WLI

Negotiated cash fed cattle trade continued up north on Wednesday, with live sales in Nebraska $1.50 lower than last week at $105/cwt., and $2-$4 lower in the western Corn Belt at $104-$105. Dressed trade in both regions was $2 lower at mostly $167, according to the Agricultural Marketing Service. Live trade in the Southern Plains so far this week is $1 lower at $105.

After attempted support early in the session, softer cash prices and wonderments about demand pressured Cattle futures lower on Wednesday.

Live Cattle futures closed an average of $1.18 lower.

Except for 22¢ higher in spot Aug, Feeder Cattle futures closed an average of $1.36 lower. 

Wholesale beef values continued to gain on Labor Day buying.

Choice boxed beef cutout value was $1.77 higher Wednesday afternoon at $231.45/cwt. Select was $1.85 higher at $214.11.

Corn futures closed mostly fractionally lower.

Soybean futures closed 1¢ to 5¢ higher through Aug ’21 and then mostly 4¢ lower

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Major U.S. financial indices closed higher Wednesday, led by tech stocks and positive economic news that included further promising trial results from Moderna, a coronavirus vaccine.

The Dow Jones Industrial Average closed 83 points higher. The S&P 500 closed 35 points higher. The NASDAQ closed 198 points higher.

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Get through 2020, and beef exports should increase, according to the new quarterly Outlook for U.S. Agricultural Trade from USDA’s Economic Research Service (ERS).

Beef exports for 2021 are forecast $200 million more than the previous Outlook, with higher volumes more than offsetting a decline in unit values. For this year, ERS pegs U.S. beef exports $500 million less than the previous estimate, on lower volumes and lower prices.

“The outbreak of the global COVID-19 pandemic is forecast to cause the world’s real gross domestic product (GDP) to decline in 2020 for the first time since 2009. While some economists believe the worst of the economic and public health shock has already been observed, with the GDP of many advanced economies falling at annualized nominal rates of greater than 30% during the second quarter of this year, there remains significant uncertainty as to the length and speed of the recovery,” say ERS analysts. “Despite an anticipated recovery in the growth rate for most economies in 2021, real GDP is  expected to remain below levels seen before the global pandemic. The economic recovery will depend on public and private efforts to mitigate and contain the pandemic and to efficiently adapt economies to changing conditions.”

Total U.S. agricultural exports in Fiscal Year (FY) 2021 are projected at $140.5 billion, up $5.5 billion from the revised forecast for FY 2020, driven mostly by higher exports of soybeans and corn.

Live Cattle futures edged higher Tuesday, as Feeder Cattle firmed, despite a bounce higher in Corn futures.

Except for 7¢ lower in spot Aug, Live Cattle futures closed an average of 68¢ higher, recovering what was lost in the previous session.

Except for 10¢ lower in Apr, Feeder Cattle futures closed an average of 16¢  higher. 

Choice boxed beef cutout value was $2.21 higher Tuesday afternoon at $229.68/cwt. Select was $1.01 higher at $212.26.

Corn and Soybean futures jumped Tuesday with the heat and dryness across the Midwest.

Corn futures closed mostly 8¢ to 9¢ higher through Jly ’21 and then mostly 4¢ to 5¢ higher.

Soybean futures closed mostly 10¢ to 14¢ higher through Sep ’21 and then mostly 8¢ higher.

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Major U.S. financial indices closed mixed Tuesday.

Support included a surge in new home sales.

New residential sales in July totaled 901,000, according to the U.S. Census Bureau. That was 13.9% more than in June and 36.3% more than a year earlier.

On the other hand, pressure included declining consumer sentiment.

Month to month, the Conference Board Consumer Confidence Index® decreased 6.9 points to 84.8 in August.

“Consumer Confidence declined in August for the second consecutive month,” says Lynn Franco, Senior Director of Economic Indicators at The Conference Board. “The Present Situation Index decreased sharply, with consumers stating that both business and employment conditions had deteriorated over the past month. Consumers’ optimism about the short-term outlook, and their financial prospects, also declined and continues on a downward path. Consumer spending has rebounded in recent months but increasing concerns amongst consumers about the economic outlook and their financial well-being will likely cause spending to cool in the months ahead.”

The Dow Jones Industrial Average closed 60 points lower. The S&P 500 closed 12 points higher. The NASDAQ closed 86 points higher.

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“Commercial cattle slaughter was 2.918 million head for the month of July, a 0.7% decrease from last year but the second largest monthly slaughter for 2020 behind March (2.922 million head),” according to the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. “Although cattle slaughter declined marginally from last year, commercial beef production reached its highest level for the year at over 2.4 billion lbs. produced in July, a 2.6% increase over 2019. The growth in beef production is attributable to cattle dressed weights. In July, federally inspected dressed weights were 834 lbs., a 3.5% (28 lb.) increase from a year ago. The backlog of cattle created by the pandemic has led to higher than normal dressed weights which has bolstered beef production.”

On a related note, total pounds of beef in freezers July 31 were 3% more than the previous month but 3% less than the prior year, according to the most recent USDA Cold Storage report.

Frozen pork supplies were slightly less than the previous month, but were 25% less year over year.

Total red meat supplies in cold storage were 1% more than the previous month, but 15% less than a year earlier.

Total frozen poultry supplies were up 4% from the previous month, but were slightly less than a year earlier.

The five-area direct weighted average steer price last week was $1.53 higher at $106.59/cwt. on a live basis, according to the Agricultural Marketing Service. The dressed steer price was $1.37 higher at $169.41.

Cattle futures closed lower on Monday, especially Feeder Cattle, pressured by Friday’s Cattle on Feed (see below and note the correction).

Live Cattle futures closed an average of 64¢ lower (22¢ to $1.15 lower).

Feeder Cattle futures closed an average of $1.32 lower (62¢ to $2.45 lower).

Choice boxed beef cutout value was $1.53 higher Monday afternoon at $227.47/cwt. Select was $2.26 higher at $211.25.

Corn futures closed mostly 2¢ to 4¢ higher.

Soybean futures closed mostly 1¢ to 3¢ higher. 

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Major U.S. financial indices closed higher on Monday. Primary support seemed centered around more optimism about the pandemic, with the number of new COVID-19 cases continuing to decline. As well, the Food and Drug Administration approved use of a new plasma treatment for those hospitalized with the virus.

The Dow Jones Industrial Average closed 378 points higher. The S&P 500 closed 34 points higher. The NASDAQ closed 67 points higher.

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Correction As many of you likely noticed, yesterday’s Cattle Current carried a review of the July Cattle on Feed report, rather than for the most recent August report. Sorry about that. Here’s the August report.

Placements in feedlots (feedlots with 1,000 head or more capacity) during July of 1.89 million head were 188,000 more (+11.03%) than a year earlier, according to the monthly Cattle on Feed report. That was significantly more than pre-report expectations of a 6% increase. In terms of placement weight, 38.83% went on feed weighing less than 699 lbs., 47.17% went on feed weighing 700-899 lbs. and 14.0% weighed more than 900 lbs.

For broader perspective, in his weekly market comments, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, explains, “Placements were down 17.7% year over year in February, March and April. Despite the 11% increase in July, placements are down 7.1% year over year for the last six months.”

Marketings in July of 1.99 million head were 12,000 head fewer than last year (-0.60%), about in line with average analyst estimates ahead of the report.

“Marketings dropped dramatically in April and May (down 25.6% year over year in those two months) and are down 6.0% in the six months from February to July,” according to Peel.

Total cattle on feed Aug. 1 numbered 11.28 million head, which was 172,000 head more (+1.5%) than the same time a year earlier, a little more than expectations and the largest inventory for the month since the data series began in 1996.

“One of the biggest concerns in fed cattle markets is the extent to which the backlog of fed cattle created in April and May still remains,” Peel says. “Although June and July marketings were about equal to one year ago, a significant portion of those marketings were likely fed cattle that were carried over from April and May. Reductions in placements as far back as February have reduced the number of cattle finishing starting as early as June. Not only were total placements down in the February to July period, but more of the reduction was in heavyweight placements, further reducing the number of cattle finishing now. In the last six months, feedlot placements under 700 lbs. have made up a larger percentage of total placements, which further reduces the number of cattle finishing at this time.” 

Add it all up and Peel says data and anecdotal indications suggest the backlog of fed cattle is rapidly diminishing and may be nearly cleaned up. 

“Going forward, the 1 million head decrease in feedlot placements in February, March and April suggests that front-end feedlot supplies will be relatively tight at least through September,” Peel says.

Based on reports from the Agricultural Marketing Service, negotiated cash fed cattle prices ended the week $2 higher in the Southern Plains at $106/cwt. on a live basis, steady to 50¢ higher in the Northern Plains at $106.00-$106.50 and $2 higher in the western Corn Belt at $107-$109. Dressed trade was unevenly steady at $169.

Through Thursday, the five-area direct weighted average steer price was $106.62/cwt. on a live basis, which was $2.13 more than the previous week and $2.19 less than the same time last year, keeping in mind the market was dealing with the aftermath of the Tyson plant fire in 2019. The dressed steer price of $169.11 was $1.05 higher than the prior week, but $5.91 less the same time a year earlier.

Cattle futures closed lower on Friday as traders awaited the monthly Cattle on Feed report (see below).

Live Cattle futures closed an average of 85¢ lower, (30¢ lower at the back to $1.22 lower at the front).

Feeder Cattle futures closed an average of $1.07 lower (50¢ lower at the front to $1.55 lower at the back).

Choice boxed beef cutout value was 56¢ higher Friday afternoon at $225.94/cwt. Select was $2.68 higher at $208.99.

Total estimated cattle slaughter for the week ending Aug. 22 was 652,000 head, according to USDA. That was 8,000 head more than the previous week’s estimate, but 17,000 head fewer than the same week last year. Estimated beef production for the week of 542.9 million lbs. was 10.5 million lbs. more than the previous week and 7 million lbs. more than the prior year.

Corn futures closed mostly fractionally mixed to 1¢ higher.

Soybean futures closed fractionally lower to 1¢ higher. 

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Major U.S. financial indices closed higher on Friday, buoyed by positive economic news.

For instance, existing home sales in July continued upward for the second consecutive month, according to the National Association of Realtors^®.

Total existing-home sales completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 24.7% from June to a seasonally adjusted annual rate of 5.86 million in July.

“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” said Lawrence Yun, NAR’s chief economist. “With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”

The Dow Jones Industrial Average closed 190 points higher. The S&P 500 closed 11 points higher. The NASDAQ closed 46 points higher.

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If anything, the market will likely view Friday’s monthly Cattle on Feed report as at least a little bullish, with fewer placements than expected, as well as slightly more marketings and slightly fewer cattle on feed for feedlots with 1,000 head or more capacity.

Placements in June of 1.80 million head were 37,000 head more (+2.1%) than a year earlier, compared to average expectations for an increase of 6%.

In terms of placement weight, 41% went on feed weighing less than 699 lbs., 43% went on feed weighing 700-899 lbs. and 16% weighed more than 900 lbs.

Marketings in June of 1.97 million head were 26,000 head more (+1.34%) than last year, about 1% more than average expectations.

Cattle on feed July 1 of 11.44 million head were 42,000 head fewer (-0.37%) than last year. Ahead of the report average analyst estimates were for the number to be unchanged. Inventory was the second largest to start the month since the data series began in 1996.

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“The controversy surrounding wholesale and farm-level price movements following a packing plant fire in Kansas was but mere prelude to the unprecedented COVID-19-related disruptions and historic rise in the spread between livestock and wholesale meat prices. Concerns about concentration and allegations of anticompetitive behavior have led to several civil suits and inquiries by the U.S. Department of Agriculture and the U.S. Department of Justice, with increases in price differentials serving as a focal point.”

That’s from the introduction to Beef and Pork Marketing Margins and Price Spreads during COVID-19, by agricultural economists Jayson Lusk at Purdue University, Glynn Tonsor at Kansas State University and Lee Schulz at Iowa State University. The stated goal of the effort is to provide data-driven, economic-guided insights to the situation. Along the way, they shatter a popular myth or two.

For instance, these economists document how little concentration has changed since 1998, when considering the largest federally inspected (FI) beef packing plants—those harvesting 1 million head or more of cattle annually.

“In 1998, FI packing plants that slaughtered more than 1 million cattle per year slaughtered 17.9 million head, or 51.7%, of the FI cattle slaughter. More than 20 years later, in 2019, plants with over 1 million head per year capacity slaughtered 17.3 million head, or 52.4%, of the FI slaughter. The total volume slaughtered by the largest plants is down, and it is a stretch to characterize a 0.7 percentage point rise in slaughter market share over 22 years as a takeover,” say the authors. “This suggests that smaller FI slaughter facilities, in aggregate, are maintaining market share. In 2019, packing plants that slaughtered between 1 and 9,999 head slaughtered 424,700 head, or 1.3%, of the FI cattle slaughter annually, 3.3% for plants slaughtering between 10,000 and 99,999 head, and 43.1% for plants slaughtering between 100,000 and 999,999 head. This compares to 1.5%, 4.7% and 42.1%, respectively, in 1998.”

The trio of economists points out the number of FI beef packing plants is the most since 2004, albeit fewer than two decades ago.

Further, these economists define the difference between marketing margins, gross margins and related price spreads, what they can and can’t say about suggested profitability. They also define and demonstrate primary demand versus derived demand and how it is that wholesale beef prices can run counter to fed cattle prices.

“Even though we cannot observe an individual packers’ costs, we can observe the market’s perception of their profitability―at least for publicly traded firms,” according to the economists. “On balance, changes in the stock prices of companies with significant packing operations do not suggest substantial windfalls corresponding with COVID-19 driven developments, and indeed the performance of publicly traded packing companies has lagged that of the overall market since the first of the year. Perhaps market developments are rationale responses to massive shocks from a common enemy to society, COVID-19.”

Bottom line, the study suggests price reactions in the wake of packing disruptions following last summer’s packing plant fire and during the pandemic are in keeping with the expectations of economic theory.