WLI

Cattle futures closed lower Tuesday, in correction mode after the long holiday weekend, and with softer outside markets.

Live Cattle futures closed an average of 66¢ lower (5¢ lower near the back to $1.05 lower in new spot Feb), not counting newly minted away Jun.

Feeder Cattle futures closed an average of 55¢ lower, from 7¢ lower at the back to $1.45 lower toward the front.

That was despite last week’s stronger cash fed cattle prices and persistent increases in wholesale beef prices.

Last week, live prices were $1 higher in the Southern Plains at $157/cwt., $1-$2 higher in Nebraska at $158 and steady to $3 higher in the western Corn Belt at $157-$160. Dressed prices were $3 higher in Nebraska at $252 and $2-$3 higher in the western Corn Belt at $250-$252. Negotiated cash fed cattle trade was at a standstill through Tuesday afternoon, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $4.97 higher Tuesday afternoon at $286.95/cwt. Select was $3.70 higher at $254.63/cwt.

Corn and grain futures closed sharply lower in nearby contracts amid the overall risk-off atmosphere of the day, as well as positive rains in South America.

Corn futures closed 3¢ to 8¢ lower through Jly ‘24 and then mostly 2¢ to 4¢ higher.

Soybean futures closed 23¢ to 32¢ lower through Sep ‘23 and then mostly 4¢ to 5¢ lower.

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Major U.S. financial indices closed slightly lower Tuesday, but the market had a more bearish feel as investors size up inflation and the risk of recession.

The Dow Jones Industrial Average closed 10 points lower. The S&P 500 closed 15 points lower. The NASDAQ was down 79 points.

West Texas Intermediate Crude Oil futures (CME) closed $2.84 to $3.33 lower through the front six contracts.

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Agricultural producer sentiment rebounded in December, as measured by the Purdue University/ CME Group Ag Economy Barometer. It climbed 24 points month to month to 126 following two months of decline.

The Current Conditions Index jumped 37 points to a reading of 135, while the Future Expectations Index increased 18 points to a reading of 122.

“The improvement in current sentiment was motivated by producers’ stronger perception of current financial conditions on their farms and could be attributed to producers taking time to estimate their farms’ 2022 income following the completion of the fall harvest,” says James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

The Farm Financial Performance Index climbed 18 points to a reading of 109 in December, the only time in it was above 100 in 2022. The turnaround was driven by a sharp increase in the percentage of producers who expect better performance than the previous year.

Looking to the year ahead, the December survey asked producers to compare their expectations for their farm’s financial performance in 2023 to 2022. Producers indicated they expect lower financial performance in 2023 and cited rising costs and narrowing margins as key reasons. Concerns about costs continue to be top of mind for producers. Nearly half (47%) of crop producers said they expect farmland cash rental rates in 2023 to rise above the previous year. Other top concerns for 2023 include higher input costs (45% of respondents), rising interest rates (22% of respondents) and lower crop or livestock prices (13% of respondents).

The Ag Economy Barometer is calculated each month from 400 U.S. agricultural producers’ responses to a telephone survey. This month’s survey was conducted from December 5-9.

Negotiated cash fed cattle trade was light to moderate on moderate demand in the Southern Plains and Nebraska through Friday afternoon, according to the Agricultural Marketing Service. Trade was light on light to moderate demand in the western Corn Belt.

For the week, live prices were $1 higher in the Southern Plains at $157/cwt., $1-$2 higher in Nebraska at $158 and steady to $3 higher in the western Corn Belt at $157-$160. Dressed prices were $3 higher in Nebraska at $252. Dressed prices in the western Corn Belt the previous week were $248-$249.

Total estimated cattle slaughter last week was 547,000 head, which was 15,000 head fewer than the previous week but 23,000 head more than the same week a year earlier. Year-to-date total estimated cattle slaughter of 33.68 million head was 499,000 head more (+1.5%) than the same time last year. Year-to-date estimated beef production of 27.85 billion lbs. was 369.7 million lbs. more (+1.3%).

Choice boxed beef cutout value was $3.12 higher Friday afternoon at $281.98/cwt. Select was 23¢ higher at $250.93/cwt. Week to week on Friday, Choice was up $10.03.

Cattle futures sagged lower Friday amid a general lack of trader interest and year-end position squaring. 

Live Cattle futures closed an average of 71¢ lower (2¢ lower near the back to $3.67 lower in expiring Dec on scant trade).

Feeder Cattle futures closed an average of 36¢ lower, except for unchanged and 2¢ higher in the back two contracts.

Corn futures closed mostly 1¢ to 2¢ lower.

Soybean futures closed 4¢ to 10¢ higher through Sep ‘23 on drier weather in Argentina and hopes of increased exports to China. The rest of the board was mostly 4¢ to 5¢ lower.

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Major U.S. financial indices closed lower Friday as investors closed the books on a down year for stocks with more uncertainty ahead.

The Dow Jones Industrial Average closed 73 points lower. The S&P 500 closed 9 points lower. The NASDAQ was down 11 points.

West Texas Intermediate Crude Oil futures (CME) closed $1.86 to $1.99 higher through the front six contracts.

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The difference between formula net prices and formula base prices increased the past couple of years, according to recent research by Sheppard Rogers, a graduate research assistant in agricultural economics at Kansas State University (K-State) and Ted Schroeder, K-State agricultural economist and director of the Center for Risk Management Education and Research.

Specifically, the K-state researchers compare formula base and net prices over 2016 to 2021. Marketing agreements and formula pricing accounted for more than 60% of fed cattle transactions in 2022.

“Formula trade refers to fed cattle transactions that are not negotiated cash, negotiated grids, or forward contracts,” explain the authors, in Formula Base and Net Pricing Differentials for U.S. Fed Cattle. “Formula base price are the base to which grid premiums and discounts are generally applied to determine net price paid. Formula base prices are not negotiated for each transaction, but rather utilize an externally discovered reference price. Reference prices may include: 1) plant average base prices for fed cattle purchased by a specific plant one or more weeks prior to the expected week of slaughter; 2) USDA reported national or area negotiated cash prices; 3) live cattle futures prices; or 4) wholesale beef prices.”

From 2016 through 2018, Rogers and Schroeder say the net-to-weighted-average base price differential was about $2/cwt., whereas the difference between formula net and base prices during 2020 through 2021 averaged about $3.86/cwt. It averaged about $4.51/cwt. from 2021 through October of 2022 — more than double the value five years earlier.

The economists say the increase over time likely is associated with several contributing factors, including:

• “…on average pens of cattle sold on a formula with a grid received premiums net exceeding discounts in recent years. This could be in part due to cattle feeders getting better at targeting cattle production and marketing to match grid incentives, avoiding substantial discounts.”
• “…the percentage of formula transactions that received adjustments for quality grade increased from 70% to 80%; yield grade from 64% to 74%; weight 44% to 49%; and other 33% to 46% (Schroeder, Coffey & Tonsor 2021). This indicates more transactions are associated over time with grids increasing the opportunity for receiving premiums as well as risks for experiencing discounts. Logically if producers are getting better at netting premiums exceeding discounts, the producers would also strive to increase use of grids to determine net prices.”
• “…Perhaps premiums offered have changed over time creating greater incentives to use grid adjustments…From 2016 to June 2019, premiums for Prime quality grade remained relatively flat, averaging $12.65/cwt. From July 2019 to October 2021 premiums for Prime quality jumped to an average of $14.09/cwt, and in 2021-22 averaged $15.68/cwt. Premiums for Certified Angus Beef (CAB) averaged $3.72/cwt from 2016 to June 2019 and increased slightly to $4.32/cwt from July 2019 to October 2021. CAB premiums from January to October 2021 averaged $4.89/cwt. So, clearly premiums for high quality have increased over time.”

“With more cattle being sold using formula pricing including grid adjustments, not only are strong value signals being sent to producers, but with greater premiums recently for high quality beef, these value signals are also larger than previously,” the authors explain. “Thus, average net formula prices have increased in economically important magnitudes relative to base prices in recent years.”

Cattle futures continued to gain Thursday with expectations of higher cash prices and softer nearby Corn futures.

Live Cattle futures closed an average of 40¢ higher (5¢ higher near the back to $1.05 higher in the front two contracts).

Feeder Cattle futures closed an average of 49¢ higher.

Negotiated cash fed cattle trade was light on moderate demand in the Southern Plains and Northern Plains through Thursday afternoon, according to the Agricultural Marketing Service. Although too few transactions to trend, there were some early live sales in the Southern Plains at $157/cwt.

Last week, live prices were $156 in the Southern Plains, $156-$157 in Nebraska and $157 in the western Corn Belt. Dressed prices were $248-$249.

Choice boxed beef cutout value was 55¢ lower Thursday afternoon at $278.86/cwt. Select was $3.42 higher at $250.70/cwt.

Corn futures closed 2¢ to 3¢ lower in the front three contracts and then 1¢ lower to 1¢ higher.

Soybean futures closed 1¢ to 3¢ higher through Sep ‘24 and then fractionally lower.

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Major U.S. financial indices closed higher Thursday. Analysts credited some of the firmer tone to more jobless claims than expected.

Initial weekly unemployment insurance claims for the week ending Dec. 24 were 9,000 more than the previous week at 225,000, according to the U.S. Department of Labor.

The Dow Jones Industrial Average closed 345 points higher. The S&P 500 closed 66 points higher. The NASDAQ was up 264 points.

West Texas Intermediate Crude Oil futures (CME) closed 56¢ to 60¢ lower  through the front six contracts.

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Despite economic shocks and uncertainties during the last several years, there is no strong indication that softer global economics have weakened U.S. beef demand in East Asia, according to a recent International Agricultural Trade Report — U.S. Beef Exports to East Asia on Record Pace — from USDA’s Foreign Agricultural Service (FAS).

In spite of supply chain disruptions for U.S. fresh or chilled beef, longer shipping times, and higher costs, FAS analysts say East Asian import demand for beef products should remain steady. Demand from the region was record large in 2021 (both volume and value) and was on pace to set a new record in 2022.

“East Asia’s relatively robust middle class has supported the demand for high-quality beef, and a developed e-commerce retail sector has provided flexible avenues for suppliers to promote beef products during the pandemic,” according to the report.

Cattle futures mostly gained Wednesday, supported by recently stronger wholesale beef prices and expectations from some that cash prices should strengthen this week.

Negotiated cash fed cattle trade ranged from mostly inactive 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 $156/cwt. in the Southern Plains, $156-$157 in Nebraska and $157 in the western Corn Belt. Dressed prices were $248-$249.

Choice boxed beef cutout value was 63¢ lower Wednesday afternoon at $279.41/cwt. Select was $1.64 higher at $247.28/cwt.

Live Cattle futures closed an average of 57¢ higher (5¢ to 92¢ higher), except for an average of 6¢ lower in two contracts toward the front.

Feeder Cattle futures closed an average of 57¢ higher (5¢ to 92¢ higher).

That was with stronger feed prices.

Corn and Soybean futures gained Wednesday with support from the drier forecast in Argentina and notions that exports could get a boost from China’s easing Covid restrictions.

Corn futures closed 4¢ to 8¢ higher through Jly ‘24 and then mostly fractionally higher to 1¢ higher.

Soybean futures closed 15¢ to 25¢ higher through Jan ‘24 and then mostly 7¢ to 8¢ higher.

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Major U.S. financial indices stumbled lower Wednesday with more indicators of economic slowdown.

Pending home sales slid for the sixth consecutive month in November, according to the National Association of REALTORS® (NAR). All four U.S. regions recorded month-over-month decreases, and all four regions saw year-over-year declines in transactions.

“Pending home sales recorded the second-lowest monthly reading in 20 years as interest rates, which climbed at one of the fastest paces on record this year, drastically cut into the number of contract signings to buy a home,” says NAR Chief Economist Lawrence Yun. “Falling home sales and construction have hurt broader economic activity.”

The Pending Home Sales Index — a forward-looking indicator of home sales based on contract signings — fell 4.0% to 73.9 in November. Year-over-year, pending transactions dropped by 37.8%. An index of 100 is equal to the level of contract activity in 2001.

“The residential investment component of GDP has fallen for six straight quarters,” Yun explains. “There are approximately two months of lag time between mortgage rates and home sales. With mortgage rates falling throughout December, home-buying activity should inevitably rebound in the coming months and help economic growth.”

The Dow Jones Industrial Average closed 365 points lower. The S&P 500 closed 46 points lower. The NASDAQ was down 139 points.

West Texas Intermediate Crude Oil futures (CME) closed 45¢ to 57¢ lower  through the front six contracts.

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Food sales at convenience stores increased during the last three months, ending in November, according to the NPD Group (NPD).

Year over year, during the period, visits to convenience stores for foodservice items, like beverages and prepared foods, were up 2%. Consumer spending on foodservice menu items at convenience stores was up 8%. Units and dollars of foodservice products shipped from broadline foodservice distributors to convenience stores increased by 3% and 13%, respectively.

“Convenience store foodservice is benefitting by more people commuting to and from school and work and generally out and about more,” says David Portalatin, NPD Food Industry Advisor. “The growth in convenience store foodservice visits is a positive sign for the U.S. foodservice industry overall.”

The breakfast and morning snack periods, or morning meal daypart, which accounted for almost 25% of foodservice visits to convenience stores, grew traffic by 3% and was a key contributor to total visit growth in the most recent quarter ending in November. The evening snack period, which increased by 4%, was also vital to foodservice traffic growth at convenience stores during the period. Traffic at lunch, typically most popular for convenience store foodservice, was up 2% compared to a year ago. At dinner, foodservice visits also increased by 2% year-over-year. Traffic at the afternoon snack daypart was flat compared to a year ago. 

Beverage-only orders represent over half of convenience store foodservice visits and drive growth for the channel overall. However, the popularity of burgers and breakfast sandwiches ordered at convenience stores throughout the day has also spurred growth. Burgers are a popular convenience store foodservice item for lunch, dinner, and the afternoon snack period. Burger servings increased by 12% in the quarter ending November compared to a year ago. Servings of different varieties of prepared breakfast sandwiches from convenience stores increased by 8% over a year ago.

Feeder Cattle futures faltered Tuesday, pressured by more feedlot placements than expected in the latest Cattle on Feed report and pricier Corn futures. Feeder Cattle closed an average of 72¢ lower (30¢ to $1.35 lower).

Live Cattle futures paddled on either side of steady, helped along by surging wholesale beef prices and notions that cash trade could be higher this week. They closed from unchanged to an average of 12¢ lower to an average of 11¢ higher.

Choice wholesale beef prices continue to churn higher as buyers scramble to fill orders amid decreased packer production. Choice boxed beef cutout value was $8.09 higher Tuesday afternoon at $280.04/cwt. Select was 17¢ higher at $245.64/cwt. The Choice-Select spread was a whopping $34.40.

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 $156/cwt. in the Southern Plains, $156-$157 in Nebraska and $157 in the western Corn Belt. Dressed prices were $248-$249.

The five-area direct weighted average fed steer price last week was 57¢ higher on a live basis at $156.25/cwt. The weighted average steer price in the beef was 90¢ higher at $248.70.

Corn futures surged higher Tuesday, buoyed by the weaker U.S. dollar, weather concerns in South America and perhaps some year-end positioning. They closed 5¢ to 8¢ higher through Dec ‘23 and then mostly 3¢ to 4¢ higher.

Soybean futures closed 3¢ to of 6¢ higher through Aug ‘23 and then mostly fractionally lower to 2¢ lower.

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Major U.S. financial indices closed mixed Tuesday with the most pressure in tech stocks.

The Dow Jones Industrial Average closed 37 points higher. The S&P 500 closed 15 points lower. The NASDAQ was down 144 points.

West Texas Intermediate Crude Oil futures (CME) closed narrowly mixed, from 3¢ lower to 25¢ higher through the front six contracts.

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Reflecting on the recent Cattle on Feed report, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University points out in his weekly market comments that both feedlot placements and the number of cattle on feed were lower year over year for the third consecutive month.

“Drought pushed more cattle into feedlots earlier this year and kept feedlot totals higher for longer,” Peel says. “Monthly inventories from February through June of 2022 were not only higher year over year but were at record monthly levels in the cattle on feed data series that began in 1996.” 

On average, Peel explains feedlot inventories peaked in December and hit their low in September (2016-20). However, in 2021, the peak came in February and the ebb in September. This year, the ebb came in September and peak numbers may already have been established for a long while.

“Feedlot inventories decreased from November to December. This may signal that the seasonal peak is already in place, although it is too early to be sure,” Peel says. “The last time that December feedlot inventories were lower than November occurred in 2016. In that instance, feedlot inventories decreased in December and January before jumping higher to a belated peak in June 2017. I believe it is unlikely that feedlot inventories will move higher anytime in 2023 and the November 2022 total may be the peak for many months. Time will tell.”