WLI

Negotiated cash fed cattle trade was at a standstill in the Northern Plains through Wednesday afternoon. Elsewhere, it was mostly inactive on very light demand, according to the Agricultural Marketing Service.

Cattle feeders offered 1,142 head (mostly from the Southern Plains) in Central Stockyards weekly Fed Cattle Exchange auction on Wednesday. One lot of Southern Plains heifers (42 head) sold for a weighted average price of $112/cwt., via Bid-The-Grid™, which was steady with last week’s country trade in the region.

Likewise, fed steers and heifers traded mostly steady at Sioux Falls Regional’s fat auction. There were 301 head of Choice 3-4 steers weighing an average of 1,559 lbs., bringing an average price of $110.76. Country trade in the region last week was at $110-$112.

Cattle futures closed mixed Wednesday, with Live Cattle firming, while Feeder Cattle were pressured by higher grain prices.

Live Cattle futures closed an average of 40¢ higher, except for 5¢ lower and 60¢ lower on either end of the board.

Feeder Cattle futures closed an average of 68¢ lower.

Choice boxed beef cutout value was 63¢ lower Wednesday afternoon at $205.27/cwt. Select was 41¢ lower at $196.08.

Corn futures closed mostly 2¢ to 3¢ higher.

Soybean futures closed mostly 11¢ to 14¢ higher.

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Except for tech stocks, major U.S. financial indices closed higher Wednesday with investors apparently expecting more economic stimulus and government spending under a Biden administration.

As for known reality, private sector employment decreased by 123,000 jobs from November to December according to the December ADP National Employment Report^®. The trade was expecting a month-to-month gain.

The Dow Jones Industrial Average closed 437 points higher. The S&P 500 closed 21 points higher. The NASDAQ was down 78 points.

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Typical beef export seasonality, further potential pandemic disruptions and plentiful fed cattle supplies could test domestic consumer beef demand in the first quarter.

In the latest issue of In the Cattle Markets, Elliott Dennis, livestock economist at the University of Nebraska-Lincoln explains, historically, first-quarter beef export quantities are seasonally lower and more inconsistent than in other quarters; they’re highest and most consistent in the second quarter.

“Local, domestic, and international changes in slaughter rates, supplies of substitute meat products, and consumer beef preferences all influence the domestic wholesale beef price and eventually each country’s desire to import U.S. beef,” Dennis explains.

Production and demand disruptions wrought by the pandemic weighed on U.S. beef exports for much of last year but appeared to be regaining momentum in the fourth quarter.

Through October, U.S. beef exports were 7% less in volume (1.02 million metric tons), compared to the same period a year earlier, according to data released by USDA and compiled by the U.S. Meat Export Federation. Value of January-October beef exports was 8% less than the prior year at $6.2 billion.

“The domestic market likely needs to be the driver of working through wholesale meat supplies in the first quarter,” Dennis says. “Drawing from 2020, the market’s ability to do so could be hindered by meatpacking plant shutdowns (recent example in Guelph, Canada) and government restrictions on social gatherings (increased restrictions in New York State). A positive is that the U.S.-Japan, U.S.-Korea, U.S.-China, and USMCA trade deals are still in place for the time being. Whether we enter round 2 of the U.S.-China trade deal and whether China imports already-committed U.S. beef is more uncertain, given the anticipated change in the presidency.”

Negotiated cash fed cattle trade was mostly inactive on very light demand in the western Corn Belt through Tuesday afternoon, according to the Agricultural Marketing Service. Elsewhere, it was at a standstill.

Prices on a live basis last week were at $112/cwt. in the Southern Plains, at $111-$112 in Colorado and at $110-$112 in Nebraska and the western Corn Belt. Dressed prices were at $175-$176.

Cattle futures rebounded Tuesday, with Live Cattle gaining back most of what was lost in the previous session, while Feeder Cattle regained about half, on an average basis. That was despite another surge in grain futures prices.

Live Cattle futures closed an average of $1.62 higher, except for $1.40 lower in the back contract.

Feeder Cattle futures closed an average of $1.35 higher, from 75¢ to $2.02 higher.

Choice boxed beef cutout value was $3.97 lower Tuesday afternoon at $205.90/cwt. Select was 4¢ lower at $196.49.

Corn futures closed 8¢ higher through the front three contracts and then mostly 3¢ higher.

Soybean futures closed 26¢ to 33¢ higher through the front six contracts and then mostly 18¢-21¢ higher.

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Major U.S. financial indices closed higher Tuesday amid positive economic news.

Support included the latest Manufacturing ISM^®Report On Business^®from the Institute for Supply Management (ISM) indicating the Purchasing Managers Index (PMI^®) increased 3.2% month to month in December to 60.7%.

“This figure indicates expansion in the overall economy for the eighth month in a row after contracting in March, April, and May, which ended a period of 131 consecutive months of growth,” says ISM Chair Timothy R. Fiore. He adds, “Survey Committee members reported that their companies and suppliers continue to operate in reconfigured factories, but absenteeism, short-term shutdowns to sanitize facilities and difficulties in returning and hiring workers are causing strains that are limiting manufacturing growth potential.”

As well, West Texas Intermediate Crude Oil futures (CME) surged on the day with a surprise announcement that Saudi Arabia is cutting production by 1 million barrels per day in February and March.

The Dow Jones Industrial Average closed 167 points higher. The S&P 500 closed 26 points higher. The NASDAQ was up 120 points.

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Agricultural producer sentiment rose with income prospects in December, according to the latest Purdue University/CME Group Ag Economy Barometer.

The barometer increased 7 points from November to a reading of 174. Both of the barometer’s sub-indices, the Index of Current Conditions and the Index of Future Expectations, were also higher month to month. The Index of Current Conditions climbed 15 points to 202 and the Index of Future Expectations increased by 5 points to a reading of 161.

“The rise in the Ag Economy Barometer was primarily driven by farmers’ perception that the current situation on their farms really improved. The sharp rise in the Index of Current Conditions is correlated with the farm income boost provided by the ongoing rally in crop prices. That appears to be the driving force behind producers’ optimism,” says James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

In December, the percentage of ranchers and farmers expecting farmland values to rise over the next year increased 9 points from November to a reading of 35. The percentage expecting farmland values to rise over the next five years increased 11 points from November to a life-of-survey high 65%.

Likewise, more producers said they expect farmland cash rental rates to rise in 2021 when compared to survey results from late summer. In December, 18% of respondents said they expect cash rental rates to rise in 2021, double the percentage who felt that way in August and September. Moreover, it’s clear that any downward pressure on cash rental rates evident earlier in the year has nearly disappeared, as just 5% of farmers said they expect to see cash rental rates decline in 2021 compared to 17% who felt that way in August.

Agricultural producers were less optimistic when asked about the on-going trade dispute between the U.S. and China. In the first quarter of 2020, an average of 76% of respondents thought the trade dispute’s ultimate resolution would favor U.S. agriculture. By spring, that average declined to 62%, and by December it dropped to an all-time survey low of 47%. When asked whether they expect U.S. agricultural exports to increase over the next five years, only 51% of respondents in December said they expect to see export growth.

To learn more about what factors might be motivating the shift in producers’ sentiment before and after the November election, the surveys for November-December included a series of questions focused on producers’ future expectations for environmental regulations, taxes and other key aspects of the agricultural economy.

In December, more than 80% of ranchers and farmers said they expect environmental regulations to become more restrictive, compared to 41% who felt that way in October. More than 70% of producers expect to see higher income and estate taxes compared to 35% and 40%, respectively, in October and November.

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 Dec. 7-11, 2020.

Negotiated cash fed cattle trade was at a standstill in the Southern Plains and Nebraska through Monday afternoon. Elsewhere, it was mostly inactive on very light demand.

Prices on a live basis last week were at $112/cwt. in the Southern Plains, at $111-$112 in Colorado and at $110-$112 in Nebraska and the western Corn Belt. Dressed prices were at $175-$176.

The five-area average direct fed steer price last week was $2.32 higher than the previous week on a live basis at $111.51/cwt. The average steer price in the beef was $3.87 higher at $175.67.

Cattle futures fell hard Monday, beneath the weight of sharply lower outside markets and the unrelenting rise in feed costs.

Live Cattle futures closed an average of $1.83 lower.

Feeder Cattle futures closed an average of $2.72 lower, from $1.15 lower toward the back to $4.20 lower toward the front.

Choice Boxed beef cutout value was 8¢ lower Monday afternoon at $209.87/cwt. Select was 88¢ higher at $196.53.

Corn futures closed mostly fractionally lower.

Soybean futures closed mostly 4¢ to 6¢ higher.

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Equities sold off at a brisk pace Monday, with most of the fuel appearing to be investor fears that a win by Democrats in Tuesday’s Georgia runoff election—giving that party control of both houses—could lead to an adverse business environment: higher taxes, more regulations, etc. Major U.S. financial indices closed off of session lows, though.

The Dow Jones Industrial Average closed 382 points lower. The S&P 500 closed 55 points lower. The NASDAQ was down 189 points.

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“Strong beef demand and tightening cattle supplies provide cautious optimism for cattle markets in 2021,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Higher feed prices and continuing drought conditions are threats to individual producers and perhaps to overall market conditions in the coming year. Consumer demand will be supported by additional federal stimulus for a time but continuing macroeconomic challenges will persist through the year. The continuing pandemic and the time needed for vaccine implementation suggest that much of the promise of 2021 may be pushed into the second half of the year. In the meantime, uncertainty and volatility are likely to remain elevated and risk management continues to be a key management and marketing consideration.”

Peel points out cash corn prices in December, on average, were about 22% higher year over year, while sorghum prices up more than 50%, wheat prices were about 30% higher and soybean prices were up 35%.

“Cattle production will be affected by higher feed prices, not so much in terms of how much production will occur, but more in terms of how production will change,” Peel says. “For example, higher ration costs will change feedlot demand for the type and size of feeder cattle preferred in feedlots.”

On the plus side, Peel explains current hay supplies appear to be adequate with late- 2020 hay prices slightly less year over year for both alfalfa and other hay. Prices are projected lower for this year.

However, he also explains 41% of the U.S. was experiencing some degree of drought at the end of last year, mostly in the western half of the country. That was 31% more than a year earlier.

“The current level of drought is concerning and, should it persist into the coming growing season, may have significant impacts rather quickly in 2021,” Peel says.

Negotiated cash fed cattle prices for the week were generally steady to mostly $2 higher on a live basis through Thursday afternoon, according to the Agricultural Marketing Service: $112/cwt. in the Southern Plains, mostly $112 in Nebraska, mostly $111 with a few up to $112 in Colorado. They were steady to $6 higher week to week in the western Corn Belt at $110-$112. Dressed trade was $3-$4 higher at $175-$176.

Cattle futures closed mostly higher Thursday, helped along by stronger front-month Lean Hog futures.

Live Cattle futures closed an average of 62¢ higher.

Feeder Cattle futures closed an average of 26¢ higher, except for an average of 17¢ lower in three contracts.

Choice boxed beef cutout value was 58¢ lower Thursday afternoon at $209.95/cwt. Select was $4.21 lower at $195.65.

The average dressed steer weight of 921 lbs. the week ending Dec. 19 was 1 lb. lighter than the previous week, but 17 lbs. heavier than the same time a year earlier, according to USDA’s Actual Slaughter Under Federal Inspection report. The average dressed heifer weight of 847 lbs. was 1 lbs. lighter than the previous week, but 14 lbs. heavier year over year.

Net U.S. beef export sales of 14,900 metric tons reported for 2020 were up noticeably from the previous week and up 82% from the prior four-week average, according to the U.S. weekly Export Sales report for the week ending Dec. 24. Increases were primarily for Japan, China, South Korea, Mexico and Canada.

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Strong exports combined with iffy South American production continued to fuel grain futures. According to USDA’s Weekly Export Sales report, net U.S. corn export sales of 964,500 metric tons (MT) for 2020/2021 were up 48% from the previous week, but down 27% from the prior four-week average.

Net U.S. soybean export sales of 695,400 MT for 2020/2021 were up 97% from the previous week and 25% percent from the prior four-week average.

Net U.S. wheat export sales of 520,600 metric tons (MT) for 2020/2021 were up 32% from the previous week and up 4% from the prior four-week average.

On Thursday, Corn futures closed 8¢ to 9¢ higher through Jly ‘21 and then mostly 1¢ higher.

Soybean futures closed 9¢ to 11¢ higher through May ‘21. And then mostly 5¢ to 8¢ higher.

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Major U.S. financial indices closed higher. Support included weekly initial unemployment insurance claims of 787,000, according to the U.S. Department of Labor. That was 19,000 fewer than the previous week and more positive than the trade expected.

The Dow Jones Industrial Average closed 196 points higher. The S&P 500 closed 24 points higher. The NASDAQ was up 18 points.

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When you consider the unprecedented market disruptions spawned by the pandemic in 2020, perhaps the most extraordinary realization is how well markets work, though we don’t always understand the finer points or like the outcome.

Among cattle market lessons and reminders gleaned:

“If packers cannot run or cannot run at typical throughput levels—especially if animal supplies are abundant—then the marginal value of that last group of animals that is not sold is close to zero. And the last pen or truckload or group of animals is a perfect substitute for the first. It is the marginal value of the last product that sets the market. This point is critical. In fact, that is what is communicated by economists when supply and demand curves are drawn. The equilibrium quantity and price are what is traded at the lowest marginal value to buyers and the highest marginal value to sellers.”—from Economic Reasons for What was Observed in Fed Cattle and Beef Markets During the Spring of 2020 by Stephen Koontz, agricultural economist at Colorado State University.

“‘We heard a lot of questions about how it was possible that farm prices could decline while wholesale prices increased, if the market was even halfway functioning,” explained Ted Schroeder, agricultural economist at Kansas State University. “It’s a market phenomenon. The direction of price change and the magnitude of change is exactly what our demand models suggested. We’re surprised by the veracity of the event every day, but we’re not surprised by what the market responses have been.’”

He was explaining the difference between primary and derived demand—from Beef Demand is Everything, BEEF magazine, by Wes Ishmael.

“Much attention has been paid to the increase in apparent gross margins for beef packers, which was the impetus of the USDA investigation. However, this spread is a metric of just two factors, live cattle prices and wholesale beef prices. It does not reflect all costs incurred in harvesting and processing cattle into beef. The cattle-to-beef margin excludes other operating costs, such as labor costs. Because of the impact of COVID, including procuring personal protective equipment, redesigning plant operations, and other necessary adjustments, labor and other operating costs increased.

“More importantly, the cattle-to-beef margin does not reflect fixed costs. Fixed costs constitute the largest percentage of overhead for meat packers. Overall, per head margins on processing cattle rise dramatically as slaughter throughput is decreased. Fixed costs must be spread out across the volume of cattle processed. Reducing the number of cattle processed by up to one-third, or idling a plant for several days, adds significantly to the per head cost of slaughter and processing.”—from Analysis of USDA’s Boxed Beef and Fed Cattle Price Spread Investigation Report, by Dave Juday of The Juday Group.

“The U.S. has fewer FI (federally inspected) cattle slaughter plants than it had 20 years ago. But, the current number of FI plants is the highest since 2004. In 1998, the U.S. had 795 FI cattle slaughter plants. Plant numbers bottomed at 626 in 2007 and 627 in 2012, before reaching 670 in 2019. In 2019, 71.6% of FI slaughter plants each slaughtered between 1 and 999 head annually, 16.0% slaughtered between 1,000 and 9,999 head, and 10.6% slaughtered between 10,000 and 999,999. This compares to 71.7%, 14.8% and 11.7%, respectively, in 1998. Plants that each slaughtered over one million head only comprised 1.8% of the total number of U.S. FI cattle slaughter facilities in both 1998 and 2019. Nonetheless, it remains the case that roughly 60% of total beef‐and pork‐processing capacity is provided by the 10 largest beef and the 15 largest pork packing plants (National Pork Board 2019)”—from Beef and Pork Marketing Margins and Price Spreads during COVID-19, by agricultural economists, Jayson Lusk at Purdue University, Lee Shultz at Iowa State University and Glynn Tonsor at Kansas State University.

Negotiated cash fed cattle prices edged higher Wednesday amid light trade. Although there were too few transactions to trend in any region, there were some live trades $1 higher in the Southern Plains at $111/cwt., some at steady money in Nebraska at $110 and a few $2-$6 higher in the western Corn Belt at $112. There were also a few dressed sales $4 higher in Nebraska at $176.

Cattle feeders offered 1,015 head (six lots) in the Central Stockyards weekly Fed Cattle Exchange auction Wednesday. One lot of heifers—194 head—from the Southern Plains sold for a weighted average price of $111/cwt. on a live basis.

Cattle futures closed mostly lower Wednesday, especially Feeder Cattle, as grain futures continued surging higher.

Live Cattle futures closed an average of 19¢ lower, except for 7¢ and 27¢ higher at either end of the board.

Feeder Cattle futures closed an average of $1.14 lower.

Choice boxed beef cutout value was 23¢ higher Wednesday afternoon at $210.53/cwt. Select was $4.38 higher at $199.86.

Corn futures closed 5¢ to 8¢ higher through Sep ‘21 and then mostly 1¢ to 2¢ higher.

Soybean futures closed mostly 5¢ to 7¢ higher.

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Major U.S. financial indices edged higher Wednesday with some support from a third COVID-19 vaccine approved for emergency use in the United Kingdom.

The Dow Jones Industrial Average closed 73 points higher. The S&P 500 closed 5 points higher. The NASDAQ was up 19 points.

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Economic destruction continues across the restaurant sector and will likely get worse before it improves, according to a recent survey conducted by the National Restaurant Association (NRA).

“What these findings make clear is that more than 500,000 restaurants of every business type—franchise, chain, and independent—are in an economic free fall. And for every month that passes without a solution from Congress, thousands more restaurants will close their doors for good.” That’s from the letter penned by Sean Kennedy, NRA executive vice president for Public Affairs. It was sent to Congress earlier this month, explaining the dire need for more government assistance to restaurants, which are the nation’s second largest private sector employer.

The NRA Research Group surveyed 6,000 restaurant operators and 250 supply chain businesses Nov. 17-30, 2020.

Among the stark survey findings:

**87% of full-service restaurants (independent, chain, and franchise) reported an average 36% drop in sales revenue. “For an industry with an average profit margin of 5%-6%, this is simply unsustainable,” Kennedy explained.

**83% of full-service operators expect sales to be even worse over the next three months.

**59% of operators say their total labor costs (as a percentage of sales) are higher than they were pre-pandemic.

**58% of chain and independent full-service operators expect continued furloughs and layoffs for at least the next three months.

**17% of restaurants—more than 110,000 establishments—were closed permanently or long-term.

            “The vast majority of permanently closed restaurants were well-established businesses, and fixtures in their communities. On average these restaurants had been in business for 16 years, and 16% had been open for at least 30 years,” according to the NRA letter. “Only 48% of these former restaurant owners say it is likely they will remain in the industry in any form in the months or years ahead. Our nation is losing a generation of industry talent, knowledge and entrepreneurial spirit.”