WLI

Negotiated cash fed cattle trade ended up mainly $5-$10 higher on a live basis last week at mostly $120/cwt. in the Southern Plains and at $119-$120 in Nebraska. Dressed trade was mostly $10 higher at mainly $190.

Cattle futures hovered Friday, amid light trade.

Live Cattle futures closed mostly narrowly mixed, from an average of 54¢ lower (5¢ to $1.10 lower in spot Jun) to an average of 16¢ higher.

Except for 7¢ lower in new spot Aug, Feeder Cattle futures closed unchanged to 7¢ higher.

Choice boxed beef cutout value was $5.07 lower Friday afternoon at $396.74/cwt. Select was $8.35 lower at $374.18.

USDA estimated total cattle slaughter for the week at 555,000 head, which would be 56,000 head more (+11.2%) than the previous week, but 92,000 head fewer (-14.2%) than the same week a year earlier. Year to date, cattle slaughter of 12.11 million head is 893,000 head fewer (-6.9%) than the same period least year.

Corn futures closed fractionally lower to 1¢ lower.

Soybean futures closed mostly 1¢ lower through Jan ’21 and then mostly fractionally higher to 1¢ higher.

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Major U.S. financial indices basically tread water on Friday.

The Dow Jones Industrial Average closed 8 points lower. The S&P 500 closed 6 points higher. The NASDAQ closed 39 points higher.

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Markets will likely view Friday’s monthly USDA Cattle on Feed report as neutral, with numbers about mirroring pre-report estimates.

For feedlots with 1,000 head or more capacity, there were 1.43 million head placed in April, which was 410,000 head fewer (-22.26%) than the previous year. In terms of weights, 33.17% went on feed weighing 699 lbs. or less, 49.37% weighed 700-899 lbs. and 17.46% weighing 900 lbs. or more.

There were 1.46 million head marketed in April, which was 469,000 head fewer (-24.32%) than the previous year. That was about 1% more positive than pre-report estimates. April marketings were the least for the month since the data series began in 1996, according to AMS.

There were 11.20 million head on feed May 1, which was 607,000 head fewer (-5.14%) than the previous year.

In light trade on Thursday, negotiated cash fed cattle prices were mostly steady with the previous day’s higher prices: mainly around $120/cwt. on a live basis and at $180-$190 in the beef.

Recent strength in cash prices added firmness to Cattle futures Thursday, amid light trade.

Live Cattle futures closed an average of 46¢ higher (7¢ to 92¢ higher).

Except for 2¢ higher in two contracts, Feeder Cattle futures closed unchanged to 37¢ lower.

On average, analysts surveyed by Urner Barry and reported by the Daily Livestock Report, expect April placements to be 22.9% less than a year earlier, April marketings to be 25.4% less and cattle on feed to be 5% less, for feedlots with 1,000 head or more capacity. The monthly Cattle on Feed report is due out Friday afternoon.

Wholesale beef values continue to decline as packing capacity continues to return (see below).

Choice boxed beef cutout value was $2.23 lower Thursday afternoon at $401.81/cwt. Select was $8.65 lower at $382.53.

The average dressed steer weight was 896 lbs. the week ending May 9, according to USDA’s weekly Actual Slaughter Under Federal Inspection report. That was 3 lbs. heavier than the previous week and 44 lbs. heavier than the same week last year. The average dressed heifer weight was 829 lbs., which was 3 lbs. heavier than the prior week and 35 lbs. heavier than the previous year.

Corn futures closed fractionally lower to 1¢ lower.

Soybean futures closed 7¢ to 11¢ lower through Jan ’21 and then mostly 1¢ to 3¢ lower.

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Major U.S. financial indices closed lower Thursday, with pressure including more political saber rattling between the U.S. and China, as well as continued massive unemployment claims.

The advance figure for seasonally adjusted initial unemployment insurance claims for the week ending May 16 was 2.44 million, according to the U.S. Department of Labor. That was a decrease of 249,000 from the previous week’s revised level.

The Dow Jones Industrial Average closed 101 points lower. The S&P 500 closed 23 points lower. The NASDAQ closed 90 points lower.

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“The recent declines in the boxed beef cutout value coincide with continued improvement in processing totals,” says Josh Maples, Extension livestock economist at Mississippi State University, in the May 18 issue of In the Cattle Markets. “The Estimated Daily Slaughter report showed an estimate for last week at 499,000 head. While still 25% lower than a year ago, this would be a 10% improvement over the week prior. Perhaps more importantly, it would mark the second consecutive weekly increase after five straight weeks of declines. A continuing loosening of the logjam at the processing sector is critical to the cattle and meat sector and would support increased cattle slaughter and increased beef availability.”

Total cattle slaughter under federal inspection in April was 2.19 million head, which was 599,700 head fewer (-21.50%) than the previous year, according to USDA’s monthly Livestock Slaughter report (LSR). Of those, total fed steer and heifer slaughter of 1.65 million head was 552,500 head fewer (-25.04%).

On the other end of the trade, Maples notes the significant decline in boxed beef sales for delivery beyond 22 days.

Based on the weekly USDA National Comprehensive Boxed Beef Cutout report, Maples explains the average weekly number of loads sold during the past five weeks was 4,675, which was 32% less than the same time period last year. Negotiated sales for delivery within 21 days were 18% less, while negotiated sales for delivery at 22 days or more declined 64% and forward contract sales declined 65%.

Federally inspected beef production in April was 1.78 billion lbs., which was 452 million pounds less (-20.23%) than a year earlier, according to the LSR. Total federally inspected red meat production for the month of 3.81 billion lbs. was 696 million lbs. less (-15.42% ) than last year.

“Given the uncertainty about both available supply and expected demand, it is likely not surprising that sales for delivery further into the future have shown the biggest decline,” Maples says.

Negotiated cash fed cattle trade picked up steam Wednesday in both volume and price. Live sales were steady to $10 higher at $120/cwt. in the Southern Plains and mainly $120 in Nebraska. Dressed sales were steady to $10 higher at mostly $180-$190 in Nebraska and at mostly $190 in the western Corn Belt.

Cattle feeders offered 2,782 head in the weekly Fed Cattle Exchange auction, but there were no sales.

Cattle futures ended lower, though, amid recently declining wholesale beef values and perhaps with some positioning ahead of the long weekend and Friday’s monthly Cattle on Feed report.

Live Cattle futures closed an average of $1.20 lower (37¢ lower in spot Jun to $1.50 lower).

Feeder Cattle futures closed an average of $2.42 lower ($1.42 lower in spot May to $2.92 lower).

Choice boxed beef cutout value was $5.43 lower Wednesday afternoon at $404.04/cwt. Select was $2.31 higher at $391.18.

After 1¢ lower in the front two contracts, Corn futures closed mostly fractionally higher.

Soybean futures closed mostly 3¢ to 4¢ higher through Aug ’21 and then mostly 1¢ higher.

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Major U.S. financial indices closed higher Wednesday, led by tech stocks, the recent resurgence in oil prices and, apparently, optimism as more states continues to ease COVID-19 restrictions.

The Dow Jones Industrial Average closed 369 points higher. The S&P 500 closed 48 points higher. The NASDAQ closed 190 points higher.

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U.S. restaurant chain transaction declines continued to improve for the fourth consecutive week (ending May 10) amid Mother’ Day and more states reopening.

Large chain restaurant customer transactions were down 23% compared to a year ago, improving from a 26% decline the prior week, according to The NPD Group (NPD). Large full service restaurant chain transactions were 39% more than the previous week, but still 58% less than a year earlier. Transactions at large quick service chain restaurants were 21% less than a year earlier; they were down 24% the previous week, according to NPD’s CREST® Performance Alerts.

As well, NPD’s ReCount® restaurant census estimates 19 states allowed some level of on-premise dining the week ending May 10. Some of these states never imposed restrictions, while some reopened in the past couple of weeks.

Tennessee and Texas are among the largest states for restaurant unit counts that lifted restrictions to on-premise dining in recent weeks. Customer transactions improved by 7 percentage points week to week in both states for the week ending May 10. Tennessee restaurant transactions are down 14% and Texas is down 18% compared to year ago.

“Permanent restaurant closures, economically distressed consumers, and the possibility of a second wave of virus cases still bring uncertainty; but at least for now, the recent run of weekly gains is encouraging,” says David Portalatin, NPD food industry advisor and author of Eating Patterns in America.  “The road back will be challenging and slow, but we’re headed in the right direction.”

Negotiated cash fed cattle trade continued to be light on Tuesday. The only established trend reported by AMS so far this week is mostly $180/cwt. on a dressed basis in the western Corn Belt. Although too few to trend, early live and dressed sales in Nebraska so far this week are at the top of last week’s range.

Cattle futures closed narrowly mixed Tuesday, amid sparse interest and direction.

Live Cattle futures closed from 30¢ lower to 22¢ higher, with open interest continuing to decline.

Except for 82¢ higher in spot May, Feeder Cattle futures closed an average of 39¢ lower, in light trade.

The most recent CME Feeder Cattle Index of $126.84 was the highest since the end of March.

Choice boxed beef cutout value was $5.48 lower Tuesday afternoon at $409.47/cwt. Select was $6.00 lower at $388.87.

Corn futures closed mostly 1¢ higher.

Soybean futures closed mostly 2¢ lower through Mar ’21 and then fractionally higher to 1¢ higher.

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Major U.S. financial indices closed lower Tuesday. Reportedly, pressure included a negative report about a potential COVID-19 vaccine, which helped lift stocks the previous day when initial test results were announced.

Investors also were assessing the latest economic projections from the Congressional Budget Office (CBO).

“After falling by 1.2% in the first quarter of 2020, real GDP is projected to contract even more sharply—by 11.2%—in the second quarter. At annual rates, those declines are equivalent to 4.8% and 37.7%, respectively,” according to the CBO’s Interim Economic Projections for 2020 and 2021. “Although the drop in output is acute, it has been partially blunted by past investments in information technologies (such as computers, software, and communications equipment), which have made it possible for a significant portion of economic activity to continue remotely. Before the pandemic began, almost 30% of workers reported that they could work from home…”

The report suggests the domestic economy will begin recovering during the second half of this year as concerns about the pandemic wane, state and local governments loosen stay-at-home orders, etc.

“The labor market is projected to materially improve after the third quarter; hiring will rebound and job losses will drop significantly as the degree of social distancing diminishes,” according to the report. “However, those improvements will not be large enough to make up for earlier losses. Compared with their values two years earlier, by the fourth quarter of 2021 real GDP is projected to be 1.6% lower, the unemployment rate 5.1 percentage points higher, and the employment-to-population ratio 4.8 percentage points lower. Inflation and interest rates on federal borrowing will remain relatively low because of subdued economic activity and weak labor market conditions through 2021.”

The Dow Jones Industrial Average closed 390 points lower. The S&P 500 closed 30 points lower. The NASDAQ closed 49 points lower.

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“It appears that the overall feed situation will be favorable and provide more flexibility for feeder and feedlot cattle operations,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his latest weekly market comments.

USDA projects corn production from the new crop at a record large 16 billion bu., in the latest World Agricultural Supply and Demand Estimates (WASDE). USDA projects ending stocks to be 1.2 billion bu. more than last year, which would be the most since 1987-88. The WASDE 2020-21 season average corn price forecast is $3.20/bu., the lowest since 2006-07.

Hay stocks on farms as of May 1 were also 5.52 million tons more (+37.03%) than the previous year at 20.43 million tons, according to the most recent USDA Crop Production report.

“The Livestock Marketing Information Center (LMIC) projects 2020 alfalfa hay production to increase 4.0%, resulting in larger ending stocks and season average prices down nearly 17% year over year to $150/ton,” Peel says. “Total other (non-alfalfa) hay production may decrease 1-2% in 2020 but a slight buildup of ending stocks is projected to push season average prices down fractionally to $132.50/ton…Regionally, the biggest concern is the Southeast with total May 1 hay stocks down 22.8% year over year (collectively) in Alabama, Georgia, Florida, North and South Carolina and Tennessee.” 

As always, drought could change the outlook.

“A large area of low-level drought is building in the west from western Kansas to northern California and the Pacific Northwest. Some of the worst drought areas are in Colorado and surrounding regions and in Oregon. Drought in south Texas has improved somewhat in recent weeks but some drought continues along the gulf coast from Texas to Florida,” Peel says. “This is a critical growth period and any expansion of drought conditions may have significant implications for pasture and hay production in the West.”

More specifically, according to the most recent U.S. Drought Monitor for the week ending May 12, Peel explains 17.42% of the country is in some level of drought (D1-D4). Another 16.89% of the country is abnormally dry (D0). So, 34.31% was abnormally dry or worse, compared to 30.78% a week earlier and 24.15% three months earlier.

Although too few to trend, early negotiated cash fed cattle prices on Monday continued at the higher levels paid in the north toward the end of last week. Live sales in Nebraska were at $119-$120/cwt. Dressed sales there and in the western Corn Belt were at $190.

Cattle futures closed higher Monday, extending the previous session’s minimal gains, helped along by continued cash price strength and significantly higher outside markets.

Live Cattle futures closed an average of 87¢ higher (25¢ higher to $1.72 higher in spot Jun).

Feeder Cattle futures closed an average of 94¢ higher (57¢ higher to $1.87 higher in spot May).

Wholesale beef values continued their expected, precipitous decline as packing capacity continues to expand ever so slowly.

Choice boxed beef cutout value was $19.37 lower Monday afternoon at $414.95/cwt. Select was $24.19 lower at $394.87.

Corn futures closed mainly fractionally mixed.

Soybean futures closed mostly 7¢ to 8¢ higher.

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Major U.S. financial indices closed sharply higher Monday, buoyed by promising early test results of a potential COVID-19 vaccine.

That was despite Federal Reserve Chair Jerome Powell’s sobering comments made to the U.S. Senate Committee on Banking, Housing, and Urban Affairs.

“Available economic data for the current quarter show a sharp drop in output and an equally sharp rise in unemployment. By these measures and many others, the scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II,” Powell explained. “Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs, reversing nearly 10 years of job gains. This precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future. In addition to the economic disruptions, the virus has created tremendous strains in some essential financial markets and impaired the flow of credit in the economy.”

The Dow Jones Industrial Average closed 911 points higher. The S&P 500 closed 90 points higher. The NASDAQ closed 220 points higher.

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“The buildup in fed cattle supplies that are market ready is expected to have a substantial and lasting effect on fed cattle prices,” say analysts with USDA’s Economic Research Service (ERS). “Prices will remain low as the supply of market-ready cattle remains above the sector’s ability to process them, and the supply issue is expected to linger through 2021.”

Consequently, in the most recent monthly Livestock, Dairy and Poultry Outlook, ERS lowered this year’s average price forecast for fed steers (five-area direct) to $104.08/cwt.: $118.32 in the first quarter; $99 in the second and third quarters; $100 in the fourth quarter. The projected annual average price for next year is $109.

Keep in mind the forecast runs counter to current cash prices, which appear to be supported by packers’ willingness to give back some of their margins.

For perspective on packing capacity, ERS estimated 40% of U.S. packing capacity went by the wayside since Mar. 28, as plants struggled with COVID-19 infections and new safety precautions to protect workers.

“The current situation does not allow for plants to easily make up for lost slaughter capacity given workforce challenges,” say ERS analysts. “Based on recent maximum slaughter levels for the second quarter, there is likely a significant shortfall in slaughter since it peaked the last week of March. As a result, feedlots are having to continue to feed their cattle longer, and this is likely to be an issue into 2021 as the industry works through the feeder cattle that are awaiting placement in feedlots.”

ERS estimated there were 20.54 million head of cattle outside feedlots Apr. 1. That was 657,000 head more (+3.30%) than the same time a year earlier.

As the backlog of market-ready fed cattle continues to grow and feedlot margins are squeezed, ERS expects feeder cattle prices to remain under pressure.

“Based on recent price data, the second-quarter 2020 feeder steer price was lowered by $2 to $121/cwt. The third-quarter 2020 price forecast was lowered $5 to $123 and the fourth-quarter 2020 price was lowered $17 to $118,” say ERS analysts. “As a result, this month’s annual price forecast for 2020 was $124.50/cwt., close to last month’s forecast. The price forecast for first-quarter 2021 is expected to remain relatively low at $125. Feeder steer prices are expected to improve in the second half of 2021 on increased demand. The 2021 annual feeder steer price is forecast at $131.50, more than 5% higher than 2020.”