WLI

Negotiated cash fed cattle trade remained mainly undeveloped through Thursday afternoon. USDA reported some live trade in the Texas Panhandle at $99/cwt., at the upper end of the $97-$99 price range paid in the region so far this week. Live sales there last week were at $100.

Despite early pressure, Cattle futures continued to extend gains on Thursday, helped by the limit-up move in Lean Hog futures—across all but the back contract—presumably stemming from recent Chinese pork purchases and reports the U.S. will delay imposing additional tariffs, for a while.

Live Cattle futures closed an average of 60¢ higher (22¢ to $1.32 higher).

Feeder Cattle futures closed an average of 47¢ higher.

Wholesale beef values were steady on moderate demand and offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 8¢ higher Thursday afternoon at $219.97/cwt. Select was 20¢ higher at $198.60.

Corn and Soybean futures climbed Thursday, especially soybeans, on reduced yield and production estimated in the monthly World Agricultural Supply and Demand Estimates (see below).

Corn futures closed mostly 5¢ to 7¢ higher. 

Soybean futures closed 20¢ to 29¢ higher through Jan ’21 and then mostly 15¢ to 19¢ higher.

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Major U.S. financial indices closed higher Thursday.

Positive news included the aforementioned report that President Trump was delaying the imposition of added tariffs on Chinese imports for two weeks, as the two sides prepare for renewed negotiations in October.

Also, the European Central Bank lowered its deposit rate by 10 basis points to -0.50% and also renewed quantitative easing in the form of buying €20 billion of bonds per month, beginning in November.

The Dow Jones Industrial Average closed 45 points higher. The S&P 500 closed 8 points higher. The NASDAQ was up 24 points.

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The World Agricultural Supply and Demand Estimates released yesterday reduced beef production and fed cattle prices for this year, compared to the previous month’s estimate

Beef production for this year was estimated 90 million lbs. less than the previous month at 26.95 billion lbs., primarily on the slower expected pace of fed cattle slaughter and lighter carcass weights in the fourth quarter. That would still be 81 million lbs. more than last year.

The average 5-area direct fed steer price (all grades) for this year is estimated at $113.50/cwt., which is $3 less than the previous month’s estimate, based on current prices and anticipated continued price weakness. Price for the third quarter is forecast at $107; $103 in the fourth quarter.

Total red meat and poultry production for this year is forecast at 104.60 billion lbs., which is 21 million lbs. less than the previous month’s estimate, but would be 2.17 billion lbs. more than last year. Higher expected broiler production offsets lower forecasts for beef, pork and turkey production.

Negotiated cash fed cattle trade remained undeveloped through Wednesday afternoon.

Choice 2-4 steers (172 head) weighing an average of 1,380 lbs. brought an average of $102.84/cwt. at the fat auction in Tama, IA. At Sioux Falls Regional, in South Dakota, though, 365 head of Choice 2-4 steers weighing an average 1,455 lbs. brought an average of $99.68.

There were 636 head offered in the weekly Fed Cattle Exchange Auction. No sales, but two lots—a pen each of steers and heifers—were passed out at $99.

Cattle futures continued to rally, extending gains from the previous session and lifting hopes that markets carved out a bottom on Monday.

Live Cattle futures closed an average of $1.80 higher ($1.55 to $2.40 higher). That’s an average of $3.67 higher in the last two sessions.

Feeder Cattle futures closed an average of $2.46 higher, making for an average increase of $3.78 over the last two days.

Wholesale beef values were sharply lower on light demand and moderate to heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $5.49 lower Wednesday afternoon at $219.89/cwt. Select was $2.58 lower at $198.40.

Grain futures traded lower on apparent profit taking Wednesday.

Corn futures closed mainly fractionally lower to 1¢ lower. 

Soybean futures closed 4¢ to 5¢ lower through Sep ’20 and then mostly 1¢ to 2¢ lower.

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Major U.S. financial indices closed higher Wednesday, led by tech stocks, especially Apple.

The Dow Jones Industrial Average closed 227 points higher. The S&P 500 closed 21 points higher. The NASDAQ was up 85 points.

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“Strong basis can help pull cattle through the supply chain, even at low prices, because producers who hedged their cattle want to take advantage of the additional revenue that larger basis provides,” says Josh Maples, Extension livestock economist at Mississippi State University, in the latest issue of In the Cattle Markets. “That is likely the case in recent weeks even as fed prices have deteriorated.”

For those with passing familiarity, Maples explains fed cattle basis is the difference between cash fed cattle prices and spot month Live Cattle futures. He points to last week to illustrate. The 5-area weekly weighted average cash price at the end of last week for all grades of live steers was $101.73/cwt. October Live Cattle futures (the spot month) averaged $97.76 last week. So, the average basis was a positive $3.97.

Those who hedge cattle swap price risk for basis risk, which generally poses less risk, Maples says.

“Using a simplified example, assume a manager purchased a group of steers in March 2019 with plans to feed them for six months and immediately hedged by selling an October 2019 Live cattle futures contract which was trading at $116 at the time. After that point, prices going down helps them in their futures position but hurts them in their cash position, hence they are hedged against the impact of price changes,” Maples explains. “If this manager sold their steers last week and offset (bought back) their futures contract, they would have made $18.24/cwt. in the futures market ($116.00 – $97.76 = $18.24). Their cash cattle were worth much less than they were in March and they sold them for $101.73. Add the $18.24 made in the futures market to the $101.73 from selling the fed steers and this manager earned $119.97, which is $3.97 more than the futures price locked-in back in March ($119.97 – $116 = $3.97). This improvement over the locked-in price is due to the positive basis last week.”

Bottom line, based on average weekly nearby futures and average weekly fed steer price averages, Maples notes basis has been positive since the middle of April.

“This means that hedgers closing out in these weeks generally took home more than what they originally locked-in,” Maples says. “Conversely, from September 2018 through March 2019, basis was negative for 28 out of 32 weeks; hedgers generally took home less than their lock-in price. This shows that there is still risk in hedging, but the range (distribution) of basis risk is usually not as wide as the range of price risk.”

Negotiated cash fed cattle trade remained undeveloped through Tuesday afternoon.

Choice 2-4 steers sold $4.25-$4.50/cwt. lower at the fat auction in Dunlap, IA, bringing an average of $97.76 at an average weight of 1,374 lbs.

Cattle futures showed some life, though, with support from oversold conditions and after early follow-through pressure.

Live Cattle futures closed an average of $1.87 higher ($1.67 to $2.35 higher).

Feeder Cattle futures closed an average of $1.32 higher.

Wholesale beef values were lower on light demand and moderate offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $1.57 lower Tuesday afternoon at $225.38/cwt. Select was 94¢ lower at $200.98.

Grain futures traded higher Tuesday, perhaps on this week’s USDA Crop Progress report (see below), as well as some defensiveness heading into Thursday’s World Agricultural Supply and Demand Estimates.

Corn futures closed 6¢ to 7¢ higher through Sep ’20 and then mostly 3¢ to 4¢ higher. 

Soybean futures closed 10¢ to 14¢ higher through Sep ’20 and then fractionally higher to 3¢ higher.

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Major U.S. financial indices softened Tuesday, led by tech stocks, but closed little changed.

The Dow Jones Industrial Average closed 73 points higher. The S&P 500 closed fractionally higher. The NASDAQ was down 3 points.

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Plenty of folks will be sorting through the monthly World Agricultural Supply and Demand Estimates (due Thursday morning) for clues about where USDA sees crop yield and production at this point.

Allendale Inc. projects the USDA number for corn production at 13.90 billion bu. Based on its own Nationwide Yield Survey, Allendale projects production at 13.78 billion bu., with a yield of 167.71 bu./acre.

As for soybeans, Allendale projects yield at 46.13 bu./acre for production of 3.50 billion bu. They expect USDA to come out with an estimate of 3.68 billion bu.

In the meantime, corn crop condition lost ground last week, according to the most recent Crop Progress report for the week ending Sept. 8.

89% of corn was at the dough stage, which was 10% less than last year and 8% less than average. 55% was dented, which was 29% less than last year and 22% less than the average. 11% was mature, compared to 33% a year earlier and 24% for the five-year average. 55% was in Good (45%) or Excellent (10%) condition, which was 3% less than the previous week and 13% less than last year. 14% was in Poor (10%) or Very Poor condition (4%), which was 2% more than a year earlier.

92% of soybeans were setting pods, which was 8% less than the previous year and 7% less than the average. 55% were rated in Good (45%) or Excellent (10%) condition, the same as a week earlier, but 13% less than a year ago. 12% were in Poor (9%) or Very Poor (3%) condition, which was 2% more than a year earlier.

71% of spring wheat was harvested, which was 21% less than last year and 16% less than average.

97% of sorghum was headed, which was 2% less than the previous year and 1% less than the average. 65% was coloring, compared to 78% for the prior year and 74% for average. 27% was mature, which was 6% less than last year and 10% less than average. 22% was harvested, which was 2% less than last year and the average. 68% was in Good (53%) or Excellent (15%) condition, which was 15% more than a year earlier. 6% was rated as Poor (5%) or Very Poor (1%), compared to 17% last year.

51% of the nation’s pasture and range was rated in Good (43%) or Excellent (8%) condition, compared to 53% a week earlier and 43% last year. 20% was rated as Poor (14%) or Very Poor (6%), compared to 26% a year earlier.