WLI

Cattle futures continued to edge higher to start the week, but with plenty of continued uncertainty surrounding supply chain disruptions (see below).

Live Cattle futures closed an average of 65¢ higher.

Feeder Cattle futures closed an average of 98¢ higher, (70¢ higher at the back to $1.32 higher).

Wholesale beef values took another giant leap higher Monday as buyers chase decreased supplies.

Choice boxed beef cutout value was $32.60 higher Monday afternoon at a $410.05/cwt. Select was $19.53 higher at $376.66. That made the Choice-Select spread $33.39.

Corn futures closed mostly 2¢ to 3¢ lower.

Soybean futures closed 11¢ to 13¢ lower through near Sep and then 4¢ to 9¢ lower.

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Major U.S. financial indices bounced back from early follow-through pressure Monday, buoyed by tech stocks.

The Dow Jones Industrial Average closed 26 points higher. The S&P 500 closed 12 points higher. The NASDAQ closed 105 points higher.

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Cattle futures in recent days suggest increasing confidence that last week’s Executive Order mandating meat and processing facilities remain open will help normalize supply chain, eventually.

In the meantime, cattle slaughter and beef production continue significantly lower year over year, while the backlog of fed cattle continues to build.

Estimated cattle slaughter for the week ending May 2 was 425,000 head, which was 38% less year over year, according to Derrell Peel, Extension livestock marketing specialist at Oklahoma State University. For the past four weeks, he says total cattle slaughter averaged 26.4% less than the same weeks last year–down 689,000 head, or a little more than a week’s worth of cattle slaughter.

Similarly, in his weekly market comments, Peel explains beef production was down 35% last week, compared to a year earlier; an average of 25% less for the past four weeks. Relative to the first 14 weeks of the year, before current COVID-19 production declines began, he says the combined 520 million lbs. of reduced beef production over the last four weeks equates to losing a week’s worth of production.

“Given when packing plant workers began to be impacted and the additional attention now focused on protecting worker health, it is likely that we are currently at or very near the worst point of packing plant disruptions,” Peel says. “However, it is unclear how fast plants will resume production levels in the coming weeks. It is likely that the effective capacity will be reduced permanently or certainly for the foreseeable future because of the safety changes needed at packing plants. The impacts on cattle markets will linger for many weeks before backlogs are cleaned up and markets are current again.”

For consumers, Peel emphasizes there is no shortage of beef in the country. Any shortages encountered will be temporary.

Negotiated cash fed cattle prices ended the week across a wide range but generally steady with the previous week with live prices at $95-$100/cwt. in the Texas Panhandle, $95-$105 in Kansas and Nebraska and at $93-$100 in the western Corn Belt. Dressed sales were at $150-$160.

Through Thursday, the negotiated five-area daily weighted average direct live steer price was $1.03 less than the previous week at $95.92/cwt. It was 23¢ more in the beef at $154.50.

Cattle futures firmed further, supported by the week’s Executive Order to keep packing and processing plants open, sky-high boxed beef prices and some states beginning to ease stay-at-home orders. Resurgent Lean Hog futures also provided support.

Live Cattle futures closed an average of 80¢ higher, (45¢ to $1.50 higher).

Except for $1.30 lower in Mar, Feeder Cattle futures closed an average of 70¢ higher, (5¢ higher at the back to $1.15 higher toward the front).

Demand continues to run well ahead of wholesale beef supplies.

Choice boxed beef cutout value was $9.89 higher Friday afternoon at a $377.45/cwt. Select was $6.97 higher at $357.13.

Corn futures closed from 1¢ lower to 2¢ higher.

Soybean futures closed 2¢ to 5¢ lower through Nov ’20 and then mostly 1¢ to 2¢ higher.

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Major U.S. financial indices closed sharply lower Friday, extending losses from the previous session. Pressure included renewed political sabre rattling between the U.S. and China.

The Dow Jones Industrial Average closed 622 points lower. The S&P 500 closed 81 points lower. The NASDAQ closed 284 points lower.

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“With boxed beef prices running wildly to records every day and live cattle prices moving lower, there is a lot of talk about packers colluding to take advantage of the market situation,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “It is nearly impossible for any outsider to know if collusion is occurring or not. However, it is easy for an outsider to see the current situation and know he or she would be trying to slaughter as many cattle as possible and market beef at record prices to fulfill the objective of being profitable. Slaughter facilities have a number of reasons to stay open and operate at as full of a capacity as possible; making money is not the least of these. Slaughter facilities are paying double time and giving bonuses to entice employees to work and produce meat while also attempting to address health concerns of employees. This is a delicate balancing act on the part of slaughter facilities, but this gets overlooked because boxed beef prices are 75% higher than where they were at the end of January. Is the packer in the wrong? Maybe or maybe not, but there must be at least two entities willing to bid the price this high.”

In the meantime, various groups are lobbying for all kinds of changes, everything from the trite and WTO-illegal mandatory Country of Origin Labeling, to calls for legislation mandating some level of weekly cash fed cattle trade to improve market transparency and price discovery. That’s while USDA investigations continue into market reactions following last summer’s beef packing plant fire in Kansas, and current market reaction in the wake of beef packing capacity reduced by COVID-19.

“Never before has the industry faced so many challenges that threaten the operation of multiple processing facilities simultaneously, along with massive disruptions to the food service supply chain severely limiting nearly half of the total beef market,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

Peel points out current industry structure and business practices evolved in response to economic forces driving the beef industry to be ever more competitive.

“The cost efficiencies of large-scale cattle feeding and meatpacking operations are undeniable. Some current proposals will add cost and risk to the industry and will further increase the differences between cattle and wholesale beef prices,” Peel explains. “A less efficient, higher cost beef industry will ultimately result in higher beef prices for consumers and make beef a less competitive protein industry. Simultaneously, cattle producers will face lower cattle prices and, as the industry downsizes, more will be forced out of the industry.”

Peel isn’t advocating for or against any particular change or policy prescription.

“My job is to make sure that the industry understands the implications and consequences of alternatives that are being considered,” Peel says. “Some of the proposals being promoted today will have unintended consequences that are negative for the entire industry. This industry consists of many diverse sectors and perspectives. In the end, the entire cattle and beef industry will thrive or not as a single industry. Be careful what you ask for.”

Although too few to trend, negotiated cash fed cattle trade continued Thursday across a broad range, according to the Agricultural Marketing Service (AMS). Live sales were reported in the Southern Plains at $95-$96/cwt., $95-$100 in the western Corn Belt and $93.75-$95.00 in Nebraska. Dressed prices ranged from $147 to $160.

Live Cattle futures continued to firm, though, perhaps with hopes that capacity returns to beef packing sooner rather than later (see below), given the previous day’s Executive Order mandating that meat packing and processing facilities remain open.

Other than $4.40 higher in expiring spot Apr, Live Cattle futures closed an average of 70¢ higher, (15¢ higher at the back to $1.67 higher in new spot Jun), except for 2¢ lower in away Apr.

Feeder Cattle futures closed an average of $1.56 lower, (37¢ lower in expiring spot Apr to $1.95 lower). 

Wholesale beef values climbed by double digits again.

Choice boxed beef cutout value was $10.18 higher Thursday afternoon at a $367.56/cwt. Select was $10.25 higher at $350.16.

The average dressed steer weight for the week ending Apr. 18 was 889 lbs., which was 3 lbs. heavier than the previous week and 32 lbs. heavier than the previous year, according to USDA’s Actual Slaughter Under Federal Inspection report. The average dressed heifer weight was 823 lbs., which was 3 lbs. less than the prior week but 24 lbs. heavier than the same week a year earlier.

Beef production for the week was 395.6 million lbs., which was 36 million lbs. fewer than the prior week (-8.34%) and 118 million lbs. less (-22.98%) than the same week last year.

Weekly export sales added support to grain markets Thursday. Net corn export sales were 87% more than the previous week, led by Mexico, and 19% more than the prior four-week average, according to the U.S. Weekly Export Salesreport from UADA’s Foreign Agricultural Service. Net soybean export sales were noticeably higher than the previous week, led by China, and noticeably higher than the prior four-week average.

Corn futures closed 4¢ to 7¢ higher in the front three contracts and then 2¢ to 3¢ higher.

Soybean futures closed 12¢ to 18¢ higher through Jan ’21 and then mostly 5¢ to 8¢ higher.

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Major U.S. financial indices closed lower Thursday, with another round of massive initial jobless claims of 3.84 million, according to the U.S. Labor Department.

“Looking ahead, as workplaces reopen, we must ensure that individuals transition from unemployment back into the workforce,” says Secretary of Labor Eugene Scalia. “Key to this process will be workplace safety.”

Although still mired at the bottom, crude oil prices continued recent nascent recovery Thursday. The front six contracts for West Texas Intermediate futures on the CME were up $1.71 to $3.78. Spot Jun closed at $18.84, which was $6.50 higher than on Wednesday.

The Dow Jones Industrial Average closed 288 points lower. The S&P 500 closed 27 points lower. The NASDAQ closed 25 points lower.

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Depending on how fast packing plant production normalizes, there could be in excess of 1 million head of long-fed cattle come June 1, according to recent calculations by agricultural economists Glynn Tonsor at Kansas State University and Lee Shulz at Iowa State University.

For purposes here, long-fed refers to cattle on feed for more than 120 days and more than 150 days–the carryover of market-ready fed cattle.

“Cattle on feed for over 120 days and over 150 days is useful when evaluating the currentness of cattle supplies in feedlots,” Tonsor and Shulz explain. “Currentness refers to whether cattle are being marketed on a timely basis, or kept on feed longer. Keeping marketings current is generally positive to market prices. Currentness has implications, some short-run and some longer lasting, for price rebounds. Too many producers being forced to delay feedlot marketings can quickly cause an oversupply of both market-ready cattle and over-fed, over-finished cattle and lead to an eventual market purge of heavy cattle at some point, which can drive prices down. It is important to remember that overall feedlot numbers are not burdensome; it is the supply of market-ready or near market-ready cattle that is burdensome relative to current slaughter capacity.”

In, Fed Cattle Flows: Demonstrative Scenario Examples, Tonsor and Shulz estimate the number of cattle on feed for more than 120 days and more than 150 days, as of Apr. 1, utilizing monthly Cattle on Feed reports, which account for feedlots with 1,000 head or more capacity.

Next they present four possible scenarios, which consider various levels of reduced estimated weekly fed cattle slaughter through May 30, relative to last year, due to current disruptions wrought by COVID-19. Then they calculate accompanying fed cattle overflow for May 1 and June 1, relative to each scenario.

For recent slaughter perspective, they say cattle slaughter for the week of Apr. 25 was estimated at 469,000 head. That was down 33,000 head fewer (6.6% less) than the previous week and 173,000 head fewer (26.9% less) than the same week a year earlier. The USDA chart below offers a similar perspective in terms of weekly beef production.

Keeping the outline described above in mind, Tonsor and Shulz estimate fed cattle carryover May 1 ranges from 485,000 to 510,000 head. For June 1, it’s 1.07 million to 1.34 million head.

Rather than necessarily projecting specific numbers, this work from Tonsor and Schulz provides valuable context and insight to how quickly and far behind marketing currentness can become.

“We have no concrete ability to project fed cattle marketings given challenges presented by COVID-19,” say Tonsor and Shulz. “It should immediately be appreciated that any positive developments that lead to increased and persistent operation of packing plants will reduce cattle carryover, backup, and related impacts―which is a scenario the entire industry would welcome!”

Negotiated cash fed cattle trade so far this week is steady to mixed with live sales in the Texas Panhandle at $95-$100/cwt. and at $90-$100 in Kansas, where there were too few transactions to trend. Up north, live prices are steady in Nebraska at $95 and up to $5 higher in the western Corn Belt at mostly $100. Dressed sales are steady to $10 lower in Nebraska at $150; steady in the western Corn Belt at $150-$160.

Cattle feeders offered 4,484 head in the weekly Fed Cattle Exchange auction, selling 818 head. Of those, 174 head sold for a weighted average price of $100/cwt. for delivery at 1-9 days. Another 644 head for delivery at 1-17 days sold for a weighted average price of $96.57.

President Trump signed an executive order late Tuesday, using the Defense Production Act, to mandate that meat packing and processing facilities remain open during the COVID-19 pandemic.

“To ensure worker safety, these processors will continue to follow the latest guidelines from the Centers for Disease Control and Prevention and the Occupational Safety and Health Administration,” according to a White House Fact Sheet (see below).

Cattle futures closed narrowly mixed Wednesday, as traders weigh short-term pressure, due to current disruptions in packing and processing, against a hopeful surge in demand as the economy reopens.

Live Cattle futures closed 42¢ lower to 25¢ higher, with sluggish trade.

Except for an average of 31¢ lower in three contracts, Feeder Cattle futures closed an average of 24¢ higher, in extremely light trade.

Wholesale beef values continued to climb Wednesday.

Choice boxed beef cutout value was $26.56 higher Wednesday afternoon at a $357.38/cwt. Select was $19.03 higher at $339.91.

Corn futures closed mostly 3¢ to 4¢ higher.

Soybean futures closed mostly 5¢ to 8¢ higher.

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Major U.S. financial indices closed higher Wednesday amid reports of promising test results from a potential coronavirus treatment drug. Although expected, support also included the Federal Reserve leaving interest rates unchanged.

“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term. In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0.0% to 0.25%,” according to a statement from the Fed. “The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”

Gains came despite early quantification of domestic economic damage wrought by COVID-19.

Real gross domestic product (GDP) decreased at an annual rate of 4.8% in the first quarter of 2020, according to the advance estimate released by the Bureau of Economic Analysis. In the fourth quarter of 2019, real GDP increased 2.1%.

The Dow Jones Industrial Average closed 532 points higher. The S&P 500 closed 76 points higher. The NASDAQ closed 206 points higher.

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The Executive Order signed by President Trump, mandating meat packing and processing facilities remain open during the COVID-19 pandemic should offer some stability to beef markets. It also bolsters hopes the number of delayed fed cattle marketings can ease sooner rather than later, realizing the timeline is likely counted in months rather than weeks.

“Under the order, the Department of Agriculture is directed to ensure America’s meat and poultry processors continue operations uninterrupted to the maximum extent possible,” according to a White House Fact Sheet.

“Our nation’s meat and poultry processing facilities play an integral role in the continuity of our food supply chain,” says U.S. Agriculture Secretary, Sonny Perdue. “Maintaining the health and safety of these heroic employees in order to ensure that these critical facilities can continue operating is paramount. I also want to thank the companies who are doing their best to keep their workforce safe as well as keeping our food supply sustained. USDA will continue to work with its partners across the federal government to ensure employee safety to maintain this essential industry.”

Estimated daily hog and cattle slaughter are both down about 40% compared to this time last year, according to Jayson Lusk, noted Purdue University food and agricultural economist, in his blog.

“Plant closures and slow-downs from COVID-19 have reached such levels that it will be impossible for consumers not to notice effects on meat prices or availability in the coming weeks,” Lusk says.

“While there are currently no widespread shortages of beef, we are seeing supply chain disruptions because of plant closures and reductions in the processing speed at many, if not most, beef processing plants in the United States. We thank President Trump for his recognition of the problem and the action he has taken today to begin correcting it,” says Colin Woodall chief executive officer of the National Cattlemen’s Beef Association. “American consumers rely on a safe, steady supply of food, and President Trump understands the importance of keeping cattle and beef moving to ensure agriculture continues to operate at a time when the nation needs it most.”

Likewise, Robert McKnight, Jr., president of the Texas and Southwestern Cattle Raisers Association explains the Executive Order should go a long way toward easing consumer fear, as well as preventing additional economic strain on the cattle producers who supply the beef processors.   

“The executive order will help ensure a steady, reliable supply of high-quality U.S. protein-not only for customers in the United States, but across the globe,” says Dan Halstrom, president and CEO of the U.S. Meat Export Federation (USMEF). “The U.S. meat industry is already taking extraordinary steps to ensure worker safety, including COVID-19 testing, temperature checks, use of personal protective equipment and social distancing of employees. But further action is needed to stabilize our meat supply chain, and USMEF greatly appreciates the Trump administration’s prioritization of safe and consistent meat production and processing during this difficult time.”

Under the Executive Order and the authority of the Defense Production Act, USDA will work with meat processing to affirm they will operate in accordance with the CDC and OSHA guidance, and then work with state and local officials to ensure that these plants are allowed to operate, according to Secretary Perdue.

“We understand and appreciate the difficulties facing processing plant workers during this crisis, says Woodall. “Processing plant employees play a role that is critical to the security of this nation and America’s cattle producers offer their sincere gratitude for the work they are doing to keep food shortages from compounding the complex issues we’re facing.”