WLI

Stronger cash prices, the early-week, bullish Cattle report, the performance-depressing widespread winter storm and improved packer production helped Cattle futures take another step higher Wednesday.

Feeder Cattle futures closed an average of $2.17 higher ($1.55 to $3.175 higher).

Live Cattle futures closed an average of $1.14 higher (83¢ to $1.65 higher).

Negotiated cash fed cattle trade in Nebraska and the Western Corn Belt was moderate through Wednesday afternoon, according to the Agricultural Marketing Service. In Nebraska, live sales traded $3-$4 higher at $140/cwt. and dressed sales traded $4 higher at $222. In the Western Corn Belt, live sales traded $3 higher at $140-$141 and dressed prices were $4 higher at $222.

Trade in the Southern Plains was mostly inactive on light demand. Last week, live sales were $137 in the Texas Panhandle and $136 in Kansas.

Choice Boxed beef cutout value was $2.29 lower Wednesday afternoon at $283.15/cwt. Select was 65¢ lower at $279.57

Corn futures closed mostly down 2¢ to 12¢.

Soybean futures closed 1¢ to 16¢ higher through March ’23, then down 2¢ to 9¢.

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Follow-through support carried Major U.S. financial indices higher again on Wednesday.

The Dow Jones Industrial Average closed 224 points higher. The S&P 500 closed 71 points higher. The NASDAQ was up 42 points.

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CattleFax provided a strongly optimistic cattle price forecast during its Outlook Seminar in Houston Wednesday.

With cattle numbers declining, front-end fed cattle marketing approaching pre-civid levels and beef demand continuing strong, CattleFax projects the average fed steer price this year $18 higher year-over-year at $140/cwt. with a range of $130-$155. The organization forecasts the average feeder steer price (800 lbs.) at $172 with a range of $158-$184, and the average calf price (550 lbs.) at $205 with a range of $180-$230.

Moreover, CattleFax forecasts utility cows at an average of $75/cwt. with a range of $65 to $85. Bred cows are expected to bring an average $1,850/head with a range of $1,700 to $2,000 for load lots of quality, running-age cows.

The feeder cattle and calf supply will be 675,000 head fewer than last year, totaling 25.5 million head, according to CattleFax. Fed cattle slaughter will decline 400,000 head to 25.7 million head. Commercial beef production will contract over the next several years starting with a 2% decline in 2022.

Kevin Good, vice president of industry relations and analysis at CattleFax, pointed out U.S. beef cow inventories fell more than 700,000 head from last year and are nearly 1.6 million less than the cyclical peak. This year, the beef cow herd will be near 30.1 million head.

“Drought, market volatility and processing capacity challenges affected 30-40% of the cow herd over the last year. Without an improvement in weather and profitability, at least 250,000 more head will be liquidated in 2022,” Good says.

Cattle futures extended gains Tuesday after a struggle for follow-through support from the bullish Cattle report and thoughts that packer interest will improve this week.

Live Cattle futures closed an average of 72¢ higher (28¢ to 90¢).

Feeder Cattle futures closed an average of 70¢ higher (55¢ to 93¢ higher).

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

Last week, live prices were at $137/cwt. in the Texas Panhandle, at $136 in Kansas $137 in Nebraska and at $137-$139 in the western Corn Belt. Dressed trade was steady at $218.

Choice Boxed beef cutout value Tuesday afternoon was $4.96 lower at $285.44/cwt. Select was $3.05 lower at $280.22.

Corn futures closed 4¢ to 9¢ higher in the front six contracts.

Soybean futures closed 12¢ to 38¢ higher.

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Major U.S. financial indices closed Tuesday with the best three-day rally since 2020, as investors seemed to speculate the Federal Reserve will not stymie growth as it seeks to cool inflation.

The Dow Jones Industrial Average closed 273 points higher. The S&P 500 closed 31 points higher. The NASDAQ was up 106 points.

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Agricultural producer sentiment weakened in January as measured by the Purdue University/CME Group Ag Economy Barometer. The index declined 6 points from the previous month to 119, its second-lowest reading since July 2020. The Index of Current Conditions fell 13 points to a reading of 133, while the Index of Future Expectations was down 2 points to a reading of 112.

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 between Jan. 17-21, 2022.

“Rising farm input costs and ongoing supply chain disruptions appear to be contributing to producers’ weaker perception of current conditions and expectations of their farm’s financial performance in 2022 when compared to last year,” says James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

Disruptions in the supply chain for many farm inputs, coupled with strong demand, are pushing production costs higher. In January, 57% of survey respondents said they expect farm input prices to rise by 20% or more in 2022 and 34% of producers said they expect prices to rise by 30% or more.

Beyond higher prices, 28% of survey respondents said they have had difficulty purchasing crop inputs from suppliers for the 2022 season. In a follow-up question posed to those experiencing difficulty in procuring crop inputs, respondents reported difficulty in purchasing a broad spectrum of crop inputs including herbicides, insecticides, fertilizer, and farm machinery parts.

Monday’s big news was the Cattle report from USDA, with the Jan. 1 cattle inventory. Herd contraction was expected, but numbers are less than many expected.

Beef cows of 30.125 million head were 718,500 head fewer (-2.3%) than the same time last year. That is the fewest numbers since 2015 and was the largest year-over-year decline since 1996-97, according to David Anderson, Extension livestock economist at Texas A&M University. He adds the report included a significant revision of 314,000 fewer head in the previous year’s beef cow inventory.

Although drought contributed to the decline in beef cows, Anderson adds calf prices, relative to costs, also has forced some culling.

Beef heifers held for replacement of 5.611 million head were 191,600 head fewer (-3.3%) than the previous year.

“That is the fewest replacement heifers held back since Jan. 1, 2014,” Anderson says, in the latest issue of In the Cattle Markets. “While fewer replacements would be needed with a smaller cow herd, a reduction this large indicates some expectations of more herd contraction.”

The calculated feeder supply outside of feedlots of 25.537 million head was 676,000 head fewer (-2.6%) than last year.

Dairy cows of 9.375 million head were 67,400 head fewer (-0.7%)

All cattle and calves of 91.902 million head were 1.888 million head fewer (-2.0%).

“The inventory report indicates that we are headed towards less beef production and higher prices,” Anderson says. “A cow herd of this size should also lead to some expectations of calf prices approaching the rarified air of the years following the Texas 2010-2012 drought. The current drought and its development over the coming months will dictate a lot about the cow herd over this year. But, good beef demand should also pull prices higher on top of available supplies.”

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Cattle futures closed higher with likely positioning ahead of the aforementioned  bullish Cattle report.

Live Cattle futures closed an average of $1.18 higher (88¢ to $1.42).

Feeder Cattle futures closed an average of $2.64 higher ($1.75 to $3.40 higher).

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

Last week, live prices were at $137/cwt. in the Texas Panhandle, at $136 in Kansas $137 in Nebraska and at $137-$139 in the western Corn Belt. Dressed trade was steady at $218.

Choice Boxed beef cutout value was 2¢ lower Monday afternoon at $290.40/cwt. Select was 14¢ lower at $283.27.

Corn futures closed mixed, from 10¢ lower to 4¢ higher.

Soybean futures closed 13¢ to 20¢ higher through Aug ’23 and then 2 higher to 3¢ lower.

Judging by estimated weekly cattle slaughter, the beef packing pace continues to improve but remains hindered.

Total cattle slaughter last week of 643,000 head was 7,000 head more than the previous week but 13,000 head less than the same week last year.

Oversold conditions and higher wholesale beef prices helped Cattle futures regain some ground Friday.

Choice Boxed beef cutout value was $1.31 higher Friday afternoon at $290.42/cwt. Select was $4.31 higher at $283.41.

Live Cattle futures closed an average of 89¢ higher, except for unchanged in the back contract.

Feeder Cattle futures closed an average of 71¢ higher (12¢ to $1.37 higher).

Negotiated cash fed cattle trade ranged from mostly inactive on light demand to a standstill through Friday afternoon, according to the Agricultural Marketing Service.

For the week, live prices were steady in the Texas Panhandle at $137/cwt., $1 lower in Kansas at $136, steady to $1 lower in Nebraska at $137 and steady in the western Corn Belt at $137-$139. Dressed trade was steady at $218.

Keep in mind, USDA will release Jan. 1 cattle inventory numbers Monday afternoon.

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Resurgent tech stocks helped major U.S. financial indices close sharply higher Friday.

The Dow Jones Industrial Average closed 564 points higher. The S&P 500 closed 105 points higher. The NASDAQ was up 417 points.

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South American weather and the tension between Russia and Ukraine continued to bolster grain prices and market volatility last week.

In his weekly comments, Aaron Smith, crop marketing specialist at the University of Tennessee points out Brazil and Argentina account for 58% of global soybean exports and 40% of global corn exports.

As for political tension in eastern Europe, Smith explains, “Russia has increased its share of global wheat exports from less than 10% in the early 2000s to approximately 20% and has been the top global supplier of wheat in recent years. For the 2021-22 marketing year, Ukraine is projected to provide 12% of global exports of wheat and 16% of global exports of corn…Conflict between the two countries could restrict supplies and disrupt logistics in the region, causing importing countries to seek supplies elsewhere.”

Soybeans received another boost Friday from worries over reduced global palm oil exports. Soybean futures closed 11¢ to 21¢ higher through Jan ‘23 and then mostly fractionally higher to 4¢ lower. Soybean futures closed an average of 45.5¢ higher through the front six contracts week to week on Friday. Those contracts were an average of 80.9¢ higher over the last two weeks.

Corn futures closed 10¢ higher in the front three contracts on Friday and then mostly 2¢ higher. They were an average of 18.9¢ higher through the front three contracts week to week.

Cattle futures mostly eased lower in light trade Thursday as traders awaited more concrete direction from the packing pace.

Feeder Cattle futures closed an average of 82¢ lower except for 20¢ higher in expiring Jan.

Live Cattle futures closed an average of 43¢ lower, except for 20¢ higher in the back contract.

Negotiated cash fed cattle trade was limited on light demand through Thursday afternoon, according to the Agricultural Marketing Service.

So far for the week, live prices are steady in the Texas Panhandle at $137/cwt., $1 lower in Kansas at $136, steady to $1 lower in Nebraska at $137 and steady in the western Corn Belt at $137-$139. Dressed trade is steady at $218.

Choice Boxed beef cutout value was 35¢ lower Thursday afternoon at $289.11/cwt. Select was 62¢ lower at $279.10.

The average dressed steer weight the week ending Jan. 15 was 922 lbs., according to the latest weekly Actual Slaughter Under Federal Inspection report. That was 6 lbs. lighter than the previous week and 3 lbs. lighter than the previous year. The average dressed heifer weight of 851 lbs. was the same as a week earlier and 1 lb. heavier than the same time last year.

Net U.S. beef export sales for 2022 totaled 14,300 metric tons the week ending Jan. 20, according to the weekly U.S. Export Sales report. Sales were primarily for South Korea, Japan, Mexico, China, and Indonesia.

Grain exports helped underpin prices.

Net U.S. corn export sales (2021-22) were 29% more than the previous week and 84% more than the prior four-week average.

Net U.S. soybean export sales were up 53% from the previous week and 77% from the prior four-week average.

Net U.S. wheat export sales were 78% higher than the previous week and up noticeably from the prior four-week average.

Corn futures closed mostly 3¢ to 6¢ lower.

Soybean futures closed 2¢ to 8¢ higher through Jan ‘23 and then mostly 1¢ lower.

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Major U.S. financial indices drifted lower Thursday, as investors pondered a tighter-fisted Fed and despite stronger quarterly economic growth than expected.

“Real gross domestic product (GDP) increased at an annual rate of 6.9% in the fourth quarter of 2021, following an increase of 2.3% in the third quarter,” according to the U.S. Commerce Department. “The acceleration in the fourth quarter was led by an upturn in exports as well as accelerations in inventory investment and consumer spending.”

The Dow Jones Industrial Average closed 7 points lower. The S&P 500 closed 23 points lower. The NASDAQ was down 189 points.

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A Congressional bill intended to increase transparency in the beef supply chain may hinder pricing innovations that have contributed to beef demand growth over the last 20 years and translate into lower prices for cattle producers, according to a recent analysis by the Fryar Price Risk Management Center of Excellence at the University of Arkansas (UA).

Specifically, researchers analyzed the Cattle Price Discovery and Transparency Act (CPDTA), which was introduced in March last year and then subsequently re-introduced in the U.S. House and Senate last fall.

The bill includes elements widely supported by cattle producers, such as increasing the level of price reporting and creating a publicly available library of marketing contracts between packers and producers. However, the bill also mandates minimum levels of negotiated cash fed cattle trade, an element that continues to divide the industry.

Cash cattle trade lessened over time as cattle feeders and packers increased the use of Alternative Marketing Agreements (AMAs), which enable further differentiation and value segregation of beef carcasses. AMAs enable paying more for cattle that produce beef of higher value to the consumer — clearer pricing signals. At the same time, AMA participants reduce transaction costs and price risk.

For comparison, the analysis explains negotiated cash fed cattle trade usually revolves around a single price paid for all cattle in a pen. That means the average price discounts cattle of higher value and rewards cattle below the pen average.

“By privileging an average pricing system in the sector, the legislation makes it less likely that innovations such as AMAs will be pursued. Innovations that might further reduce transactions costs and/or support further production changes to more closely align the beef end product with consumer tastes and preferences could be beneficial to maintaining and even growing beef demand in the future,”

says John Anderson, director of the Fryar Price Risk Management Center of Excellence. He coauthored the analysis report.

“If AMA use in the Southern Plains is restricted, the most likely immediate outcome is that transaction costs … between feeders and packers will likely go up,” Anderson says. “The lion’s share of this increase will most likely be borne by cow/calf and stocker producers in the form of lower feeder cattle prices.”

On a related note, the American Farm Bureau Federation (AFBF) recently revised policy, no longer supporting mandated levels of cash fed cattle trade.

“We support the majority of this legislation (CPDTA), but we cannot support mandatory cash sales,” says AFBF President Zippy Duvall. “We are committed to working with the sponsors of the bill to make revisions to ensure it aligns with the priorities outlined by our membership.”