WLI

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.”

Negotiated cash fed cattle trade was limited on light demand in Nebraska and the western Corn Belt through Tuesday afternoon, with too few transactions to trend, according to the Agricultural Marketing Service. Elsewhere, it was at a standstill.

Last week, prices in the Southern Plains were $2 higher on a live basis at $110/cwt., $5 higher in Nebraska at $110 and $1-$5 higher in the western Corn Belt at $106-$110. Dressed trade was $7 higher at $172.

Cattle futures closed lower Tuesday with pressure from surging grain futures and despite the prospect of higher cash prices this week as packers reload and retailers restock.

Live Cattle futures closed an average of 63¢ lower, except for an average of 5¢ higher in two contracts toward the back.

Feeder Cattle futures closed an average of 99¢ lower from 52¢ lower at the back to $1.37 lower in spot Jan.

Choice boxed beef cutout value was $2.48 higher Tuesday afternoon at $210.30/cwt. Select was $1.17 lower at $195.48.

Corn futures closed mostly 5¢ to 9¢ higher through Jly ‘22 and then mostly fractionally higher.

Soybean futures closed 35¢ to 40¢ higher through Aug ’21, and then mostly 6¢ to 13¢ higher.

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Major U.S. financial indices edged lower Tuesday on some likely profit taking and pressure from further COVID-19 stimulus wrangling in Congress.

The Dow Jones Industrial Average closed 68 points lower. The S&P 500 closed 8 points lower. The NASDAQ was down 49 points. 

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“Our livestock producers need all the tools in the toolbox to help protect against animal diseases and continue to meet the challenge of feeding everyone now and into the future. If we do not put these safe biotechnology advances to work here at home, our competitors in other nations will,” said U.S. Secretary of Agriculture Sonny Perdue last week, in announcing a significant step in modernizing regulations of agricultural animals modified or produced by genetic engineering.

USDA will move forward with an Advanced Notice of Proposed Rulemaking (ANPR) to solicit public input and feedback on a contemplated regulatory framework that would modernize the current system into a scientifically-sound, risk-based, and predictable process that facilitates the development and use of these technologies for U.S. farmers and ranchers under USDA’s authorities.

“Science-based advances in biotechnology have great promise to continue to enhance rural prosperity and improve the quality of life across America’s heartland and around the globe,” Secretary Perdue explained. “With this effort, we are outlining a pragmatic, science-based, and risk-based approach that focuses on potential risk to animal and livestock health, the environment, and food safety in order to provide our farmers and ranchers the tools they need to continue to feed, clothe and fuel the world.”

Last year, President Trump directed federal agencies to modernize the regulatory framework for agricultural biotechnology products by establishing regulatory approaches proportionate to the product’s risks, avoid unjustified distinctions across similar products, and promote future innovation and competitiveness.

The ANPR will transition portions of the U.S. Food and Drug Administration’s (FDA) pre-existing animal biotechnology regulatory oversight to USDA.

As mentioned previously in Cattle Current, the FDA last month approved the first intentional genomic alteration (IGA) in an animal for both human food consumption and as a source for potential therapeutic uses. It’s for a line of domestic pigs referred to as GalSafe pigs. The IGA is intended to eliminate alpha-gal sugar on the surface of the pigs’ cells. People with Alpha-gal syndrome (AGS) may have mild to severe allergic reactions to alpha-gal sugar found in red meat (e.g., beef, pork, and lamb).

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

Last week, prices in the Southern Plains were $2 higher on a live basis at $110/cwt., $5 higher in Nebraska at $110 and $1-$5 higher in the western Corn Belt at $106-$110. Dressed trade was $7 higher at $172.

The five-area direct weighted average steer price last week was $109.19/cwt. on a live basis, which was $3.07 more than the previous week. The average steer price in the beef was $6.51 more at $171.80, according to USDA’s weekly report.

The five-area direct weighted average fed heifer price was $109.68/cwt. on a live basis, which was $3.25 more week to week. The average dressed heifer price was $6.74 more at $171.91.

Choice boxed beef cutout value was 21¢ higher Monday afternoon at $207.82/cwt. Select was $1.28 lower at $196.65.

Estimated total cattle slaughter for the week ending Dec. 26 was 419,000 head, which was 56,000 head fewer (-11.8%) than the same time a year earlier. Year-to-date estimated total cattle slaughter of 31.7 million head was 1.1 million head fewer (-3.5%) than in 2019.

Total estimated beef production for the week of 352.5 million lbs. was 40.2 million lbs. less (-10.2%) than the same time last year. Estimated year-to-date beef production of 26.37 billion lbs. was 264.3 million lbs. less (-1%) than a year earlier.

Cattle futures closed mostly higher Monday, but off of session highs, supported by stronger cash prices late last week, higher outside markets and a winter storm aiming for the Corn Belt.

Live Cattle futures closed an average of 46¢ higher.

Feeder Cattle futures closed narrowly mixed from an average of 9¢ lower to an average of 14¢ higher.

Corn futures closed mostly 2¢ to 3¢ higher.

Soybean futures closed 7¢ to 8¢ lower through Aug ’21, and then 1¢ to 4¢ higher.

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Major U.S. financial indices bounced higher Monday, supported by President Trump’s signature on the government-spending bill, which includes an additional $900 billion in COVID-19 relief. 

The Dow Jones Industrial Average closed 204 points higher. The S&P 500 closed 32 points higher. The NASDAQ was up 94 points.

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Although signals are mixed, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University says it’s likely the beef cowherd Jan. 1 will be unchanged from the prior year to 1% less.

In his weekly market comments, Peel explains cowherd expansion or liquidation depends on both heifer retention and cow culling.

At the beginning of this year, beef replacement heifers were 18.4% of the beef cow inventory.

“This was down from the peak retention in 2016 of 21.0%, when herd expansion was in full force,” Peel says. “Historically, the replacement heifer percentage drops below 18% during herd liquidation. Of course, producer plans can change during the year. The July inventory estimate for beef replacement heifers was unchanged from last year but is a low enough level to potentially suggest some herd liquidation.”

Concurrently, Peel explains heifers in feedlots in 2020, on average, were 1.1% less year over year, with an Oct. 1 estimate about equal to a year earlier. Heifer slaughter this year is projected to be down about 3.6% compared to last year. 

“Heifer slaughter as a percent of the cow inventory is not low enough to suggest herd expansion nor large enough to suggest significant liquidation,” Peel says.  “Taken together, the various heifer data seem to suggest mostly steady heifer retention, which could support a 2021 herd inventory either side of unchanged from 2020 levels.”

As for cow culling, estimated beef cow slaughter in 2020 is 2.6% higher year over year, implying a net beef cow culling rate (beef cow slaughter as a percent of herd inventory) of 10.5%, according to Peel.

“Beef cow culling has increased from the record low level of 7.6% in 2015, when herd expansion was accelerated. Herd culling above 10% is consistent with modest levels of herd liquidation, though the current level is below the culling rates (typically above 11%) that indicate significant herd liquidation. The mid-year cattle report pegged the beef cow inventory down 0.8% year over year, generally consistent with the cow slaughter data this year,” Peel says.

If beef cow numbers are the same to 1% less than the previous year, in the next Cattle report (due out Jan. 29), then Peel says it would continue the slow tightening of beef cattle numbers and beef production in 2021.

“Total 2021 cattle slaughter is forecast to be down about 1%, leading to a year-over-year decrease in beef production of 1% to 2%,” Peel says. “Herd dynamics in 2021 could affect these forecasts. If herd liquidation should accelerate, the short-term impacts would be an increase in cattle slaughter due to more heifers and cows in the slaughter totals. Conversely, should the industry move to expand cattle inventories, cattle slaughter would be reduced with fewer heifers in feedlots and fewer cows culled. There is potential for either scenario. The cattle inventory trajectory in 2021 will depend on numerous factors including control of the pandemic, U.S. macroeconomic conditions, global protein markets, drought conditions, and feed prices, among others.”