WLI

Cattle futures continued higher Monday, helped along by surging wholesale beef prices and softer Corn futures.

Live Cattle futures closed an average of 47¢ higher.

Feeder Cattle futures closed an average of 68¢ higher.

Corn futures softened a touch Monday, following the previous session’s strong gains, perhaps pressured in part by rain forecast in the Corn Belt.

Corn futures closed mostly 2¢ to 4¢ lower.

KC HRW Wheat closed 4¢ to 10¢ higher.

Soybean futures closed mostly 2¢ to 5¢ lower.

Negotiated cash fed cattle trade was at a standstill in all major cattle feeding regions through Monday afternoon, according to the Agricultural Marketing Service.

Last week, live prices were $175-$180/cwt. in the Texas Panhandle, $178-$180 in Kansas, $183-$189 in Nebraska and $185-$187 in the western Corn Belt. Dressed prices were $285-$292 in Nebraska and $288-$292 in the western Corn Belt.

Choice boxed beef cutout value was $4.26 higher Monday afternoon at $314.19/cwt. Select was $5.80 higher at $296.73/cwt.

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Major U.S. financial indices closed lower Monday, with likely profit taking from last week’s strong gains.

The Dow Jones Industrial Average closed 199 points lower. The S&P 500 closed 8 points lower. The NASDAQ was down 11 points.

West Texas Intermediate Crude Oil futures (CME) closed 28¢ to 42¢ higher through the front six contracts.

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Dwindling beef production and resilient wholesale beef demand are lifting cattle prices.

“Tighter supplies of beef and cattle are dominating market fundamentals and will continue to do so,” explains Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

Peel points out beef production was 4.8% less year over year for the first 20 weeks of this year, with lighter year-over-year carcass weights magnifying the decline.

“Choice boxed beef prices finished last week at $309.93/cwt., up $6/cwt. from the Friday before Memorial Day,” Peel notes. “Boxed beef prices previously peaked in late April but decreased through May with holiday buying completed. The increase in Choice boxed beef prices into June suggests that post-Memorial Day beef demand remains strong.” 

As cattle slaughter declines, harvest remains weighted toward a higher percentage of females than is typical.

“Total cattle slaughter is down 2.8% so far this year compared to last year, with fed slaughter down 2.4% and total cow slaughter down 4.1% year over year,” Peel says. “However, heifer slaughter remains 0.6% higher year over year for the year to date and total female (heifer plus cow) so far this year accounts for 52.4% of total cattle slaughter.”

Increasing fed cattle, calf and feeder cattle prices are providing economic incentive for herd expansion, and it appears Mother Nature is beginning to cooperate.

“Recent improvement in drought conditions increases the odds that heifer retention will begin in earnest in the second half of the year,” Peel says. “Increased heifer retention, combined with reduced cow culling will increasingly squeeze cattle slaughter for the remainder of the year and into 2024 and beyond.”  

Negotiated cash fed cattle trade ranged from slow with moderate demand to mostly inactive on light demand through Friday afternoon with too few transactions to trend, according to the Agricultural marketing Service.

For the week, live prices were $5-$9 higher in the Texas Panhandle at $175-$180/cwt., $7-$9 higher in Kansas at $178-$180, $3-$6 higher in Nebraska at $183-$188 and $3-$5 higher in the western Corn Belt at $185-$187. Dressed prices were $5-$6 higher in Nebraska at $285-$292 and $3-$7 higher in the western Corn Belt at $288-$292.

Through Thursday, the five-area direct weighted average fed steer price was $3.64 higher week to week at $181.35. The weighted average dressed steer price was $5.30 higher at $289.66.

Choice boxed beef cutout value was $3.49 higher Friday afternoon at $309.93/cwt. Select was $4.61 higher at $290.93/cwt.

Week to week on Friday, Feeder Cattle futures closed an average of $8.32 higher and Live Cattle futures closed an average of $6.12 higher. On Friday, Live Cattle futures closed an average of 31¢ higher and Feeder Cattle futures closed an average of 25¢ higher.

Grain and soybean futures caught a gear higher Friday, with the latest U.S. drought monitor showing expanding dryness in the Corn Belt. It indicates 34% of U.S. corn and 28% of soybean production was affected by drought June 1.

Corn futures closed mostly 10¢ to 16¢ higher through Jly ‘24 and then 2¢ to 5¢ higher.

Soybean futures closed mostly 12¢ to 18¢ higher.

KC HRW Wheat closed 7¢ to 9¢ higher.

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Major U.S. financial indices surged higher Friday, fueled by Senate passage of the Debt Ceiling bill, as well as a stronger jobs report than anticipated.

Total non-farm payroll employment increased by 339,000 in May, according to the U.S. Bureau of Labor Statistics.  The unemployment rate rose by 0.3% to 3.7%. Average hourly earnings for all employees on private non-farm payrolls in May rose by 11¢ cents to $33.44. Over the past 12 months, average hourly earnings have increased by 4.3%.

The Dow Jones Industrial Average closed 701 points higher. The S&P 500 closed 61 points higher. The NASDAQ was up 139 points.

West Texas Intermediate Crude Oil futures (CME) closed $1.48 to $1.64 higher through the front six contracts.

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As welcome as significantly higher cattle prices are to producers, Andrew P. Griffith, agricultural economist at the University of Tennessee cautions the economic incentive for rapid herd expansion could add to eventual downside price pain.

“There is no reason to say the prices represented on the futures market are not attainable. However, if cash prices reach such a level in today’s economic environment, it will likely do more harm to cattle industry participants than good over the next five to eight years,” Griffith says, in his weekly market comments. “The concern here is some repeat performance of 2016 through 2018 following the strong prices in 2014 and 2015.”

It was a classic example of feast or famine.

“There is no way to predict what cattle prices will look like in five years, but the price levels being anticipated the next 12 months scream and shout herd expansion at as fast of a rate as possible,” Griffith says. He explains a moderate pace of herd expansion would support stronger prices for a longer period, whereas rapid expansion sets the stage for a steep price decline.

In the meantime, Griffith notes narrowing to negative packer margins amid high fed cattle prices likely point to increased sector consolidation.

“The packers this will be toughest on are the smaller operations and the new operations that are trying to pay down loans,” Griffith says. “The large and established packers can deal with negative margins a little longer than those who are highly leveraged. Red margins are nothing new in the packing industry, but they are something new to many of the operations that have opened the past couple of years. Beef packers will be competing for a relatively small number of cattle the next couple of years, which could lead to buyouts, consolidation, or straight-out closures … This type of price environment will lead to changes in the cattle industry. What those changes are and how they impact the industry will only be revealed with time.”

Negotiated cash fed cattle prices roared higher Thursday.

Trade in the Southern Plains was active with very good demand. Live prices were $5-$9 higher in the Texas Panhandle at $175-$180/cwt. and $7-$9 higher in Kansas at $178-$180.

Elsewhere, trade was moderate with very good demand. Live prices were $3-$6 higher in Nebraska at $183-$188 and $3-$5 higher in the western Corn Belt $185-$187. Dressed prices in Nebraska were $5-$6 higher at $285-$292. Last week, dressed prices in the western Corn Belt were $285.

Choice boxed beef cutout value was 60¢ higher Thursday afternoon at $306.44/cwt. Select was 83¢ lower at $286.32/cwt.

The extraordinary ascent of cash fed cattle prices fueled another bounce in Cattle futures.

Live Cattle futures closed an average of $3.65 higher ($2.25 higher at the back to $5.77 higher in spot Jun).

Feeder Cattle futures closed an average of $3.38 higher ($2.47 to $4.20 higher).

Traders appeared to add weather premium to markets Thursday.

Corn futures closed mostly 5¢ to 8¢ higher.

KC HRW Wheat closed 12¢ to 19¢ higher.

Soybean futures closed 18¢ to 29¢ higher though May ‘24 and then mostly 11¢ to 18¢ higher.

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Major U.S. financial indices closed higher Thursday with optimism fueled by U.S. House passage of a debt ceiling bill. 

The Dow Jones Industrial Average closed 153 points higher. The S&P 500 closed 41 points higher. The NASDAQ was up 165 points.

West Texas Intermediate Crude Oil futures (CME) closed $1.79 to $2.01 higher through the front six contracts.

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Ranch and farm labor wages increased in the latest semiannual Farm Labor report from USDA’S NASS.

Operators paid their hired workers an average wage of $18.08 per hour during the April 2023 reference week (April 9-15, 2023), up 5% from the April 2022 reference week. Field workers received an average of $17.26 per hour, up 5%, while livestock workers earned $16.48 per hour, up 4%. The field and livestock worker combined wage rate of $16.99 per hour, was up 4% from the 2022 reference week. Hired laborers worked an average of 40.6 hours during the reference week, up 2% year over year.

Ranch and farm operators hired 651,000 workers directly during the reference week, which was 3% more than the previous year.

Another day of weaker Corn futures and the outlook for steady to stronger cash fed cattle prices this week helped Cattle futures extend gains Wednesday.

Feeder Cattle futures closed an average of $1.46 higher.

Live Cattle futures closed an average of 63¢ higher (25¢ higher in the spot month to $1.10 higher).

Expectations of record production in Brazil helped pressure Corn futures Wednesday.

Corn futures closed mostly 1¢ to 3¢ lower.

KC HRW Wheat closed 2¢ to 6¢ higher in the front three contracts and then mostly 1¢ to 2¢ lower.

Soybean futures closed mostly 6¢ to 16¢ lower.

Negotiated cash fed cattle trade ranged from limited on light demand to a standstill through Wednesday afternoon, with too few transactions to trend, according to the Agricultural Marketing Service.

Last week, live prices were $170-$171/cwt. in the Texas Panhandle, $171 in Kansas, $180-$182 in Nebraska and $182 in the western Corn Belt. Dressed prices were $280-$286 in Nebraska and $285 in the western Corn Belt.

Choice boxed beef cutout value was 88¢ higher Wednesday afternoon at $305.84/cwt. Select was 62¢ lower at $287.77/cwt.

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Major U.S. financial indices closed lower Wednesday with investors focused on continued debt ceiling talks.

The Dow Jones Industrial Average closed 134 points lower. The S&P 500 closed 25 points lower. The NASDAQ was down 82 points.

West Texas Intermediate Crude Oil futures (CME) closed $1.29 to $1.37 lower through the front six contracts.

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USDA forecast beef exports for fiscal year (FY) 2023 at $9.3 billion, in the quarterly Outlook for U.S. Agricultural Trade from the Economic Research Service (ERS) and Foreign Agricultural Service (FAS). The total would be $700 million less than February’s projection on weaker unit values for beef muscle cuts more than offsetting firm shipments to Mexico and East Asia.

Total livestock, poultry, and dairy exports were lowered $1.2 billion to $39.3 billion with lower beef and poultry estimates outweighing gains in dairy.

U.S. agricultural exports were forecast at $181.0 billion, down $3.5 billion from the February forecast. This revision was driven by decreases in corn, wheat, beef, and poultry exports.

“Corn exports are forecast $2.1 billion lower to $14.5 billion on lower unit values and volumes as Brazil is poised to harvest a record second crop of corn,” say ERS and FAS analysts.

For overall perspective, the global economic outlook remained mostly unchanged.

“Inflation remains on a slowing trend, but economic growth challenges are materializing as monetary conditions tighten,” explains ERS and FAS analysts. “North America is still projected to grow moderately, with growth in the Eurozone projected to remain at lower levels. World real gross domestic product (GDP) is projected to increase by 2.8% in 2023, unchanged from the previous forecast.”

The quarterly outlook pegs projected growth for the United States’ real GDP in 2023 0.2% higher at 1.6%. 

Last week’s strong cash fed cattle prices, recent higher wholesale beef prices and Tuesday’s break in Corn futures helped propel Cattle futures higher.

Feeder Cattle futures closed an average of $3.24 higher.

Live Cattle futures closed an average of $1.53 higher.

Negotiated cash fed cattle trade was at a standstill in all major cattle feeding regions through Tuesday afternoon, according to the Agricultural Marketing Service.

Last week, live prices were $170-$171/cwt. in the Texas Panhandle, $171 in Kansas, $180-$182 in Nebraska and $182 the western Corn Belt Dressed. prices were $280-$286 in Nebraska and $285 in the western Corn Belt.

The weighted average five-area direct fed steer price last week was $2.79 higher at $177.94/cwt. The average fed steer price in the beef was $4.02 higher at $284.36.

Choice boxed beef cutout value was $1.03 higher Tuesday afternoon at $304.96/cwt. Select was $2.85 higher at $287.77/cwt.

Grain and Soybean futures closed sharply lower Tuesday as traders appeared to take back weather premium, as well as profits from last week’s rally. 

Corn futures closed mostly 6¢ to 10¢ lower.

KC HRW Wheat closed 22¢ to 35¢ lower in the front five contracts and then 8¢ to 12¢ lower.

Soybean futures closed 30¢ to 41¢ lower through Aug ’24 and then 21¢ to 26¢ lower.

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Major U.S. financial indices closed little changed Tuesday with investors focusing on continued debt ceiling talks.

The Dow Jones Industrial Average closed 50 points lower. The S&P 500 closed fractionally higher. The NASDAQ was up 41 points.

West Texas Intermediate Crude Oil futures (CME) closed $2.81 to $3.21 lower through the front six contracts, pressured by concerns about global demand.

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“Increasingly tight cattle supplies suggest that margins at all levels above the cow-calf sector will be squeezed in the coming months.  The severity of the squeeze and the timing will vary across beef industry segments,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

Stating with the cow-calf sector, Peel explains calf prices are currently about 50% higher year over year. 

“With calf prices increasing faster than feeder cattle prices, stocker margins or value of gain is eroding. However, similar to feedlots, the time lags in stocker production will allow the uptrend in feeder prices to offset part of the high calf purchase prices,” Peel explains. “Calf prices are likely to continue increasing faster than feeder cattle prices in the coming months.”

So far, feedlot returns remain positive, due to long time lags associated with the sector and the recent rise of fed cattle prices to record levels, according to Peel.

“The increase in fed cattle prices is balanced against the price of feeder cattle placed in feedlots roughly six months ago,” Peel says.  “However, it’s just a matter of time before feedlot margins feel the squeeze of rising cattle prices. The prices of feeder cattle currently being placed in feedlots are up about 39% year over year.  Feedlot breakevens for fed cattle will increase sharply by the end of the year.”

As for the packing sector, Peel points out margins are already being squeezed as the 25% year-over increase in fed cattle prices runs ahead of boxed beef prices, which are about 14% higher.

“Additionally, packers will face increased overhead costs as declining cattle numbers will reduce packing plant utilization rates in the coming months,” Peel says.

Finally, comes the retail sector, where Peel says prices have remained mostly static during the last 16 months.

“It appears that retail margins are decreasing as wholesale values are increasing faster than retail prices,” Peel explains.  “The reported retail beef prices reflect only grocery sales and less is known about beef price adjustments in food service and export markets.  The ability of retail beef prices to move higher as limited supplies and rising wholesale prices squeeze retail margins is perhaps the biggest concern in beef markets currently.”