WLI

Negotiated cash fed cattle trade continued Wednesday. Live trade in the western Corn Belt was $2-$5 higher than last week at $110-$112/cwt. Dressed trade was steady at $175. Although too few to trend through the afternoon, live trade in the Southern Plains was mostly steady to $3 lower at $110-$113. In Nebraska, live prices were steady at $110; steady to $5 lower in the beef at $170-$175.

Cattle feeders offered 4,680 head in the weekly Fed Cattle Exchange auction Wednesday. Of those, 1,813 head sold: 1,415 head for delivery at 1-9 days brought an average weighted price of $112.76/cwt.; 398 head for delivery at 1-17 days brought an average weighted price of $111.00. Offerings were from the Southern Plains, Nebraska and Colorado.

Cattle futures started strong Wednesday and then turned sharply lower as equity markets tanked, basically losing what was gained in the previous session.

Live Cattle futures closed an average of $3.78 lower, from $2.55 lower at the back to $4.40 lower.

Feeder Cattle futures closed an average of $3.49 lower, from 97¢ lower in spot Mar to limit-down $4.50.

Wholesale beef values were sharply higher again, with good demand and heavy offerings.

Choice boxed beef cutout value was $7.31 higher Wednesday afternoon at $247.24/cwt. Select was $9.18 higher at $238.50.

Corn futures closed 5¢ to 8¢ lower through Jly ‘21 and then mostly fractionally lower to 1¢ lower.

Soybean futures closed fractionally higher to 1¢ higher through Sep ’20 and then fractionally lower to 3¢ lower.

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Major U.S. financial indices closed sharply lower Wednesday, giving back most of the gains from the previous session, as investors fretted over the lack of clarity regarding the COVID-19 stimulus package being prepared by Congress.

West Texas Intermediate Crude Oil futures collapsed $5.14 to $6.58 lower through the front six contracts. Spot Apr closed at $20.37. That’s the lowest level in nearly two decades, according to various sources.

The Dow Jones Industrial Average closed 1,338 points lower. The S&P 500 closed 131 points lower. The NASDAQ was down 344 points.

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“Faltering fed cattle prices, due to coronavirus developments, have ratcheted down profitability prospects for non-hedged animals to be closed out in the coming months. Feeder cattle prices may come under increased pressure. The lack of projected profitability for fed cattle to be sold this summer (breakeven sale prices above what summer Live Cattle futures are offering), is likely to be a factor dampening placements of animals into feedlots,” say analysts with the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor.

LMIC has estimated monthly cattle feeding returns since the mid-1970s. Those estimates assume feeding-out a 750-lb. steer in a commercial Southern Plains feedlot and include all costs of production. The estimates are not survey-based and presume normal weather conditions. Cash prices are used, meaning that fed cattle prices and feedstuff costs are not hedged.

“In 2019, monthly returns averaged about $9.50 per steer, ranging from $180.92 for an animal sold in December down to -$152.85 for September. Over the prior five years (2014-18), the annual average was about $23.00 per steer. The 10-year per animal average was about -$7.00,” say LMIC analysts. “For steers sold during January, the LMIC estimated profitability at $150.00 to $151.00 per head. Just over a month ago, the LMIC projected that the February number would come in at $136.00 to $140.00 per steer. If the cattle were not hedged, that turned out to be optimistic. Hedged animals will return excellent profits through June sale dates…For steers (750 lbs.) placed on feed in February, which will have a sale date of August, the breakeven price based on current feedstuff costs is $109 to 111/cwt.”

Although too few transactions to trend, there were some live negotiated cash fed cattle sales in Nebraska on Tuesday at $110/cwt. on a live basis and at $170-$175 in the beef. That was $5 higher than Monday on a live basis and steady with last week’s trade. Dressed sales were steady to $5 higher than on Monday; dressed sales last week were at mostly $175.

Elsewhere, established trends so far this week occurred on Monday, with live sales in the Texas Panhandle steady to $5 lower than last week at $105-$110 and $10 lower in Kansas at $100.

But, Cattle futures rallied Tuesday, finally. Whether a technical gasp or a step toward a turning point, harsh volatility will likely continue. Support included brighter cash prospects, soaring wholesale beef values and the bounce in equity markets, following the steep losses in the previous session.

Live Cattle futures closed an average of $3.44 higher, from $1.77 higher at the back to $4.50 higher in the front three contracts.

Feeder Cattle futures closed an average of $3.37 higher.

Wholesale beef values rocketed higher again Tuesday, with good demand and heavy offerings.

Choice boxed beef cutout value was $15.77 higher Tuesday afternoon at $239.93/cwt. Select was $12.61 higher at $229.32. Over the last two days, Choice increased $31.99 and Select was up $27.34.

Corn futures closed 6¢ to 10¢ lower in the front three contracts and then mostly 2¢ to 3¢ lower.

Other than fractionally higher to 2¢ higher in the front three contracts, Soybean futures closed mostly 5¢ lower.

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At least for a day, major U.S. financial indices closed higher, recovering a portion of the previous day’s washout, as the Federal government pledged more financial support to citizens and businesses, in the wake of coronavirus.

The Dow Jones Industrial Average closed 1,048 points higher. The S&P 500 closed 143 points higher. The NASDAQ was up 430 points.

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Response to COVID-19 continues to force everyone in the cattle and beef business to ponder potential impacts on how they operate.

For instance, according to the Livestock Marketing Association (LMA) Tuesday, “With respect to public attendance at livestock auction markets, LMA is aware that many states and areas are enforcing varied crowd size limits and have mandated restrictions on operation of cafés or other food services. LMA is working with markets on a case-by-case basis to evaluate all parameters and impacts on their sales and strongly suggests markets develop contingency plans accordingly.”

Strategies LMA provided auction market members include:

• Familiarize yourself with and follow rapidly changing local and state rules regarding assembly of crowds.
• Work with café operators to follow location-specific guidance, which may include closure or offering to-go service only.
• If you are in a situation where you need to limit crowd size, then request that consignors deliver livestock and return home rather than remaining at the facility.
• Offer consignors flexibility in picking up their checks, such as delivery or pickup from their vehicle in the parking lot.
• Instruct any employee or visitor exhibiting symptoms of illness to remain home and request that any employee or visitor who is a member of a population of heightened vulnerability to consider avoiding areas where people are gathering.
• Evaluate all options to utilize web broadcast or phone bidding.

As for USDA services, according to a statement Tuesday from the Food Safety and Inspection Service, Animal and Plant Health Inspection Service and Agricultural Marketing Service:

“In this time of much uncertainty, we know that many of you have questions about how the department will continue to ensure that grading and inspection personnel are available. We have all seen how consumers have reacted to the evolving coronavirus situation and how important access to food is to a sense of safety and wellbeing. It is more important than ever that we assure the American public that government and industry will take all steps necessary to ensure continued access to safe and wholesome USDA-inspected products.

“These agencies are prepared to utilize their authority and all administrative means and flexibilities to address staffing considerations. Field personnel will be working closely with establishment management and state and local health authorities to handle situations as they arise in your community. As always, communication between industry and government will be key. We are all relying on early and frequent communication with one another to overcome challenges as they arise.”

Markets remain firmly entrenched in the COVID-19 panic that is forcing widespread disruptions to how people go about their business, while slowing economic wheels.

Live Cattle futures showed signs of life Monday, with surging wholesale beef values, but sank hard again, as did Feeder Cattle.

Live Cattle futures closed an average of $3.73 lower.

Feeder Cattle futures closed an average of $4.47 lower, limit-down in all but one contract.

Wholesale beef values rocketed higher Monday, with heavy offerings, as retailers replenished supplies windrowed by consumers stocking up.  There was also likely some defensive buying against potential challenges in the supply chain.

Choice boxed beef cutout value was $16.22 higher Monday afternoon at $224.36/cwt. Select was $14.73 higher at $216.71.

Corn futures closed 11¢ and 10¢ lower in the front two contracts and then mostly 4¢ to 6¢ lower.

Soybean futures closed 18¢ to 27¢ lower through Jly ’21 and then mostly 14¢ to 16¢ lower.

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Major U.S. financial indices on Monday gave back everything recovered in the previous session, despite aggressive action by the Fed over the weekend and the economic support previously announced by the White House.

West Texas Intermediate Crude Oil futures on the CME closed $2.76 to $3.03 lower through the front six contracts, down to $28.70 in spot Apr.

The Dow Jones Industrial Average closed 2,997 points lower. The S&P 500 closed 324 points lower. The NASDAQ was down 970 points.

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“The cattle and beef industry, along with the rest of the U.S. and global economy is in uncharted waters with the coronavirus pandemic. There are many unknowns about the timing, severity and aftermath of the disease,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “For the beef industry, there are longer term questions about overall impact on domestic and international beef demand, with questions about a U.S. and global recession looming large. In the short run, the actions needed to manage the epidemiology of COVID-19 is having significant impacts on beef supply chains.”

Peel explains beef products flow through three primary market channels: retail (grocery), food service and exports; each using separate supply chains. Domestically, based on USDA data, he says food at home, which approximately matches retail grocery, represents about 46% of total food expenditures in the U.S. Food away from home represents about 54% of total food expenditures. 

“The immediate response to COVID-19 is to limit travel, gatherings and public activities. Reduced travel, fewer restaurant visits and school closures all impact the HRI sector (hotels, restaurants, institutions),” Peel explains. “This implies a dramatic shift of food from the food service (HRI) sector into retail grocery sales. This represents huge demands on grocery store sales and the logistics of supplying retail stores. For beef, there is immediate demand for more processing, packaging and shipping of beef for retail sale and less processing and shipping of meat through food service distribution channels.”

Moreover, Peel notes each marketing channel utilizes a different mix of beef products.

“There will be a variety of impacts on markets for specific beef products,” Peel explains. “For example, increased demand for ground beef has resulted in local shortages of product at grocery stores, while reduced restaurant demand may result in weaker middle meat sales. We can expect significant disruptions and stress on beef supply chains given the consumption changes associated with requirements to control COVID-19.”

Should the labor forces of beef packing, processing, or shipping be directly impacted by COVID-19, Peel says supply chain disruptions could be more significant.

Note: Cattle Current is dependent on a couple other businesses to house the Cattle Current website, edit the podcast and the like. If Cattle Current goes missing in the days/weeks ahead, it will likely be due to COVID-19 disrupting one of those businesses. If such a disruption occurs, we’ll get back on schedule as quickly as possible.

Negotiated cash fed cattle trade was established at $110/cwt. on a live basis last week, which was $3 lower in the Southern Plains and Nebraska; $2-$5 lower in the western Corn Belt. Dressed sales were $5-$7 lower at $175-$176. There were trades at lower money later in the week, but too few to trend.

Cattle futures attempted to follow equity markets higher early on Friday, but ended mostly expanded limit-down, amid chatter about the potential of coronavirus to disrupt packing plant operations. I could find no confirmed reports of closures or reduced schedules for the major packers, but the vulnerability is a logical concern, given cattle numbers and strained packing capacity. 

Live Cattle futures closed an average of $4.38 lower. That’s an average of $7.37 lower in the last two sessions.

Feeder Cattle futures closed an average of $6.51 lower. That’s an average of $11.01 lower in the previous two sessions.

Wholesale beef values were sharply higher on good demand and heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $2.13 higher Friday afternoon at $2018.14/cwt. Select was $4.10 higher at $201.98. Although food service demand will likely suffer for a time as more consumers stay at home, retail demand is likely benefiting from those same consumers stocking up.

Corn futures closed mostly 1¢ higher.

Soybean futures closed 8¢ to 10¢ lower through Jan ’21 and then mostly 3¢ lower.

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Major U.S. financial indices on Friday grappled back a major chunk of the previous session’s steep losses. Optimism was fueled by a number of moves by the Federal government to battle COVID-19 and its economic impact:

• President Trump instructed the Energy Department to purchase oil for the U.S. strategic petroleum reserve, to help stabilize and boost energy prices.
• The White House announced more coronavirus tests would be available this week.
• The U.S. House of Representatives was on its way to passing the Families First Coronavirus Response Act (H.R. 6201), a legislative package supported by President Trump. Among other things, it includes free coronavirus testing, an emergency paid sick days program, senior nutritional assistance and SNAP flexibility for low-income jobless workers. The legislation passed Saturday morning.

The Dow Jones Industrial Average closed 1,985 points higher. The S&P 500 closed 230 points higher. The NASDAQ was up 673 points.

On Sunday, the Federal Open Market Committee (FOMC) lowered the target range for the federal funds rate to 0.00% to 0.25%.

“The effects of the coronavirus will weigh on economic activity in the near term and pose risks to the economic outlook,” according to an FOMC statement. “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. This action will help support economic activity, strong labor market conditions, and inflation returning to the Committee’s symmetric 2% objective.”

The FOMC statement also notes, based on available economic data, the U.S. economy enters the days of COVID-19 on solid footing with strong job gains, low unemployment and increasing economic activity.

“To support the smooth functioning of markets for Treasury securities and agency mortgage-backed securities that are central to the flow of credit to households and businesses, over coming months the Committee will increase its holdings of Treasury securities by at least $500 billion and its holdings of agency mortgage-backed securities by at least $200 billion,” according to the statement.

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Gauging the ultimate impact of COVID-19 on the cattle business, much less the U.S. and global economies is impossible at this stage. While you can find some similarities, there appears to be no direct parallel between this market shock and black swan events impacting cattle markets in the past.

Best as anyone can tell, COVID-19 should be temporary, at least for this year. As the director general of the World Health Organization pointed out earlier in the week, more than 90% of reported global coronavirus cases were in four countries at the time. The epidemic was declining significantly in two of those, including in China, the epicenter of the pandemic.

It seems unlikely that overall economic impact on the U.S. economy will be as severe or as long lasting as what followed the financial and liquidity mess that spawned the Great Recession.

For one thing, this isn’t a financial problem, but a biologic one impacting supply chains and demand. For another, the U.S. and many central banks around the world are aggressively taking action to minimize the economic impact, in concert, in some cases. Besides which, the nation’s finances are much stronger by about any measure, compared to those days heading into the Great Recession.

At some stage, when it appears the worst is over, it’s easy to imagine a sharp market bounce in response to less uncertainty and pent up demand. For instance, even before the epidemic slows in the U.S., international demand for U.S. beef could be on the rise as recovering countries get back to what will then be a new form of business as usual.

In the meantime, wholesale beef values continue to hold together domestically, as consumers shift toward eating more meals at home.

“Most markets in the cattle and beef complex are moving contra-seasonally, due to world heath issues and the economic slowdown that comes with it,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “When relief finally comes is anyone’s guess, but there should be just as strong of profits on the other side of this market as there are losses in the current environment.”

Equities and futures markets plunged deeper Thursday amid a growing list of event cancellations, altered business schedules and continued widespread panic related to coronavirus and its impact on the domestic and global economies.

Except for $2.97 lower in the back two contracts, Live Cattle futures closed limit-down $3.00.

Feeder Cattle futures closed limit-down $4.50 across the board. 

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 $1.16 lower Thursday afternoon at $206.01/cwt. Select was $1.39 higher at $197.88.

Corn futures closed mostly 3¢ to 6¢ lower.

Soybean futures closed mostly 10¢ to 14¢ lower.

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Major U.S. financial indices had their worst day since 1987, according to market pundits.

The Dow Jones Industrial Average closed 2,352 points lower. The S&P 500 closed 260 points lower. The NASDAQ was down 750 points. So, over the last two sessions, the Dow Jones Industrial Average is down 3,816 points, the S&P 500 is down 400 points and the NASDAQ is 1,142 points lower.

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Although COVID-19 and the ensuing panic are upending markets, Stephen Koontz, agricultural economist at Colorado State University, noted earlier in the week that signs of slowing domestic and global economic growth were already increasing.

The broader U.S. macro economy entered the current debacle in reasonably good shape, with healthy levels of employment and consumer spending. At the same time, in the most recent issue of In the Cattle Markets, Koontz points out business investment was relatively weak and had been since it became clear that trade issues and their impact on the global economy would continue to linger.

Koontz also notes government spending stimulus was due to run its course this year, while any economic growth from tax cuts appeared focused in subsectors rather than the economy as a whole.

Globally, Koontz explains macroeconomics were much weaker than in the U.S. For instance, he says economic growth for European and Asian economies was modestly to substantially weaker year over year.

Cattle market headwinds were also swirling ahead of coronavirus.

“Protein balance sheets have clearly shown and continue to show a problem for the first quarter of 2020 for beef, and for much of the year for pork and poultry. Numbers of animals and carcass weights are higher through the first quarter and have the potential to be higher for the rest of the year for the competing meats,” Koontz explains. “Downward pressures on protein prices required substantial exports to not have much weaker prices than the prior year. Supplies have materialized and exports have not. Global economic uncertainty adds to this. For cattle markets, price pressure will persist through April and possibly into May. Placements through the last half of 2019 were delayed by the slaughter plant fire. October and November placements were strong. On-feed numbers and marketings will be relatively heavy until the summer. And slaughter weights are substantially above last year…

“These factors, and the broader macroeconomic concerns, suggest persistent weakness in cattle prices through the spring. And, until the dynamics of the health crisis are more certain, there will be considerable volatility.”