net return for steers in Kansas feedyards was $136 per head for July closeouts. In fact, each month in 2017 saw positive returns with some months in the late spring showing more than $300 per head returns. The projections for the next nine months, however, are negative. August closeouts show projected losses of $31 per head while the projected loss for November is $169 per head.”
Maples emphasizes the KFNR reflects a cash market situation without price risk management strategies being implemented.
“Many feedlots do engage in some type of price risk management. However, few can fully offset price risks and most feedlots at least partially exposed to price risks at placement,” Maples says.