WLI

Reduced beef packing production, due to COVID-19, continues to boost uncertainty and wreak havoc on market fundamentals as cattle feeders compete for slaughter access. Consider last week’s fluctuating cash prices for fed cattle.

Through Friday afternoon, negotiated cash fed cattle trade for the week was $5-$10 lower on a live basis in the Southern Plains at $100/cwt. in Kansas and $95-$100 in the Texas Panhandle. It was up to $10 lower in Nebraska and the western Corn Belt at $95. Dressed trade was from $8 lower to $10 higher at mostly $160, compared to the previous week’s light test.

For all of the gyrations, five-area daily weighted average direct negotiated prices through Thursday were mainly steady week to week with live steers at $96.95 and dressed steers at $154.27.

So far, the packing bottleneck appears nowhere near as dire as that faced by pork producers in 1998, when the fat hog price plummeted to about $8/cwt. toward the end of the year, due to sudden and significantly reduced packing capacity. But, it’s understandable why some are recalling the memory.

Wholesale beef values are running the opposite direction, fueled by declining supplies and what seems to be at least constant demand.

Choice boxed beef cutout value was $9.08 higher Friday afternoon at a record high of $293.37/cwt. Select was $6.13 higher at $279.02.

Cattle futures mainly consolidated and hovered, other than front-month Live Cattle.

Except for 97¢ and 30¢ lower in the front two contracts, and 10¢ lower in away Apr, Live Cattle futures closed an average of 43¢ higher.

Feeder Cattle futures closed an average of 47¢ higher.

Logic suggests the market should view Friday’s monthly Cattle on Feed report as bullish to at least neutral, given the plunge in placements and spike in marketings (see below). That may not be the case, though, as it also underscores how many more cattle than normal need to be placed at some point.

Corn futures closed mostly 1¢ to 3¢ lower.

Soybean futures closed mostly 7¢ to 10¢ lower.

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Major U.S. financial indices closed higher Friday, as crude oil prices continued to maintain stability.

The Dow Jones Industrial Average closed 260 points higher. The S&P 500 closed 38 points higher. The NASDAQ closed 139 points higher.

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Even fewer cattle were placed and even more cattle were marketed in March than expected, according to the monthly Cattle on Feed report issued Friday.

Between depressed prices keeping more cattle outside of feedlots and the slower turnover in feedyards, plenty of folks suspected feedlot placements would be significantly fewer year over year. In fact, the 1.56 million head placed in feedlots with 1,000 head or more capacity was 22.69% less (457,000 head fewer). That was the least for the month since the data series began in 1996, according to AMS. The decline was about 4.8% more than average analyst estimates ahead of the report.

In terms of placement weights, 34.04% went on feed weighing 699 lbs. or less; 52.15% weighing 700-899 lbs. and 13.81% weighing 900 lbs. or more.

Marketings in March of 2.01 million head were 13.11% more (+233,000 head) than the previous year. That was the second most for the month since the data series began. Heading into the report, analysts expected, on average, marketings to increase 12.3%.

Cattle on feed Apr. 1 of 11.30 million head were 5.49% less (656,000 head fewer) than the previous year. That was about 0.7% less than pre-report estimates.

Although still $7-$8 lower than last week, dressed trade in the north rebounded from the previous day to mostly $160/cwt. on Thursday.

Cattle futures continued to be pressured by uncertainty regarding slowing beef production and how soon some sense of normalcy can return.

Except for 10¢ and 7¢ higher in two contracts, Live Cattle futures closed an average of 96¢ lower (20¢ lower to $3.00 lower in spot Apr).

Except for 95¢ and 60¢ higher in the front two contracts, Feeder Cattle futures closed an average of $1.09 lower.

Wholesale beef values took another broad step higher Thursday, as demand continues to outpace declining supplies.

Choice boxed beef cutout value was $8.54 higher Thursday afternoon at a record high of $284.29/cwt. Select was $11.87 higher at $272.89.

Corn futures closed mostly 1¢ lower to 1¢ higher.

Soybean futures closed 2¢ to 4¢ higher through Sep ‘20, and then mostly 2¢ to 3¢ lower.

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Major U.S. financial indices closed little changed Thursday, following wide gyrations during the session. Support included more recovery in crude oil prices, while pressure included another expected surge (4.43 million) in weekly initial jobless claims, according to the U.S. Labor Department.

The Dow Jones Industrial Average closed 39 points higher. The S&P 500 closed 1 point lower. The NASDAQ closed fractionally lower.

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How long beef packing plant production remains constrained by COVID-19 is the next unknown markets are pricing, says Stephen Koontz, agricultural economist at Colorado State University. He adds, “Some certainty to the course of the CORVID-19 pandemic will be needed to mitigate this risk.”

Although the inventory of long-fed cattle is climbing, in the most recent issue of In the Cattle Markets, Koontz says the uncertainty of pricing short-term needs and availability will be unclear for at least another month, given the fact that Friday’s Cattle on Feed report accounts for inventory at the first of April, with flows from March.

Incidentally, heading into the monthly Cattle on Feed report, analysts surveyed by Urner Barry, with data shared by the Daily Livestock Report see March placements down about 18%, March marketings 12% higher and the Apr. 1 on-feed inventory 5% less year over year.

“Fed cattle prices continue to soften and the impact of delayed marketings will weigh on the market until summer,” Koontz says.

In the meantime, carcass weights continue to be significantly heavier than last year’s depressed levels.

The average dressed steer weight for the week ending Apr. 11 was 886 lbs., according to USDA’s weekly Livestock Slaughter report. That was 3 lbs. lighter than the previous week, but 22 lbs. heavier than the previous year. The average dressed heifer weight was 826 lbs., which was 1 lb. heavier than the prior week and 24 lbs. heavier than the same week last year.

Cattle feeders offered 4,671 head in the weekly Fed Cattle Exchange auction on Wednesday. Of those, 860 head sold: 726 head for delivery at 1-9 days for a weighted average price of $100/cwt.; 174 head for delivery at 1-17 days for a weighted average price of $92.67. That was mainly on par with country trade so far this week.

Similarly, Choice 2-3 steers at Sioux Falls Regional (114 head) in South Dakota weighing an average of 1,453 lbs. sold for an average price of $100.15/cwt. across a range of $93.50-$102.00.

Wholesale beef values rocketed higher again Wednesday, as demand outpaces declining supplies.

Choice boxed beef cutout value was $15.90 higher Wednesday afternoon to a presumed record high of $275.75/cwt. Select was $12.20 higher at $261.02.

All of that seemed to have Cattle futures stuck in a wait-and-see mode, with light support and two-sided trade, other than a sharp drop in spot Live Cattle, given the likely continuation of near-term pressure on cash prices as the supply chain tries to sort its COVID-19 worker challenges.

Except for $2.65 lower in waning spot Apr, Live Cattle futures closed from 30¢ lower to 32¢ higher.

Except for 7¢ lower in May and 25¢ lower in the back contract, Feeder Cattle futures closed an average of 27¢ higher.

Corn futures closed mostly 4¢ to 8¢ higher through Mar ’21 and then mostly 2¢ to 3¢ higher.

Soybean futures closed 5¢ lower to 4¢ higher through Mar ‘21, and then mostly 8¢ to 10¢ lower.

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Major U.S. financial indices closed higher Wednesday, buoyed by resurgent oil prices. Although spot Jun West Texas Intermediate crude oil futures on the CME closed at an anemic $13.78, it was $2.21 higher than the previous day; the front six months closed $2.00-$2.34 higher.

The Dow Jones Industrial Average closed 456 points higher. The S&P 500 closed 62 points higher. The NASDAQ closed 232 points higher.

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Disruptions in beef production and consumption, due to COVID-19, began showing up in freezers last month, according to USDA’s Cold Storage report.

There were 502.42 million lbs. of beef in freezers Mar. 31, which was 2% more than the previous month and 11% more than the previous year. Of that, boneless beef cuts (466.87 million lbs.) was record large for the month–the data series began in 1972.

Incidentally, USDA’s annual Livestock Slaughter report also was published on Wednesday.

Commercial cattle slaughter last year of 33.6 million head was 2% more than the previous year, with federal inspection (FI) comprising 98.6% of the total. The average live weight was 1,344 lbs., down 6 lbs. from the previous year. Steers comprised 49.3% of the total FI cattle slaughter, heifers 29.7%, dairy cows 9.7%, other cows 9.6%, and bulls 1.6%. Non-dairy cows (other) numbered 3.19 million head, which was 5.5% (+165,700) more than in 2018.

Beef production last year was record high at 27.2 billion lbs., which was 1% more than the previous year.

Back to Cold Storage, frozen pork supplies in freezers Mar. 31 (621.93 million lbs.) were down 4% from the previous month, but 2% higher than last year. Pork belly stocks (78.82 million lbs.) were 6% higher month to month and 34% higher year over year.

Total red meat supplies in cold storage totaled 1.17 billion lbs., down 2% from the previous month, but 7% more than the previous year.

Total frozen poultry supplies (1.31 billion lbs.) were 4% higher than the previous month, but 2% less than a year earlier. However, total chicken supplies in cold storage of 921.42 million lbs. was record large for the month; 6% (+53.06 million lbs.) more than the same month last year. It included record-large supplies of breast and breast meat, legs and thigh meat.

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.

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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.

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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. 

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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.

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“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.