WLI

Cattle feeders offered 7,561 head in the weekly Fed Cattle Exchange Auction Wednesday and sold 1,443 head for a weighted average price of $105/cwt.–746 head for delivery at 1-9 days and 697 head for delivery at 1-17 days. Except for one lot from Iowa, sales were from the Southern Plains, where last week’s negotiated price was mostly $112. Country trade in the region so far this week is also at $105.

Even so, Cattle futures continued higher in active trade, following outside markets, despite growing concerns about the potential of COVID-19 to reduce harvest capacity utilization. If that happens to any degree, then logic and last summer’s packing plant fire suggest higher beef prices and lower fed cattle prices.

Live Cattle futures closed an average of $2.21 higher, (40¢ higher in the back contract to $4.50 higher in spot Apr).

Feeder Cattle futures closed an average of $4.72 higher, ($1.22 higher at the back to $6.55 higher).

Wholesale beef values were sharply lower on light demand and light to moderate offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $5.54 lower Wednesday afternoon at $222.34/cwt. Select was $5.98 lower at $211.77.

Corn futures closed fractionally lower to 1¢ lower.

After fractionally higher to 4¢ higher through May ’21, Soybean futures closed mostly 6¢ to 7¢ higher.

The monthly World Agricultural Supply and Demand Estimates are scheduled to be released Thursday.

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Major U.S. financial indices closed sharply higher Wednesday. Support included increasing optimism that COVID-19 may be near a positive turning point, as well as announcement that Bernie Sanders dropped out of the 2020 race for the U.S. presidency. Minutes from the most recent meeting of the Federal Open Markets Committee (FOMC) also indicated intentions to maintain interest rates at current levels for the foreseeable future.

“With regard to monetary policy beyond this meeting, these participants judged that it would be appropriate to maintain the target range for the federal funds rate at 0.0% to 0.25% until policymakers were confident that the economy had weathered recent events and was on track to achieve the Committee’s maximum employment and price stability goals,” according to the FOMC minutes.

The Dow Jones Industrial Average closed 779 points higher. The S&P 500 closed 90 points higher. The NASDAQ was up 203 points.

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Quick service restaurant transactions were 40% less year over year for the week ending Mar. 29, according to the NPD Group (NPD). Transactions at full service restaurants were 79% less. Total restaurant customer transactions were down 42%.

“The transaction declines partially reflect the struggle of on-premise restaurants to pivot to off-premise models,” says David Portalatin, NPD food industry advisor and author of Eating Patterns in America. “Many restaurants that are attempting to make the move are doing so with limited menu offerings and without the benefit of drive-thru lanes. Anecdotally, some operators are giving up the cause and closing altogether.” 

About 97% of U.S. restaurants are now under some level of restrictions, with most prohibiting dine-in service, according to NPD’s restaurant census, ReCount®. Prior to the COVID-19 outbreak, on-premise dining represented 52% of restaurant industry dollars, and off-premise, like carryout, drive thru, and delivery, represented 48% of dollars. Carryout represented the largest dollar share at 53% of off-premise modes, drive-thru 38%, and delivery 9% of dollars. As of year ending February 2020, digital orders represented 13% of all off-premise dollars.

“Wholesale and retail beef markets have endured enormous upheaval since mid-March,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Starting Mar. 16, the surge in retail grocery buying put huge demands on retail supply chains resulting in dramatic and immediate spikes in wholesale beef prices. The overall cutout price jumped by nearly 19% in a matter of three days. Wholesale prices continued to push higher until Mar. 23, peaking at $257.32 cwt., up 23.6% from Mar. 13 levels. Since then, the cutout dropped over 10% to $230.44/cwt. on Apr. 3. It is not clear exactly where the boxed beef cutout will settle out in the coming days.”

All of that shifting also impacts demand for various wholesale beef cuts.

From the beginning of March to the early part of April, Peel says prices for most steak items declined: down 29% for the tenderloin, for example and down 7.7% for the ribeye.

“Prices for loin strips, a popular summer grilling steak that is normally increasing seasonally at this time, is up over 22%. Top sirloin, a multi-purpose steak used in both restaurants and at retail grocery is priced nearly 13% higher,” Peel explains. 

“At the same time, end meat prices, which are typically declining into the summer, are higher, driven by grocery demand for value cuts and ground beef.” 

Negotiated cash fed cattle trade was undeveloped through Tuesday afternoon. USDA’s Agricultural Marketing Service did report a few early trades in Kansas at $105/cwt., but too few to trend. Prices in the region last week were at $112.

Live Cattle and Feeder Cattle futures were limit-up across the board Tuesday, building on what was mostly modest to strong gains in the previous session. Higher outside markets (for most of the session), tied to hopefulness about peak coronavirus infections coming sooner rather than later, provided support. However, declining wholesale beef values, iffy demand patterns going forward, relative to supplies, and early indications of lower cash fed cattle prices this week make it hard to square the move with anything fundamental.

Live Cattle futures closed expanded limit-up $4.50 higher, in light trade.

Feeder Cattle futures closed limit-up $4.50 higher, also amid light trade.

Wholesale beef values were lower on Choice and higher on Select with light to moderate demand and moderate to heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $2.17 lower Tuesday afternoon at $227.88/cwt. Select was $2.72 higher at $217.75.

Corn futures closed 2¢ to 3¢ higher.

After fractionally mixed to 2¢ higher through Jan ’21, Soybean futures closed mostly 4¢ to 5¢ higher.

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Major U.S. financial indices gyrated wildly Tuesday: sharply higher for much of the session amid continued positive signs that the spread of COVID-19 is slowing; selling off toward the end as investors took money back off the table.

The Dow Jones Industrial Average closed 26 points lower. The S&P 500 closed 4 points lower. The NASDAQ was down 25 points.

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Concerns about the impact of the global coronavirus pandemic on the agricultural economy drove the Purdue University/CME Group Ag Economy Barometer 47 points lower to 121 in March–the steepest month-to-month decline since the barometer began.

The Ag Economy Barometer is based on a midmonth survey of 400 U.S. agricultural producers and was conducted March 16-20, as the coronavirus crisis escalated in the U.S. and around the world.

“While originally it was thought that the coronavirus effect would be limited to trade with China, now it appears producers are bracing for challenging financial times leading into the 2020 planting season,” says James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture.

Both sub-indices of the Ag Economy Barometer also recorded their largest one-month declines since the data series began in 2015. The Index of Current Conditions fell 43 points to 111. The Index of Future Expectations dropped 49 points to 126. That’s the lowest since September 2019, when weak commodity prices and an unresolved trade dispute left many farmers concerned over their financial futures.

Among the highlights:

• 74% of respondents said they were either fairly worried (34%) or very worried (40%) about the impact of the virus on their farm’s profitability this year. That sentiment also spilled over into their perceptions of financial performance, with 40% of respondents expecting a worse year compared with 2019.
• 47% of respondents expected the soybean trade dispute with China to be resolved soon, down from a January peak of 69%.
• 68% of respondents expected the trade dispute with China to be resolved in a way that’s ultimately beneficial to U.S. agriculture. An average of 80% of respondents thought so in January and February.
• 62% of survey respondents anticipated USDA providing Market Facilitation Program payments to U.S. farmers for the 2020 crop year, compared to 45% in February.

The weekly five-area direct fed steer price last week was $8.23 less than the prior week on a live basis at $111.08/cwt. It was $11.95 less in the beef at $176.93.

Chatter to start the week included wonderment about reduced slaughter this week, given last week’s decline in volume, scheduled maintenance at packing plants and further indications that labor issues could intensify (see below).

Perhaps that was one reason behind the limit down move in spot Live Cattle futures (closing at $83.82), while buying interest picked up across most other contracts.

After $4.50 lower and 55¢ lower in the front two contracts, Live Cattle futures closed an average of $1.74 higher, (52¢ higher to $2.30 higher toward the back.

Feeder Cattle futures closed an average of $2.26 higher, ($1.20 to $2.90 higher).

Wholesale beef values were weak to lower on light to moderate demand and heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 39¢ lower Monday afternoon at $230.05/cwt. Select was 81¢ lower at $215.03.

Corn futures closed mostly 2¢ to 3¢ lower.

Soybean futures closed 3¢ to 4¢ higher.

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Major U.S. financial indices surged sharply higher Monday, with various data suggesting stable to slower spread of COVID-19 here and abroad. The bounce came despite renewed pressure on front-month Crude Oil futures (WTI-CME).

The Dow Jones Industrial Average closed 1,627 points higher. The S&P 500 closed 175 points higher. The NASDAQ was up 540 points.

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Potential for COVID-19 disrupting packing plant production—or any other key components of the supply chain—is a growing concern with reports of confirmed cases at specific plants, reduced production schedules, slower production and labor absenteeism.

Agricultural economists, Glynn Tonsor at Kansas State University and Lee Schulz at Iowa State University offer insight to potential impact on fed cattle prices.

Relative to the supply of slaughter cattle—the same number of cattle or increasing cattle numbers—cash fed cattle prices decline as beef packing plant capacity utilization increases, according to Assessing Impact of Packing Plant Utilization on Livestock Prices.

Said another way, cash prices decline as competition for hook space increases.

“It should be noted that packer capacity is not an average annual concept, it’s how close the industry is to capacity at peak harvest times. Peak fed cattle slaughter typically occurs in the summer,” say Tonsor and Schulz.

With their specific modeling, Tonsor and Shulz found that 1% more national beef packing plant utilization corresponded to a 1.32% reduction in cash fed cattle prices. Their report details the model development they utilized to estimate capacity utilization and price impacts.

“Accordingly, for demonstration purposes, if the industry operates at 20% lower capacity rates (increased capacity utilization), then we may anticipate fed cattle prices to decline by 26.49%. The extent to which these effects are already priced into the market are beyond the scope of this report, but regardless this clearly demonstrates the economic importance of packing plant utilization on cattle prices.”

Fed cattle price declines in the wake of last summer’s Tyson packing plant fire offers a real-world example of the concept.

As logic suggests, pork packing plant utilization impacts finished hog prices similarly.

“The model indicates that a 1% increase in national pork packing plant utilization corresponds with a 1.82% reduction in hog prices. Using the hypothetical scenario of pork slaughter operating at 20% lower capacity (increased capacity utilization), based on our model, we may anticipate hog prices to decline by 36.35%,” according to Tonsor and Shulz. “Again, the degree to which this may be already priced into the market is unknown.”

Moreover, Tonsor and Shulz emphasize their approach offers a broad context, considering aggregate effects at the national level.

“Regional effects on markets more closely aligned with any specific plants altering operation would likely differ,” they explain. “The impact of a particular plant closure would likely have a lot to do with its location and its size. For example, in 2018, cattle slaughter plants under federal inspection (FI), with 1 million head or more annual capacity slaughtered over 56% of the FI cattle slaughter. FI hog slaughter plants with 3 million head or more annual capacity slaughtered over 62% of the FI hog slaughter. This reflects the leveraged, aggregate economic impact that would occur from decreases in capacity of larger plants.”

Cattle futures closed mixed amid a volatile trading session, with fairly active trade in Live Cattle and the previous session’s increased open interest.

Live Cattle futures closed an average of $2.34 lower in the front three contract, (30¢ lower to $4.50 lower in spot Apr), but then an average of $1.04 higher (55¢ higher to $1.70 higher), except for unchanged in the back contract.

Except for 75¢ higher in the back contract, Feeder Cattle futures closed an average of $2.07 lower, (90¢ lower to $3.55 lower).

Wholesale beef values were lower to sharply lower on light demand and offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $2.20 lower Friday afternoon at $230.44/cwt. Select was $6.28 lower at $215.84.

After 1¢ to 2¢ lower in the front two contracts, Corn futures closed mostly fractionally higher.

Soybean futures closed 2¢ to 4¢ lower.

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Major U.S. financial indices closed lower Friday, despite further gains in energy markets.

West Texas Intermediate Crude Oil futures on the CME closed $1.62 to $3.02 higher through the front six contracts. That was $3.10 to $8.03 higher over the last two sessions.

Although expected, the bearish monthly employment report weighed on markets. Total non-farm payroll employment fell by 701,000 month to month in March, according to the U.S. Bureau of Labor Statistics. The unemployment rate rose to 4.4%. Average hourly earnings for all employees on private non-farm payrolls increased by 11¢ to $28.62. Over the past 12 months, average hourly earnings increased 3.1%. 

The Dow Jones Industrial Average closed 360 points lower. The S&P 500 closed 38 points lower. The NASDAQ was down 114 points.

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Despite global challenges stemming from COVID-19, U.S. beef exports in February were 18% more year over year in volume at 112,021 metric tons (mt) and 17% more in value at $681 million, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). Beef exports are on a record pace through the first two months of 2020, up 10% in volume and 11% in value at $1.35 billion.

Beef export value per head of fed slaughter was $343.03 in February, up 11% from a year earlier and the highest since December 2018. The January-February average was 7% higher at $321.86.

Export results confirmed that global demand for high-quality protein remains strong and resilient, according to Dan Halstrom, USMEF President and CEO.

“By February, COVID-19 had emerged as a major health concern in several key Asian markets and was certainly impacting consumer and business activity, so it is great to see U.S. pork and beef exports achieve such strong growth,” Halstrom says. “Obviously these are uncertain economic times and the road ahead remains very challenging, but these results are really a great testament to our international customer base. In the face of unprecedented obstacles, importers, retailers and restaurateurs are finding creative ways to meet consumer needs, and with record production the U.S. industry is well-positioned as a supplier. While we are in an unusual business climate that requires a lot of flexibility and innovation, there are excellent opportunities for red meat exports to continue to build momentum.”

U.S. pork exports are also off to a record pace this year. They were 46% higher for volume in February at 273,056 mt, the third largest on record for the month. U.S. pork export value was 59% more than a year earlier at $726.6 million. For the first two months of the year, pork exports exceeded last year’s pace by 41% in volume and 54% in value at $1.47 billion.

February Beef Export Highlights

Mainstay Asian markets Japan, South Korea and Taiwan fueled beef export growth in February, but shipments also increased to key destinations in the Western Hemisphere, Africa and the Middle East.

February beef exports to leading market Japan increased 24% in volume from a year ago to 27,099 mt and climbed 20% in value to $171.4 million. Through February, exports exceeded last year’s pace by 10% in volume and 7% in value at $329.5 million.

Demand for U.S. beef continued to build momentum in Korea, where February exports were 33% more than last year in volume at 23,532 mt and 32% more in value at $167.7 million. Volume through the first two months of the year is 16% ahead of last year’s record; 14% higher in value at $298.4 million.

U.S. beef exports in February to Mexico were 5% more last year for volume at 41,862 mt, and 10% more in value at $217 million. Mexico is the largest volume market for U.S. beef variety meat, and January-February variety meat exports climbed 16% from a year ago in both volume (18,182 mt) and value ($49.3 million).

February U.S. beef export to China were 12% more year over year at 1,408 mt. Value was 4% more at $10.4 million. USMEF expects momentum to build for U.S. beef in the world’s largest import market, due to expanded market access.