Cattle futures blasted from the weekly blocks with a sharply higher close on Monday, presumably tied to oversold conditions, short covering and the cash premium for fed cattle.
Live Cattle futures closed an average of $1.93 higher ($1.47 higher to $2.52 higher in spot Jun).
Feeder Cattle futures closed an average of $2.47 higher.
That’s more than welcome, considering the plunge last week, led by fed cattle prices. Looking at the weekly report—5-area Weekly Weighted Average Direct Slaughter—fed steer prices declined $6.92 on a live basis to an average of $114.73/cwt. Fed heifers were $7.31 lower at $114.08. On a dressed basis, steers were $7.97 lower at $184.02 and heifers were $9.35 less at $182.99.
Cattle markets were also buoyed by higher outside markets, which rose on increasing optimism about simmering trade issues between the U.S. and China.
According to a joint U.S. and China statement issued by the White House on Saturday, “There was a consensus on taking effective measures to substantially reduce the United States trade deficit in goods with China. To meet the growing consumption needs of the Chinese people and the need for high-quality economic development, China will significantly increase purchases of United States goods and services. This will help support growth and employment in the United States.
“Both sides agreed on meaningful increases in United States agriculture and energy exports. The United States will send a team to China to work out the details…”
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Wholesale beef value softened on Monday amid moderate offerings and demand, according to the Agricultural Marketing Service. Choice boxed beef cutout value was $1.39 lower Monday afternoon at $230.82/cwt. Select was 94¢ lower at $207.52.
Select and Choice chuck, round, and loin cuts sold steady to weak, according to AMS. Choice rib cuts sold lower, while Select traded steady. Beef trimmings sold sharply lower on light demand and moderate offerings.
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Major U.S. financial indices surged Monday on the weekend news that the U.S. and China were making progress toward reducing the U.S. trade deficit in goods with China.
The Dow Jones Industrial Average closed 298 points higher. The S&P 500 closed 20 points higher. The NASDAQ closed 39 points higher.
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“The packer margin is strong, as are net exports of beef. Saturday and total slaughter volumes have been strong, slaughter weights continue their seasonal decline and boxed beef composite values have been relatively high,” says Stephen Koontz, agricultural economist at Colorado State University, citing current bullish market fundamentals, in the latest issue of In the Cattle Markets. “The Choice-Select spread is also very strong, indicating excellent demand going into summer. All of these indicate strong beef movement and good demand in the face of high production.”
On the other side of the scale, Koontz point to increasing supplies of market-ready fed cattle, the looming seasonal increase in carcass weights, dismal byproduct values and retail beef prices so high that they could limit some demand.
“Strong margins incentivize the packer to buy aggressively and continue to move large volumes of beef,” Koontz says of key factors to monitor. “We need to see continued heavy marketings, slaughter, and a pull-down in the number of market-ready cattle. Aggressive marketings will also limit the seasonal growth in slaughter weights. It would not hurt to see continued strong exports and some softening of retail beef prices. But, the market has very limited upside potential based on fundamental supply and demand. A lot has to happen to see a market similar to that of 2017. One or two things going wrong have the potential to seriously weaken fed and feeder cattle prices.”