WLI

Cattle futures softened some on Monday, likely with some profit taking from last week’s strong performance.

Live Cattle futures closed an average of 39¢ lower (25¢ lower to $1.00 lower in spot Aug). 

Feeder Cattle futures closed an average of $1.31 lower (32¢ to $2.30 lower).

Wholesale beef values edged higher Monday after dropping to the lowest levels last week since December of 2017.

Choice boxed beef cutout value was $1.27 higher Monday afternoon at $201.74/cwt. Select was $1.28 higher at $191.59.

Corn futures closed 2¢ to 4¢ lower through Jly ’21 and then fractionally lower to 1¢ lower.

Soybean futures closed mostly 3¢ to 5¢ higher.

******************************

Major U.S. financial indices closed higher Monday, led by tech stocks, which were paced by Amazon.

The Dow Jones Industrial Average closed 8 points higher. The S&P 500 closed 27 points higher. The NASDAQ closed 263 points higher.

*******************************

“Beef production will be higher year over year for the remainder of the year. This may combine with limited demand to keep wholesale beef prices under pressure going forward,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his latest weekly market comments.     

The most recent World Agricultural Supply and Demand Estimates project beef production this year at 26.93 billion lbs., which would be just 0.81% less than last year. Heavier carcass weights are making up for lost slaughter earlier in the year.

For seasonal perspective, Peel explains carcass weights typically decline significantly in April, May and June. Last year, for instance, steer carcass weights declined 54 lbs. from January (896 lbs.) to a low of 842 lbs. the first week of June. This year, he notes average steer carcass weights in June of 896 lbs. were 16 lbs. less than in January.

“Longer term, beef demand may be affected by the economic recession,” Peel says. “Impacts have not been obvious thus far but unemployment is still high and some unemployment benefits will end this month. With COVID-19 far from controlled, considerable uncertainty remains regarding how school schedules, sporting activities and business travel could affect beef demand this fall.”

Negotiated cash fed cattle prices ended the week generally steady.

The weighted average five-area direct fed steer price through Thursday was $96.32/cwt. on a live basis, which was 35¢ higher than the previous week, but $16.70 less than the same week last year. The average steer price in the beef was $157.58, which was 9¢ less than the previous week and $25.39 less than a year earlier.

Cattle futures meandered higher by Friday’s close, supported by the week’s optimism built by cash feeder prices and thoughts that the low may be in the books for fed cattle prices.

Except for unchanged in spot Aug, Live Cattle futures closed an average of 36¢ higher.       

Feeder Cattle futures closed an average of 38¢ higher.

Choice boxed beef cutout value was 33¢ lower Friday afternoon at $200.47/cwt. Select was 99¢ lower at $190.31.

The average dressed steer weight for the week ending July 4 was 896 lbs., according to USDA’s Actual Slaughter Under Federal Inspection report. That was even with the previous week and 35 lbs. heavier than the previous year. The average dressed heifer weight was 826 lbs., on par with the previous week but 34 lbs. heavier than the same week last year.

Estimated total cattle slaughter for the week ending July 18 was 650,000 head, according to USDA’s Agricultural Marketing Service. That would be 7,000 head fewer (-1.07%) than the previous week’s estimate and 5,000 head fewer (-0.76%) than the same week last year. Year to date estimated total cattle slaughter of 17.15 million head is 1.01 million head fewer (-5.56%) than last year.

Corn futures closed mostly 1¢ to 2¢ higher.

Soybean futures closed 4¢ higher through Jly ’21 and then fractionally higher to 3¢ higher.

******************************

Major U.S. financial indices closed narrowly mixed Friday. Pressure included the expanding number of coronavirus cases.

The Dow Jones Industrial Average closed 62 points lower. The S&P 500 closed 9 points higher. The NASDAQ closed 23 points higher.

*******************************

U.S. beef exports are typically viewed in terms of tonnage, dollars and the impact on the U.S. beef industry, specifically. Export benefits run deeper, though.

Since 2015, indirect exports of corn and soybeans through beef and pork exports has been the fastest-growing category of corn and soybean use, according to the U.S. Meat Export Federation (USMEF).

For perspective, U.S. beef and pork exports last year used 480 million bushels of corn. Corn revenue generated by beef and pork exports totaled $1.8 billion (480 million bushels x average annual price of $3.75/bushel).

U.S. beef and pork exports also used about 3 million tons of distiller’s dried grains with solubles (DDGS) in 2019 at an annual average price of $137/ton, generating $411.8 million in revenue for ethanol mills’ co-products.

U.S. pork exports last year also used 2.12 million tons of soybean meal, which is the equivalent of 89.2 million bushels of soybeans. Soybean revenue generated by pork exports totaled $751.7 million (89.2 million bushels x average annual price of $8.43/bushel).

Snubbed to a different post, beef and pork exports last year contributed more than 12% of the per-bushel price of corn ($0.46/bushel) of an annual average price of $3.75/bushel.

All of that comes from a recently updated study conducted by World Perspectives, Inc. It helps explain why domestic corn and soybean growers invest a portion of their checkoff dollars in market development efforts conducted by USMEF.

“These are challenging times for everyone in U.S. agriculture, with producers facing difficult choices every day,” says Dan Halstrom, USMEF president and CEO. “USMEF greatly appreciates the foresight and confidence shown by the corn and soybean sectors when they invest in red meat exports. This study provides a detailed analysis of the value delivered by that investment.”

Cattle futures stepped higher Thursday, supported by firmer cash prices, chatter about the low for fed cattle being established and an increase in weekly exports.

Net beef export sales of 27,800 metric tons for the week ending July 9 were up noticeably from the previous week and up 68% from the prior four-week average, according to the U.S. Export Sales report from USDA’s Foreign Agricultural Service. Increases were primarily for South Korea, Japan, Mexico, Taiwan, and Canada.

Live Cattle futures closed an average of $1.33 higher (67¢ to $2.05 higher).  

Feeder Cattle futures closed an average of $1.92 higher (67¢ to $3.20 higher).

Choice boxed beef cutout value was 4¢ higher Thursday afternoon at $200.80/cwt. Select was 7¢ lower at $191.30.

Corn futures closed mostly 1¢ to 3¢ higher.

Soybean futures closed 7¢ to 8¢ higher through Mar ’21 and then mostly 4¢ higher.

******************************

Major U.S. financial indices closed lower amid mixed economic news.

Although 10,000 fewer than the previous week, initial jobless claims of 1.3 million, reported by the U.S. Department of Labor, were more than traders expected.

On the other hand, U.S. retail sales beat expectations, climbing 7.5% month to month in June, according to the U.S. Census Bureau.

The Dow Jones Industrial Average closed 135 points lower. The S&P 500 closed 10 points lower. The NASDAQ closed 76 points lower.

*******************************

Based on the monthly Cattle on Feed report, USDA’s Economic Research Service (ERS) estimated 971,000 head of cattle on feed more than 150 days, as of June 1, which was 42% more than the same time last year.

“With expectations of steadying demand for slaughter cattle and a large number of market-ready cattle in feedlots, price forecasts (fed cattle) for both the third and fourth quarters were lowered by $4 to $100/cwt. and by $3 to $103, respectively,” says ERS analysts, in the latest monthly Livestock, Dairy and Poultry Outlook.

In turn, expected higher fed cattle slaughter and increased feedlot marketings should improve demand for feeder cattle, according to those analysts. 

ERS projects the average feeder steer price (basis Oklahoma City) at $133/cwt. in the third quarter and $131 in the fourth quarter for an annual average of $131.70. Prices are projected at $129 in the first quarter of next year and at $132 in the second.

Negotiated cash fed cattle trade continued on Wednesday at mainly steady prices, with live sales at $95/cwt. in the Southern Plains and $96 in the Northern Plains, according to the Agricultural Marketing Service. Dressed trade in the western Corn Belt was at $157-$160.

Cattle feeders offered 1,224 head in the weekly Fed Cattle Exchange auction. Of those, 275 head–three Kansas lots–sold for a weighted average price of $95.62/cwt. with delivery of 1-9 days.

Choice 2-4 steers (169 head) weighing an average of 1,379 lbs. brought an average of $101.79 at the fat auction in Tama, IA, which was 50¢ to 75¢ lower than the prior week.

At Sioux Falls Regional in South Dakota, though, slaughter steers and heifers sold steady to $2 higher. There were 459 Choice 2-3 steers weighing an average of 1,451 lbs. and bringing an average of $100.88.

Cattle futures bounced higher, supported by firm cash fed cattle, as well as current cash demand for feeder cattle.

Live Cattle futures closed an average of 85¢ higher (30¢ higher at the back to $2.50 higher in spot Aug).

Feeder Cattle futures closed an average of $1.40 higher (32¢ higher to $2.70 higher in spot Aug).

Choice boxed beef cutout value was 16¢ lower Wednesday afternoon at $200.76/cwt. Select was 52¢ higher at $191.37.

Corn futures closed mostly fractionally higher.

Soybean futures got a boost from Wednesday’s announcement that China bought 389,000 metric tons for delivery in 2020-21.

Soybean futures closed 4¢ to 8¢ higher through Mar ’21 and then mostly 3¢ higher.

******************************

Major U.S. financial indices continued higher Wednesday, with promising trial results for a COVID-19 vaccine (Moderna), as well as quarterly earnings from Goldman Sachs that beat expectations.

The Dow Jones Industrial Average closed 227 points higher. The S&P 500 closed 29 points higher. The NASDAQ closed 61 points higher.

*******************************

COVID-19 is accelerating the divergence between full service restaurants (FSRs) and quick service restaurants (QSRs) that began before the pandemic, according to David Portalatin, food industry advisor for The NPD Group (NPD).

“Long before anyone ever heard of social distancing, consumers were showing an increasing preference for off-premise restaurant meals. Then suddenly this March, we entered a reality where the entire restaurant industry was off-premise only,” Portalatin explains. “That harsh reality was far harsher for FSRs, a segment that saw transaction declines near 80% or worse at the depth of the pandemic in the U.S. In contrast, QSR declines were roughly half as severe thanks to their abundance of drive-thru windows, capacity for high volume pick-up, and the ability of large QSR chains to leverage digital apps as an accelerant, as well as provide a contactless experience.”

For current perspective, FSR customer transactions were 30% less than a year earlier for the week ending July 5, representing a week-to-week decline of 5%, according to NPD’s CREST^®Performance Alerts. Conversely, QSR customer transactions that same week continued to improve, up 4% week to week to a level that was 13% less year over year.

Since mid-March, when the pandemic closed dine-in services, Portalatin explains QSR chains doubled down on their off-premise prowess with streamlined menus optimized for volume and efficiency and by expanding drive-thru capacity with reconfigured traffic flow and added lanes. These and other changes allow continued improvement in QSR customer transactions, whether or not government regulations allow reopening dining rooms.

In fact, Portalatin says many QSR chain operators are finding the incremental cost of opening a dining room to be greater than any incremental margin dollars they might gain and are remaining closed even when governing bodies allow reopening.  

FSR performance, on the other hand, remains largely at the mercy of governmental regulation and the persistence of the coronavirus. 

Pivoting to off-premise is far more difficult for many FSRs, Portalatin explains. These restaurants can employ similar tactics as QSRs, like streamlined menus, and temporary drive-thrus, but none play to the inherent strengths of FSRs. Moreover, as on-premise dining restrictions ease, he says many FSR operators are forced to dismantle much of their temporary off-premise infrastructure so that guests can park, have a waiting area that allows for social distancing, and labor can be redirected to the front of the house.

Negotiated cash fed cattle trade got off to a steady start Tuesday with live prices in the Southern Plains at $95/cwt., but a few up to $96.25 in Kansas, according to the Agricultural Marketing Service.

Cattle futures softened with some likely profit taking as traders take stock of the potential upside beyond the backlog of fed cattle.

Live Cattle futures closed an average of 73¢ lower (32¢ lower to $1.22 lower).          

Feeder Cattle futures closed an average of 64¢ lower (30¢ to $1.20 lower).

Choice boxed beef cutout value was $2.34 lower Tuesday afternoon at $200.92/cwt. Select was $1.03 lower at $190.85.

Corn futures closed mostly 2¢ lower.

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

******************************

Major U.S. financial indices bounced higher Tuesday. Support included more positive quarterly earnings than expected from J.P Morgan Chase.

The Dow Jones Industrial Average closed 556 points higher. The S&P 500 closed 42 points higher. The NASDAQ closed 97 points higher.

*******************************

“The COVID impacts on cattle and beef markets are not all behind us, but the majority of the disruptions appear to have passed,” says Stephen Koontz, agricultural economist at Colorado State University, in the latest issue of In the Cattle Markets. “Beef cutout prices have returned to normal levels with tenderloins being rather weak. Fed steer and heifer slaughter volumes have returned to strong levels and the Saturday kill is very comparable to last year’s high values. Packer margins remain rather strong, but are well off of record highs, and are being realized as plants are back to operating at or close to full capacity.”

Koontz notes exceptions to normality, which will remain for some time, include the inventory of cattle on feed, the number of long-fed cattle and the resulting heavier carcass weights.

“The supply scenario is usually difficult this time of year with gradual declines in numbers but higher animal weights. And that difficult scenario is usually on the tail of market opportunities in the spring,” Koontz explains. “The disruptions this year eliminated the most persistent opportunity and could not have been worse timed. I, and the futures market, think it will take us through December or into next year for the market outlook to clearly improve.”

Koontz also points to deepening drought conditions as another near-term market factor.

“I expect to see beef cow liquidation be more substantial in the fall and I expect to see stronger western forage prices through the rest of the year; the extent of both, depending on the weather,” Koontz says. “Forecasts are for high and dry through the remainder of this year, with the potential for more normal weather during next year and starting next winter.”

Although beef cow slaughter increased significantly in recent weeks, Koontz notes there is no indication of drought-forced cow liquidation currently, but beef cow feeding is reported in the West.