WLI

Cattle futures closed sharply lower Monday with pressure likely including the significant decline in open interest at the end of last week and disappointment that week-to-week gains in estimated cattle slaughter were not more significant (see below).

Live Cattle futures closed an average of $2.31 lower (97¢ lower at the back to $3.00 lower).

Feeder Cattle futures closed an average of $3.61 lower ($2.45 to $4.27 lower)

Choice boxed beef cutout value was $7.70 higher Monday afternoon at $468.58/cwt. Select was $3.98 higher at $452.97.

Corn futures closed fractionally lower to 1¢ lower.

Soybean futures closed 2¢ to 3¢ higher.

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Major U.S. financial indices closed mixed on Monday, with strength in tech stocks counterbalanced by jitters about how reopening the economy will impact the spread of COVID-19.

The Dow Jones Industrial Average closed 109 points lower. The S&P 500 closed fractionally higher. The NASDAQ closed 71 points higher.

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“It will likely take many weeks for slaughter rates to catch up with the growing backlog of fed cattle and get the industry current once again,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his latest market comments. “Meantime, all sectors of the industry are responding to the need to slow cattle down and hold them longer in a variety of production settings before proceeding to finish in feedlots. Fed cattle weights are increasing and pushing carcass weights higher counter-seasonally.”

With that said, Peel sees a glimmer of hope in last week’s estimated cattle slaughter. Although still 32.2% less than the same week the previous year, estimated slaughter of 425,000 head was 6.4% more than the previous week.

“This hopefully indicates the beginning of recovery of packing capacity in the coming weeks,” Peel says. “Risks remain, however, and it is not clear how fast packing plant capacity will recover. New safety measures and work protocols likely mean that effective maximum capacity in beef packing plants will be reduced compared to pre-COVID-19 levels.” 

In a webinar last week, Glynn Tonsor, agricultural economist at Kansas State University suggested that 85% of pre-COVID 19 packing capacity might be a reasonable ballpark for where it lands in a post-pandemic world.

“The timing during the year is drastically altered with second-quarter beef production forecast down 13.3% year over year. Beef production will be pushed into the third quarter, which is forecast to be up 5.4% compared to last year. Fourth-quarter beef production is currently forecast to be just slightly higher year over year,” Peel says.

Cattle futures took another strong step higher on Thursday, lifting front months to the highest levels since early-to-mid March. Ongoing indications that the bottom in packing capacity and beef production may have been established continued to provide support, as did the week’s mostly stronger cash prices.

Except for 17¢ lower in the back contract, Live Cattle futures closed an average of $3.46 higher ($2.07 higher toward the back to $4.50 higher in the front three contracts). That’s an average of $6.39 higher in the last two sessions.

Feeder Cattle futures closed an average of $4.49 higher ($3.45 higher at the back to $6.17 higher in spot May). That’s an average increase of $8.82 in the last two sessions.

Wholesale beef values continued higher Thursday, but at a more moderate pace. Choice boxed beef cutout value was $9.36 higher Thursday afternoon at a $458.54/cwt. Select was $16.61 higher at $448.57.

The average dressed steer weight for the week ending Apr. 25 was 891 lbs., which was 2 lbs. heavier than the previous week and 37 lbs. heavier than the previous year, according to USDA’s weekly Actual Slaughter Under Federal Inspection report. The average dressed heifer weight of 818 lbs. was 5 lbs. lighter week to week but 24 lbs. heavier year over year. Fed cattle slaughter of 350,563 head was 161,914 head fewer (-31.59%). Beef production of 381.1 million lbs. was 131.7 million lbs. less (-25.68%).

Corn futures closed 2¢ to 4¢ higher through Mar ’21 and then unchanged to 1¢ higher.

Soybean futures closed 7¢ to 11¢ higher through Jan ’21 and then fractionally higher to 1¢ higher.

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Major U.S. financial indices closed higher Thursday, led by tech stocks.

The Dow Jones Industrial Average closed 211 points higher. The S&P 500 closed 32 points higher. The NASDAQ closed 125 points higher.

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As scarcer beef supplies spawn more retail and food service outlets to limit customer purchases, some consumers wonder why the U.S. continues to export beef. Similarly, as cattle prices sag and run opposite of wholesale beef values, some producers question why the U.S. continues to import beef.

“Closing off or limiting beef exports does not necessarily mean greater amounts of beef in U.S. retail grocery stores, nor does limiting imports mean greater cattle prices,” says Brenda Boetel, livestock economist at the University of Wisconsin-River Falls. “The reason is because beef exported is not the same as beef imported. Even with beef production down, the importance of keeping export markets (and import markets) open is vital to the long- term health of the cattle industry.”

More specifically, in the latest issue of In the Cattle Markets, Boetel explains the mix of U.S. beef exports add value to domestic cattle prices as international customers place a higher value on some beef products than U.S. consumers. As mentioned in Wednesday’s Cattle Current, beef export value per head of fed slaughter was $308.21 in March, according to  the most recent data released by USDA and compiled by the U.S. Meat Export Federation. For the first quarter, per-head export value was $317.06.

Likewise, importing beef–mostly lean trim–helps bolster U.S. ground beef demand and keep it more price competitive than using higher value parts of the domestic carcasses.

“Ground beef in the U.S. is typically a combination of two different products: 50% lean trimmings from grain fed cattle and 90% lean trimmings from grass fed cattle or cull cows. These two products are blended together to provide lean ground beef options for restaurants and retail grocery stores. Without these lean ground beef options, many consumers would likely turn to other leaner protein products,” Boetel says.

Negotiated cash fed cattle prices bounced higher in some areas Wednesday, although the wide spread continues.

Live prices in the Southern Plains were mostly $5 higher than the previous week at mainly $110/cwt.

Dressed sales in the western Corn Belt were mainly $20-$30 higher than the previous week at mostly $180.

Prices in Nebraska were mostly steady at $95 on a live basis and at mostly $150 in the beef.

Cattle feeders offered 5,119 head in the weekly Fed Cattle Exchange auction on Wednesday. Of those, 679 head sold for a weighted average price of $95.05/cwt.; all from the Southern Plains and for delivery at 1-17 days.

Higher cash prices and growing optimism about packing capacity moving beyond an established low point lifted Cattle futures mostly limit higher on Wednesday.

Live Cattle futures closed an average of $2.93 higher, limit up through the front six contracts.

Feeder Cattle futures closed from an average of $4.33 higher, limit up $4.50 in the front five contracts.

Wholesale beef values took yet another step higher. Choice boxed beef cutout value was $20.19 higher Wednesday afternoon at a $449.18/cwt. Select was $21.25 higher at $431.96.

Corn futures closed 1¢ to 3¢ lower.

Soybean futures closed mostly 7¢ to 10¢ lower.

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Major U.S. financial indices closed mainly lower Wednesday, except for tech stocks, as more data quantifies the labor misery dealt by the pandemic.

Private sector employment decreased by 20.24 million jobs from March to April, according to the April ADP National Employment Report® (NER).

“Job losses of this scale are unprecedented. The total number of job losses for the month of April alone was more than double the total jobs lost during the Great Recession,” says Ahu Yildirmaz, co-head of the ADP Research Institute.  “Additionally, it is important to note that the report is based on the total number of payroll records for employees who were active on a company’s payroll through the 12th of the month.” As such, she explains the latest NER doesn’t reflect the full impact of COVID-19 on the overall employment situation.

The Dow Jones Industrial Average closed 218 points lower. The S&P 500 closed 20 points lower. The NASDAQ closed 45 points higher.

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U.S. beef exports were record high for the first quarter, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

U.S. beef exports in March totaled 115,308 metric tons (mt), up 7% from a year earlier. Value was 4% more at $702.2 million. Japan, South Korea, Mexico, Canada and Taiwan drove export growth for the month.

First-quarter beef exports climbed 9% from a year earlier to 334,703 mt; valued at $2.06 billion, which was 8% higher.

“March export results were very solid, especially given the COVID-19 related headwinds facing customers in many international markets at that time,” says USMEF President and CEO Dan Halstrom. “Stay-at-home orders created enormous challenges for many countries’ foodservice sectors, several key currencies slumped against the U.S. dollar and logistical obstacles surfaced in some key markets; yet demand for U.S. red meat proved very resilient…The U.S. meat industry has spent decades developing a loyal and well-informed customer base throughout the world, which has embraced the quality and value delivered by U.S. red meat. Their commitment to U.S. products during this crisis is much-appreciated.”

Beef export value per head of fed slaughter was $308.21 in March, down 8% from the very high March 2019 average. For the first quarter, per-head export value increased 2% to $317.06.

U.S. pork export volume of 291,459 mt was 38% more than a year earlier. Pork export value was 47% more at $764.2 million. Through the first quarter, pork exports increased 40% from a year ago to 838,118 mt, valued at $2.23 billion (up 52%).

USMEF points out some recent events, including temporary closures of several U.S. processing plants, are not reflected in the first quarter export data. Halstrom cautions that April and May exports could slow as a result, but his outlook for 2020 remains positive.

The week’s negotiated cash fed cattle trade was off to a slow start through Tuesday afternoon. Although too few transactions to trend, AMS reported sales in Nebraska and the western Corn Belt across a broad range at $95/cwt. on a live basis and at $145-$170 in the beef.

On the other end of the trade, wholesale beef values continued higher with temporary beef scarcity seen in reports of some retailers limiting beef purchases per customer and some burger joints plumb running out.

Choice boxed beef cutout value was $18.77 higher Tuesday afternoon at a $428.82/cwt. Select was $33.88 higher at $410.54.

Cattle futures closed narrowly mixed Tuesday, as traders try to make sense of all the above, relative to a few weeks and a few months down the road.

After $1.60 lower in spot Jun, Live Cattle futures closed from 65¢ lower to 50¢ higher.

Feeder Cattle futures closed from an average of 36¢ lower to an average of 21¢ higher.  

Corn futures closed fractionally higher to 2¢ higher through the front four contracts and then fractionally lower to 1¢ lower.

Soybean futures closed fractionally higher to 4¢ higher through the front five contracts and then 2¢ to 6¢ lower.

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Major U.S. financial indices extended gains Tuesday, with investors apparently more optimistic about the U.S. economy starting to crank up again, albeit ever so slowly.

Crude oil prices also suggested more confidence with West Texas Intermediate on the CME closing $2.76 to $4.17 higher through the front six contracts.

The Dow Jones Industrial Average closed 133 points higher. The S&P 500 closed 25 points higher. The NASDAQ closed 98 points higher.

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U.S. restaurant chain transactions for the week ending Apr. 26 improved for the second consecutive week with total industry customer transactions down 32% year over year, compared to a 36% decline the prior week. That’s according to The NPD Group (NPD).

More specifically, transactions at quick service restaurants that week were 30% less year over year. Full service restaurant transactions were 71% less, improving by 1% week to week, according to CREST Performance Alerts, which provides a rapid weekly view of chain-specific transactions and share trends for 70 quick service, fast casual, midscale, and casual dining chains. 

“Government relief payments and overall improvement in consumer spending most likely contributed to the easing of transaction declines,” says David Portalatin, NPD food industry advisor. “Looking to next week, we might anticipate the upward trend continuing as restaurants begin to reopen their dining rooms.”

Georgia’s 20,000 restaurants were allowed to reopen on April 27.  From May 1-3, several other states followed suit, most notably Texas with almost 60,000 restaurants.  Over the next two weeks there are over 300,000 restaurants that may potentially reopen for on-premise dining.  These openings will improve industry volume but won’t return it to full capacity. In Texas, for example, reopening comes with strict social distancing guidelines, and dining rooms may not exceed 25% of their standard occupancy. 

“As states and localities reopen, many restaurants are ready to open on the first day, while others need more time to prepare. Still unknown is the number of restaurants that may never reopen,” says Portalatin. “Other considerations are that many consumers may be cautious about returning to dining rooms; and a significant percentage of the population would remain in quarantine even if restrictions were lifted.”