WLI

Negotiated cash fed cattle trade was slow on light demand in Nebraska through Friday afternoon, according to the Agricultural Marketing Service. Live prices for the week were $1 lower at $157/cwt., and dressed prices were steady at $252.

Elsewhere, trade ranged from limited on light demand to mostly inactive on very light demand with too few transactions to trend.

For the week, live prices were steady in the Southern Plains at $157 and steady to $1 higher in the western Corn belt at $158-$160, where dressed prices were steady to $2 higher at $252.

Choice boxed beef cutout value was $1.36 higher Friday afternoon at $282.99/cwt. Select was $2.39 higher at $259.34/cwt.

Cattle futures eased lower Friday pressured in part by firming Corn futures and static cash trade.

Feeder Cattle futures closed an average of 65¢ lower, from 22¢ lower at the back to $1.10 lower in spot Jan, except for 22¢ higher in the back contract.

Live Cattle futures closed an average of 44¢ lower (20¢ to 72¢ lower).

Export announcements helped Corn and especially Soybean futures close higher Friday.

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

Soybean futures closed 13¢ to 34¢ higher through Jan ‘24 and then mostly 3¢ to 6¢ higher.

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For brief year-end perspective…

The five-area direct average steer price for 2022 was $144.52/cwt. on a live basis. That was $21.35 more (+17.3%) than the previous year and $36.33 more (+33.6%) than in 2020. The five-area average fed steer price for the year was $229.74 in the beef, which was $36.06 more than the previous year (+18.6%) and $57.47 more (+33.4%) than in 2020.

Based on the last report of the year, estimated beef production for 2022 was 27.8 billion pounds, which was 369.7 million pounds more (+1.3%) year over year. Estimated total cattle slaughter for the year was estimated to be 33.7 million head, which was 499,000 head more (+1.5%) than the previous year.

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Major U.S. financial indices surged higher Friday with a couple of reports suggesting that inflation may be cooling.

Although more jobs than expected were added in December, wage growth declined slightly from the previous month.

Total non-farm payroll employment increased by 223,000 in December, according to the U.S. Bureau of Labor Statistics. Average hourly earnings for all employees on non-farm payrolls increased 9¢ (+0.3%) to $32.82.

As well, the Institute for Supply Management purchasers index for services declined for the first time in more than two years.

The Dow Jones Industrial Average closed 700 points higher. The S&P 500 closed 86 points higher. The NASDAQ was up 264 points.

West Texas Intermediate Crude Oil futures (CME) closed 10¢ to 18¢ higher through the front six contracts.

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Economic and logistical headwinds finally caught up to U.S. beef exports in November, however export value through the first 11 months of the year already exceeded the record of $10.58 billion achieved the previous year.

November beef exports totaled 115,777 mt, down 6% from the previous year’s large volume, while export value declined nearly 20% to $846.6 million, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

For the first 11 months of the year, beef export value increased 14% year-over-year to $10.9 billion. January-November export volume was 1.36 million mt, up 3% from the record pace of 2021.

November beef export value equated to $382.46 per head of fed slaughter, down 20% from a year ago, but the January-November average was up 13% to $452.42.

“Similar to the previous month, November results for U.S. beef exports reflected severe headwinds in our large Asian markets,” explains Dan Halstrom, USMEF president and CEO. “Key currencies in the region were still slumping, which impacted the buying power of importers and consumers. COVID cases and lockdowns in China were also intensifying, prompting widespread protests and the eventual lifting of many restrictions. But the U.S. dollar mainly peaked in late October and early November and global demand has remained relatively strong. Even with a high level of economic uncertainty, 2022 has been a fantastic year for U.S. beef exports and the outlook for the coming year remains positive.”

Negotiated cash fed cattle trade was light on light to moderate demand in the Southern Plains through Thursday afternoon, according to the Agricultural Marketing Service. Early live sales were steady with last week at $157/cwt.

Elsewhere, trade was limited on light demand with too few transactions to trend.

Last week, live prices were $158 in Nebraska and $157-$160 in the western Corn Belt. Dressed prices were $250-$252.

Cattle futures traders took a breather Thursday, and likely some profits, following the strong session a day earlier and awaiting more cash direction.

Feeder Cattle futures closed an average of 96¢ lower, from 65¢ lower at the back to $1.67 lower toward the front.

Live Cattle futures closed an average of 36¢ lower, except for 7¢ higher in spot Feb.

Nearby grain and Soybean futures continued to drift lower.

Corn futures closed mostly 1¢ to 4¢ lower.

Soybean futures closed mostly 12¢ lower through Aug ‘23 and then 7¢ to 9¢ lower.

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Major U.S. financial indices closed lower Thursday, with much of the pressure attributed to stronger employment numbers than expected and the notion that leaves the Fed no quarter to ease up on interest rates.

Private sector employment increased by 235,000 jobs in December and annual pay was up 7.3% year-over-year, according to the December ADP® National Employment ReportTM produced by the ADP Research Institute® in collaboration with the Stanford Digital Economy Lab.

“The labor market is strong but fragmented, with hiring varying sharply by industry and establishment size,” says Nela Richardson, ADP chief economist. “Business segments that hired aggressively in the first half of 2022 have slowed hiring, and in some cases cut jobs in the last month of the year.”

The Dow Jones Industrial Average closed 339 points lower. The S&P 500 closed 44 points lower. The NASDAQ was down 153 points.

West Texas Intermediate Crude Oil futures (CME) closed 77¢ to 83¢ higher through the front six contracts. 

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Competition from both inside and outside of the industry suggest land values will remain strong this year, according to Farmers National Company (FNC), a leading landowner services provider.

“What we are seeing is a true supply/demand scenario. There are simply more buyers willing to bid on the limited amount of land coming to the market,” says Paul Schadegg, FNC Senior Vice President of Real Estate Operations. “Current commodity markets and strong cash rents provide buyers with the necessary returns to meet their investment criteria while giving them the opportunity to expand operations or add land to their investment portfolio. Our anticipation is that these values will remain strong coming into the new year with continued strength in the ag economy although we may see less and less of the record sales.”

Traditional local farmer-operators are successful buyers of farmland 75% of the time, but with plenty of active bidding from land investors, according to FNC.

“While the investor may not always be the buyer of land, they are part of the competition driving the values higher,” Schadegg says. “We also expect this trend to continue as many investors see the long-term value of farmland, the opportunity to diversify investments and the value of land as a hedge against rising inflation.”

However, Schadegg also points to escalating inflation and interest rates as caution signs.

“These factors have the impact to decrease net farm income, erode operator equity and subsequently pressure farmland value,” Schadegg explains. “So, we sit at a somewhat precarious point in time where opportunity exists for both land sellers and buyers but is dependent on the continued strength of the agriculture economy to stabilize or grow.”

Farmers National Company manages more than 5,000 farms and ranches in 30 states comprising more than 2 million acres.

Feeder Cattle futures surged higher Wednesday, buoyed by early-week cash strength and sharply lower grain futures prices. Live Cattle followed along to a lesser degree.

Feeder Cattle futures closed an average of $2.42 higher, from $1.22 higher at the back to $3.45 higher toward the front.

Live Cattle futures closed an average of 50¢ higher.

Grain and soybean futures wilted beneath the weight of paltry U.S. export inspections, the high U.S. dollar and rains in South America.

Corn futures closed 11¢ to 16¢ lower through Jly ‘24 and then mostly 6¢ lower.

Soybean futures closed 6¢ to 9¢ lower through Nov ‘23 and then mostly 2¢ to 4¢ lower.

Negotiated cash fed cattle trade ranged from light on light to moderate demand in the western Corn Belt to inactive on light demand, with too few transactions to trend, according to the Agricultural Marketing Service.

Last week, live prices were $157/cwt. in the Southern Plains, $158 in Nebraska and $157-$160 in the western Corn Belt. Dressed prices were $250-$252.

Choice boxed beef cutout value was $4.05 lower Wednesday afternoon at $282.89/cwt. Select was $1.77 higher at $256.40/cwt.

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Major U.S. financial indices closed higher Wednesday, amid mixed economic news.

The Dow Jones Industrial Average closed 133 points higher. The S&P 500 closed 28 points higher. The NASDAQ was up 71 points.

West Texas Intermediate Crude Oil futures (CME) closed $3.51 to $4.09 lower through the front six contracts, pressured by worries about economic contraction in China. 

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Although cash calf and feeder cattle markets were thinly traded over the holidays, Stephen Koontz, agricultural economist at Colorado State University points out prices for 400-500 lb. calves in the Southern Plains increased from less than $200/cwt. in October to about $230 in December.

“Many of the market watchers that I talk with had anticipated a strong counter-seasonal market but not of this magnitude,” Koontz explains, in the most recent issue of In the Cattle Markets. “While calf prices have rallied and cow prices have been strong through the fall, there are certainly warning signs in the system.”

“Likewise, beef primal prices have showed good seasonal demand but not the quantum improvements of the prior years,” Koontz says. “Higher fed cattle prices and flat boxed beef values have resulted in packer margins being squeezed. The live-to-cutout spread was about $250 per head in November and there’s no post-COVID packer that I know of that can make money with that margin.”

In terms of technicals, Koontz explains cattle chart patterns are persistent.

“There are long-term uptrends in place and resistance planes are being broken as most contracts push into life-of-contract highs,” Koontz says. “But the cattle markets do not chart like the corn or soybean markets. Cattle do not jump to new higher levels. Rather, there are persistence moves higher with periods of sharp down moves. Live Cattle contracts have trends in place and have broken resistance – these are buy signals. Feeder Cattle look similar, but it will be interesting to see contracts test life-of-contract highs from last August.”

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.”