WLI

COVID-19 infections at packing plants, as well as precautionary measures, continue to hamper production speed and volume, while cleaving a wider divide between fed cattle prices and wholesale beef values.

Early negotiated cash fed cattle trade stumbled from the blocks Tuesday with dressed prices up north $5-$18 lower at $150/cwt. Live sales in Nebraska were mainly sharply lower at mostly $95. Early live sales in the Texas Panhandle were $5 lower at $100.

Wholesale beef values continued to scream higher, though, as buyers scramble to procure the declining supplies.

Choice boxed beef cutout value was $11.47 higher Tuesday afternoon at $259.85/cwt. Select was $10.83 higher at $248.82. Week to week, that’s $33.18 higher for Choice and $33.05 higher for Select. For perspective, the highest price for Choice following the Tyson plant fire last summer was $241.74.

Cattle futures, especially Live Cattle sagged lower, helped along by another down day in equity markets. 

Live Cattle futures closed an average of $1.23 lower (82¢ to $1.92 lower).

Except for 37¢ higher in the back contract, Feeder Cattle futures closed an average of 50¢ lower.

Corn futures closed mostly 3¢ to 6¢ lower.

Soybean futures closed mostly 4¢ to 7¢ higher.

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

Major U.S. financial indices closed sharply lower again Tuesday. Along with anemic quarterly earnings reports, investors seemed to continue their focus on unraveling crude oil prices as a bellwether of economic misery to come.

A day after the expiring May contract for West Texas Intermediate futures closed at -$37.63, new spot month Jun closed $8.86 lower at $11.57.

The Dow Jones Industrial Average closed 631 points lower. The S&P 500 closed 86 points lower. The NASDAQ closed 297 points lower.

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

The U.S. Senate approved $484 billion emergency relief legislation Tuesday evening, which would provide an additional $321 billion in funding for the Paycheck Protection Program (PPP). Of this amount, $60 billion is set aside for small lenders and community-based financial institutions that serve the needs of unbanked/underserved small businesses, according to the National Cattlemen’s Beef Association (NCBA).

Authorizing language was included to allow agricultural enterprises as defined by section 18(b) of the Small Business Act (15 U.S.C. 647(b)) with not more than 500 employees to receive Economic Injury Disaster Loan (EIDL) grants and loans.

“We are pleased to see the reaffirmation of Congress’s intent that cattle producers be granted access to the EIDL program administered by the Small Business Administration,” says Ethan Lane, NCBA vice president of government affairs. “We urge the House of Representatives to move swiftly to approve this package and deliver these funds to producers across the country who are continuing to keep grocery store shelves full during this economic disaster.” 

The proposed legislation comes just days after USDA announced the Coronavirus Food Assistance Program (CFAP). The program includes $16 billion in direct payments to farmers and ranchers including $9.5 billion of emergency funding from the CARES Act and $6.5 billion of funding from the Commodity Credit Corporation (CCC). Additionally, CFAP includes $3 billion in purchases of meat, dairy and produce to support producers and provide food assistance to those in need.  CFAP is funded from the Coronavirus Aid, Relief and Economic Security Act (CARES), the Families First Coronavirus Response Act (FFCRA) and other USDA programs.

More specifically, in his weekly market comments, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University explains, “The beef cattle industry will receive $5.1 billion of CFAP funding to partially offset 2020 losses due to COVID-19. Cattle producers will receive a single direct payment determined by two calculations, including 85% of price losses from Jan. 1 to Apr. 15, 2020 and 30% of expected losses for two quarters after April 15. In order to qualify, commodities must have experienced at least a 5% price decrease between January and April. USDA expects to begin sign-up in early May and distribute payments by late May or early June.”

Slowing beef production took a toll on cash fed cattle prices last week, while putting the fire beneath wholesale beef values.

There were only 16,520 head confirmed fed steer and heifer trades last week, compared to 112,499 the same week last year, according to the Agricultural Marketing Service (AMS).

The AMS five-area direct average weekly weighted price for steers was $102.28/cwt. on a live basis, which was $2.72 less than the prior week. In the beef, steers traded $10.82 less at $157.18.

On the other end, Choice boxed beef cutout value was $9.39 higher Monday afternoon at $248.38/cwt. Select was $10.79 higher at $237.99 (see below).

Cattle futures softened Monday with pressure from slowing beef production and outside markets. 

Live Cattle futures closed an average of 68¢ lower (30¢ to $1.20 lower).

Feeder Cattle futures closed an average of 77¢ lower (7¢ lower toward the back to $2.00 lower toward the front).

Corn futures closed 5¢ to 6¢ lower, except for 8¢ and 7¢ lower in the front two contracts.

Soybean futures closed 4¢ to 6¢ lower through Jan ’21 and then mostly 2¢ to 3¢ lower. 

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

Major U.S. financial indices closed lower Monday, rattled by a historic spot-month rout of crude oil futures.

May WTI Crude Oil futures, which expires Tuesday, closed at -$37.63. That’s not a misprint. It closed at -$37.63. The next spot month, Jun, closed $58.06 higher at $20.43, but $4.60 lower than the previous session. Plentiful supplies, anemic demand and storage costs all contribute to the lack of overall buyer incentive.

The Dow Jones Industrial Average closed 592 points lower. The S&P 500 closed 51 points lower. The NASDAQ closed 89 points lower.

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

“At this time, plant reductions are mostly resulting in some product disruptions and perhaps temporary shortages of fresh meat,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly comments. “Barring a catastrophic combination of plant closures or extended periods of plant disruptions, significant shortages of meat are not expected.  However, the combination of processing disruptions and the continuing challenges of supply chain disruptions means that consumers will likely experience limited meat supplies and selection in grocery stores in the coming weeks.”

For perspective, Peel explains estimated cattle slaughter last week was 502,000 head, which was 6.3% less than the prior week and 21.8% less than the same week a year earlier. The previous week’s slaughter of 536,000 head was also significantly lower. Until then, for the first 14 weeks of the year, he notes cattle slaughter averaged 634,300 head per week, which was 4.3% more year over year.

“Total beef production in 2020 is still projected at a record level over 27 billion lbs., but the timing during the year is more volatile and somewhat choppy,” Peel says.

As expected, slowing beef production ended up hammering fed cattle prices.

Keeping in mind it was a light test, negotiated cash fed cattle trade ended last week steady to sharply lower. Live trades were mostly steady in the Southern Plains at mainly $105/cwt. They were steady to $11 lower in the north at $94-$105 in Nebraska and at $95-$105 in the western Corn Belt. Dressed sales were steady to $18 lower at $155-$165 in Nebraska and at $150-$168 in the western Corn Belt.

Cattle feeders offered 5,778 head in the weekly Fed Cattle Exchange auction held Friday. Just six lots–898 head–sold for a weighted average price of $105/cwt. for delivery at 1-17 days. Except for one lot from Nebraska, all cattle sold came from the Southern Plains.

Even so, cattle futures closed mostly higher Friday, supported by recent stability. 

Except for 85¢ and 17¢ lower in the front two contracts, Live Cattle futures closed an average of 95¢ higher (45¢ higher to $1.27 higher).

Except for 22¢ lower in Aug, Feeder Cattle futures closed an average of 68¢ higher.

Wholesale beef values continued higher to end the week.

Choice boxed beef cutout value was $3.12 higher Friday afternoon at $238.99/cwt. Select was $1.22 higher at $227.20.

Corn futures closed mostly 1¢ to 2¢ higher.

Soybean futures closed mostly 2¢ to 3¢ lower. 

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

Major U.S. financial indices closed higher Friday, supported by continued indications at least part of the economy might be on the cusp of reopening.

“Our experts say the curve has flattened and the peak in new cases is behind us. Nationwide, more than 850 counties, or nearly 30% of our country, have reported no new cases in the last seven days,” said President Donald Trump, in a Thursday evening press briefing. “…my administration is issuing new federal guidelines that will allow governors to take a phased and deliberate approach to reopening their individual states.”

The Dow Jones Industrial Average closed 704 points higher. The S&P 500 closed 75 points higher. The NASDAQ closed 117 points higher.

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

U.S. restaurant customer transactions declined by 41% the week ending Apr. 5, compared to a year earlier, according to The NPD Group (NPD). That follows a decline of 42% the previous week.

“The 41% decline in restaurant transactions is similar to last week and may indicate a bottom. We also need to be aware that further erosion could occur if consumers’ economic situations worsen,” says David Portalatin, NPD food industry advisor. “To date, many consumers have continued to buy restaurant meals through delivery, takeout, and drive-thru to the degree allowed by the restrictive environment; but with rising unemployment, payroll reductions, and temporary furloughs, consumers may begin to think differently about their food budgets overall.”

More specifically, quick service restaurant transaction declines were 38% for the week ending Apr. 5, according to NPD’s 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. 

Customer transactions at full service restaurants–already challenged prior to COVID-19–were down 79%.

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

A new USDA program–the Coronavirus Food Assistance Program (CFAP)–will provide $16 billion in immediate, direct support to farmers and ranchers, where prices and market supply chains have been impacted and will assist producers with additional adjustment and marketing costs resulting from lost demand and short-term oversupply for the 2020 marketing year caused by COVID-19. 

That’s according to U.S. Agriculture Secretary Sonny Perdue, in a late Friday afternoon announcement

“During this time of national crisis, President Trump and USDA are standing with our farmers, ranchers, and all citizens to make sure they are taken care of,” explained Secretary Perdue, when making the announcement. “The American food supply chain had to adapt, and it remains safe, secure, and strong, and we all know that starts with America’s farmers and ranchers.”

For what it’s worth, between the announcement and a press briefing late Friday evening, I was unable to figure out if portions of the $16 billion are part of the previously announced $9.5 billion allocated for direct support to farmers and ranchers in the Coronavirus Aid, Relief, and Economic Security (CARES) Act. Either way, Secretary Perdue emphasized this was not an end to COVID-19 assistance from USDA. He said USDA will make the money available as quickly and efficiently as possible, but not how, exactly. Details will be forthcoming no doubt.

CFAP also includes $3 billion, in addition to the $16 billion, to purchase fresh produce, dairy, and meat. USDA will partner with regional and local distributors, whose workforce has been significantly impacted by the closure of many restaurants, hotels, and other food service entities, to make the purchases. USDA will begin with procurement of an estimated $100 million per month in fresh fruits and vegetables, $100 million per month in a variety of dairy products, and $100 million per month in meat products. The distributors and wholesalers will then provide a pre-approved box of fresh produce, dairy, and meat products to food banks, community and faith based organizations, and other non-profits serving Americans in need.

Negotiated cash fed cattle trade remained undeveloped through Thursday afternoon, according to the Agricultural Marketing Service (AMS). There were a few dressed trades reported in Nebraska and the western Corn Belt at $155/cwt., but too few to trend. The price there last week was at $168. Given the surge in wholesale beef prices this week, some are betting on at least steady money.

Choice boxed beef cutout value was $5.34 higher Thursday afternoon at $235.87/cwt. Select was $3.76 higher at $225.98. That’s $10.01 more for Choice since Monday and $14.58 more for Select.

The average steer dressed weight for the week ending Apr. 4 was 889 lbs., which was 2 lbs. lighter than the previous week, but 24 lbs. heavier than the prior year, according to USDA’s Actual Slaughter Under Federal Inspection report. The average dressed heifer weight was 825 lbs., the same as the prior week but 21 lbs. heavier than the same week last year.

Cattle futures closed higher Thursday, building on stability from the previous session. Trade and open interest continued to creep higher. 

Weekly beef export Sales (Apr. 3-9) reported by USDA’s Foreign Agricultural Service were also supportive. Net sales of 20,200 metric tons (mt) reported for 2020 were up 28% from the previous week and 16% from the prior four-week average. Increases came primarily from Japan, South Korea, Hong Kong, China and Taiwan.

Live Cattle futures closed an average of 92¢ higher (70¢ higher to $1.65 higher).

Feeder Cattle futures closed an average of $1.97 higher ($1.42 higher at the back to $2.90 higher toward the front).

Corn futures closed mostly 1¢ to 2¢ lower.

Soybean futures closed 5¢ to 6¢ lower through Mar ’21 and then 3¢ to 4¢ lower.

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

Major U.S. financial indices wobbled higher Thursday as investors balanced negative economic impact from COVID-19 with hopefulness that plans are forthcoming for the nation to get back to work.

The Dow Jones Industrial Average closed 33 points higher. The S&P 500 closed 16 points higher. The NASDAQ closed 139 points higher.

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

“As fed cattle prices fall and feedlot margins decline, feedlot operations will likely reduce placements and reduce bids for feeder calves,” say analysts with USDA’s Economic Research Service (ERS), in the monthly Livestock, Dairy and Poultry Outlook. “Relatively good pasture conditions might allow producers to keep cattle on grass and other pasture until prices begin to recover. To that end, these calves will likely be placed in feedlots at heavier weights, and expected average slaughter weights will be higher. Recent price data and expectations of weaker feedlot demand underpins a decrease in this year’s expected feeder calf prices.”

ERS projects the annual average feeder steer price (basis Oklahoma City) at $130.50/cwt., which would be $11.73 less (-8.25%) than in 2019. Average price in the first quarter of this year was $136.42. Prices are forecast at $123 in the second quarter, $128 in the third quarter and $135 in the fourth quarter.

“Slower demand and potentially slower rates of slaughter are expected to pressure cattle prices. However, prices are expected to improve through the rest of the year but remain well below year-ago levels,” say ERS analysts.

ERS projects the annual fed steer price (five-area direct) at $111/cwt. this year, which would be $5.78 less (-4.95%) than last year. Average fed steer price in the first quarter of this year was $118.32. Prices are forecast at $105 in the second quarter, $109 in the third quarter and $112 in the fourth quarter.

With decreased cattle feeding returns, uncertainty and feedlot placements in mind, ERS reduced projections for beef production in the third and fourth quarters. However, ERS analysts also say increased non-fed cattle slaughter and higher average dressed weights will partly offset the reduction in fed cattle.