WLI

Uncertainty about the pace of packer production continued to weigh on Live Cattle futures Tuesday, as wholesale beef prices continue to climb for the same reason. Sharply lower outside markets added to bearish sentiment.

Live Cattle futures closed an average 37¢ lower.

Choice Boxed beef cutout value was $1.63 higher Tuesday afternoon at $289.49/cwt. Select was $1.34 higher at $278.39.

Feeder Cattle futures drifted lower with the lack of support from the Live side. They closed an average 62¢ lower (20¢ lower at the back to $1.25 lower at the front).

Negotiated cash fed cattle trade was slow on light to moderate demand in Nebraska through Tuesday afternoon, according to the Agricultural Marketing Service. Although too few transactions to trend, early trade was steady at $137/cwt. on a live basis and $128 in the beef.

Elsewhere, trade ranged from mostly inactive on light demand to a standstill.

Last week, live prices were at $136-$137 in the Texas Panhandle, $135-$136 in Kansas and $138 in the western Corn Belt, where dressed trade was at $218.

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Major U.S. financial indices closed sharply lower Tuesday as investors fretted over anemic bank earnings and higher treasury bond yield rates.

The Dow Jones Industrial Average closed 543 points lower. The S&P 500 closed 85 points lower. The NASDAQ was down 386 points.

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Hay production and stocks continue lower, according to the most recent USDA Crop Production  report.

All hay stocks Dec. 1 of 79.0 million tons was 5.0 million tons less (-6.0%) than the same time a year earlier.

“Drought stricken Western states saw the most notable declines in hay stocks,” say analysts with the Livestock Marketing Information Center, in the latest Livestock Monitor (LMIC). “Oregon, Montana, North Dakota, South Dakota, and Arizona all posted declines in hay stocks over 40% from the prior year. Minnesota was down 35% while Wyoming, Utah, and California reported declines between 20%-27%. Nevada, Colorado, New Mexico, Texas, Oklahoma, and Nebraska all posted 4%-28% increases from a year ago.”

In terms of production, LMIC analysts explain, all hay acres in 2021 declined 2.9% to nearly 50.7 million acres, which was the lowest since 1974.

“Alfalfa hay prices have been over $200 per ton for the last five months while other hay prices have averaged in the upper $140-per-ton range for the last several months,” say LMIC analysts. “Although recent alfalfa and other hay prices are not at record levels, they are still near some of the highest on record. Hay supplies will continue to be lower, especially in the Western U.S., and hay prices are expected to remain elevated which will likely limit livestock producer profitability in the near term.”

Negotiated cash fed cattle trade ranged from mostly inactive on very light demand to a standstill through Monday afternoon, according to the Agricultural Marketing Service. There were too few transactions to trend.

Last week, live prices were at $136-$137/cwt. in the Texas Panhandle, $135-$136 in Kansas, $137 in Nebraska and $138 in the western Corn Belt. Dressed trade was at $218.

Choice Boxed beef cutout value was $3.55 higher Monday afternoon at $287.86/cwt. Select was $3.08 higher at $277.05.

Futures and equity markets were closed Monday in observance of Martin Luther King Day.

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When Jan. 1 cattle inventory numbers are released by USDA at the end of this month, odds are they will show continued contraction of the U.S. beef cow herd; the degree is up in the air, though.

“The general feeling among analysts seems to be that the herd likely decreased 1.5-2.0% in 2021, with some possibility that the decrease was over 2%,” said Derrell Peel, Extension livestock marketing specialist at Oklahoma State University in his mid-January market comments, “The level of beef cow slaughter in 2021 was up 9.1% year over year, leading to a culling rate of 11.44% for the year, the highest since 2011. In 2011, the beef cow herd decreased 2.04%. However, the net change in the beef cow herd in 2021 also depends on what happened with beef replacement heifers.”

At the beginning of last year, beef replacement heifers represented 18.7% of the beef cow herd, according to Peel. 

“This level of replacement heifers indicates neither significant herd liquidation nor does it suggest aggressive expansion,” Peel says. “In the last two decades, the beef replacement heifer percentage has varied from a low of 16.6% in 2011 (liquidation) to a high of 21.0% in 2016 (expansion) and has averaged 18.2%.”

Last year, Peel explains the inventory of replacement heifers was higher than in 2011, as was the inventory of heifers calving.

“This likely means that some of the additional cow culling in 2021 was offset by more bred heifers entering the herd,” Peel explains. “The heifer calves portion of the replacement heifers from one year ago may well have been diverted to feeder markets but many of the sizable inventory of bred heifers likely entered the herd somewhere. All of this discussion is complicated by the drought conditions in 2021, which impacted what producers had to do as opposed to what they would like to do.”

Most likely, Peel says the inventory of beef replacement heifers will be significantly lower.

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

For the week, live prices were $1-$2 lower in the Texas Panhandle at $136-$137/cwt. and $135-$136 in Kansas. They were $1-$3 lower in Nebraska at $137 and steady to $3 lower in the western Corn Belt at $137-$138. Dressed trade was $2 lower at $218.

Week to week through Thursday, the five-area direct average steer price was $2.00 lower on a live basis at $136.58/cwt. The average price in the beef was $2.00 lower at $217.99.

Estimated total cattle slaughter last week was 621,000 head, just 1,000 head more than the previous week and 31,000 head fewer than the same week last year.

Live Cattle futures closed an average of 59¢ higher, except for unchanged and 37¢ lower in the back two contracts, supported by climbing wholesale beef prices.

Choice Boxed beef cutout value was $1.84 higher Friday afternoon at $284.31/cwt. Select was $1.21 higher at $273.97.

Feeder Cattle futures closed narrowly mixed, from an average of 23¢ lower to an average of 5¢ higher with pressure from front-month Corn futures.

Corn futures closed fractionally higher to 8¢ higher in the front six contracts, and then mostly 5¢ to 6¢ lower. 

Soybean futures closed 8¢ to 13¢ lower. 

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Major U.S. financial indices closed mixed Friday with primary pressure apparently from lower than expected earnings for bank stocks and less retail growth last month. 

Advance estimates of U.S. retail and food services sales for December 2021, adjusted for seasonal variation and holiday and trading-day differences, but not for price changes, were $626.8 billion, a decrease of 1.9% from the previous month, according to the U.S. Census Bureau.

The Dow Jones Industrial Average closed 200 points lower. The S&P 500 closed 3 points higher. The NASDAQ was up 86 points.

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“Average returns to cattle feeding in the Southern Plains, as calculated by LMIC (Livestock Marketing Information Center) jumped to $200 per steer in December, capping off the year with two months of returns well over $100. This boosted the 2021 average for the year solidly in positive territory, about $40 per head for the year,” say LMIC analysts in the latest Livestock Monitor.

Positive returns stemmed from the significant rally in fed cattle prices, given the increased input costs.

“LMIC assumes a six-month feeding window for a 750-lb. steer. Feeder cattle averaged $143.35/cwt. in June. LMIC estimated total production costs for feeding those animals increased 32% from last year (excluding cost of the feeder), from just under $500 in December 2020 to over $600 in December of 2021. Over that same time period the value of that fed steer rose 26%.”

Heading into 2022, LMIC analysts note that increasing feeder cattle prices will challenge cattle feeding returns, but they expect returns to be mostly positive.

For recent perspective, LMIC estimates a fed steer breakeven price of $133.03/cwt. for steers placed in December weighing 700-800 lbs. and costing $161.42 (Dodge City).

“Currently, LMIC forecasts for the Apr-May-Jun quarter are above that level at $135-139/cwt., but the summer quarter is below that level at $126-$131. It seems likely that cattle feeding returns will likely be positive for most of 2022, but that there may be some negative months in the third quarter that will keep the annual average in check,” LMIC analysts say.

Feeder Cattle futures gained Thursday, closing an average $1.33 higher, helped by declining front-month Corn futures.

Live Cattle futures edged higher, supported by climbing wholesale beef prices, despite the sluggish packing pace. They closed an average 40¢ higher, except for unchanged in the back contract.

Choice Boxed beef cutout value was $2.93 higher Thursday afternoon at $282.86/cwt. Select was $1.78 higher at $272.76.

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

So far this week, live prices are $1-$2 lower in the Texas Panhandle at $136-$137/cwt. and $135-$136 in Kansas. They’re $1-$3 lower in Nebraska at $137 and steady to $3 lower in the western Corn Belt at $137-$138. Dressed trade is $2 lower at $218.

Corn futures closed 3¢ to 11¢ lower through the front four contracts, and then mostly 1¢ to 2¢ higher. 

Soybean futures closed 11¢ to 26¢ lower through the front six contracts, and then mostly 2¢ to 3¢ higher.

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Major U.S. financial indices closed lower Thursday with most of the pressure in tech stocks.

Despite strong quarterly corporate earnings reports, weekly jobless claims came in more than expected.

The advance figure for seasonally adjusted initial unemployment insurance claims was 230,000 for the week ending Jan. 8, according to the U.S. Department of Labor. That was 23,000 more than the previous week. The four-week moving average increased, too.

Although less than some feared, another closely-watched inflation barometer underscored the run-up in prices.

The Producer Price Index (PPI) for final demand increased 0.2% in December, seasonally adjusted, according to the U.S. Bureau of Labor Statistics. This rise followed advances of 1.0% in November and 0.6% percent in October. On an unadjusted basis, final demand prices moved up 9.7% in 2021, the largest calendar-year increase since data were first calculated in 2010.

The PPI measures the average change over time in the selling prices received by domestic producers for their output.

Prices for final demand less foods, energy, and trade services rose 0.4% in December, following a 0.8% increase in November. In 2021, the index for final demand less foods, energy, and trade services moved up 6.9%, following a 1.3% advance in 2020.

The Dow Jones Industrial Average closed 176 points lower. The S&P 500 closed 76 points lower. The NASDAQ was down 381 points.

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USDA’s Foreign Agricultural Service (FAS) estimates global beef production this year at 58.2 million metric tons (mt) in the latest Livestock and Poultry World Markets and Trade. That’s slightly more than projected in the previous quarterly report (Oct.). It would be 585,000 mt more than 2021 (+1.0%).

“Brazil beef production is lowered 2% for 2021 due to disrupted sales to China in the fourth quarter. In September, Brazil reported detection of atypical bovine spongiform encephalopathy (BSE), causing China to temporarily restrict beef imports, leading to delayed slaughter of cattle over this time period,” according to the report. “In Australia, 2022 production is higher than previously forecast with herd rebuilding well underway and some slaughter deferred in December under adverse weather impacting transportation.”

FAS analysts note China’s beef supply is expected to be down nearly 1% this year with steady imports but lower projected domestic production. “Imports continue to make up an increasing share of consumption as the Chinese diet evolves and as domestic product struggles to compete on both price and quality,” they say.

In the meantime, net U.S. beef export sales for the week ending Jan. 6 were primarily to Japan, Mexico, South Korea, China and Egypt, according to the weekly U.S. Export Sales report.

Negotiated cash fed cattle trade was slow on light demand in Kansas through Wednesday afternoon, with live trade $1 lower than the previous day and $3 lower than the previous week at $135/cwt.

Although too few transactions to trend, dressed trade in Nebraska was $2 lower at $218. Live prices there last week were $138-$140.

Trade was limited on light demand in the Texas Panhandle, where live prices last week were $138 and in the western Corn Belt where prices were $138-$140. Dressed trade in the western Corn Belt last week was at $220.

Softer cash prices in the North, after weakness in the South, helped pressure Cattle futures Wednesday.

Feeder Cattle futures closed an average of 62¢ lower (10¢ to $1.35 lower).

Live Cattle futures closed an average of 55¢ lower (17¢ to $1.10 lower), except for unchanged to 37¢ higher in the back three contracts.

Choice Boxed beef cutout value was $1.71 higher Wednesday afternoon at $279.93/cwt. Select was $2.35 higher at $270.98

Soybean futures closed mostly 10¢ to 13¢ higher, likely supported by the World Agricultural Supply and Demand Estimates.

Corn futures closed mostly fractionally higher to 6¢ higher, except for 1¢ to 2¢ lower in the front three contracts.

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Major U.S. financial indices managed to eke out gains Wednesday, despite confirmation of the steamiest inflation in about four decades.

The Consumer Price Index for All Urban Consumers (CPI-U) increased 0.5% in December on a seasonally adjusted basis after rising 0.8% in November, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, the all items index increased 7.0% before seasonal adjustment, the largest 12-month increase since the period ending June 1982.

The Dow Jones Industrial Average closed 38 points higher. The S&P 500 closed 13 points higher. The NASDAQ was up 34 points.

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USDA’s Economic Research Service (ERS) increased the 2022 average expected fed steer price $2 to $137/cwt., compared to the previous month’s projection, in the latest World Agricultural Supply and Demand Estimates (WASDE). For reference, the projected annual price for 2021 was $122.40.

Average prices are forecast at $139 in the first quarter, $136 in the second quarter, $134 in the third quarter and $138 in the fourth quarter.

That’s with beef production this year forecast at 27.17 billion lbs., which would be 785 million lbs. less (-2.8%) than last year.

Total red meat and poultry production is projected at 106.67 billion lbs., which would be 168 million lbs. less (-0.16%) than last year.