WLI

Despite collapsing equities tied to China’s trade retaliation (more later), and despite the steep selloff on Friday, Feeder Cattle futures closed higher Monday, as did Live Cattle, for the most part; Lean Hogs, too.

Support likely stemmed from generally oversold conditions, position squaring from the previous session’s liquidation, as well as funds fleeing equities and parking money on the commodity side of the fence. The latest data for U.S. beef and pork exports is also encouraging (see below).

Except for 42¢ lower in near Oct, Live Cattle futures closed an average of 48¢ higher (12¢ to 67¢ higher).

Feeder Cattle futures closed an average of 86¢ higher (45¢ to $1.22 higher), with the heaviest volume since last September.  

Wholesale beef values were steady on Choice and higher on Select with moderate to fairly good demand and moderate offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 3¢ lower Monday afternoon at $214.70/cwt. Select was $1.04 higher at $191.67.

Corn futures closed mostly 3¢ to 5¢ higher, extending the previous session’s gains.

Soybean futures closed fractionally mixed.

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Major U.S. financial indices blasted lower Monday as China responded to the latest intended U.S. tariffs by allowing its currency to slide to decade-low values—making their exports significantly, artificially cheaper—and with reports that China ordered state-owned companies to suspend purchases of U.S. agricultural goods.

The Dow Jones Industrial Average closed 767 points lower. The S&P 500 closed 87 points lower. The NASDAQ was down 278 points.

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U.S. beef exports in June were up 3% year-over-year for volume (118,677 mt) and were 1% higher for value at $724.8 million, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF). Value was the fourth most on record for any month.

For January-June, beef exports were 2% less in volume (648,765 mt), compared to the same period last year, but value was steady with last year’s record value pace at $4.03 billion.

Beef export value per head of fed slaughter in June averaged $325.10, up 4% from a year ago, while export value for the first six months of the year averaged $312.06 per head, down 2%.

Korea and Taiwan paced beef export growth.

Last year South Korea surpassed Mexico as the second-largest destination for U.S. beef exports, and in 2019 it continues to close the gap on leading market Japan.

Exports to Korea remained on a record pace in June, increasing 2% from a year ago to 25,118 mt (a post-BSE high), while value climbed 15% to a record $178.3 million. Beef exports to Korea for January-June were 12% more than last year for volume (126,879 mt) and 15% higher in value at $921.8 million. U.S. beef now accounts for 61% of Korea’s chilled beef imports, up from 57% in the first half of last year, with chilled volume increasing 7% to 26,537 mt.

As for Taiwan, beef exports in June reached a new monthly high of 6,654 mt, up 40% from a year ago, valued at $58 million, which was 46% higher and the second highest on record. First-half exports to Taiwan were 16% above last year’s record pace in volume (31,132 mt) and 11% higher in value ($276.2 million).

“It is very gratifying to see U.S. beef posting such remarkable gains in Korea and Taiwan, and the $2 billion milestone could even be in play this year for Korea,” says Dan Halstrom, USMEF president and CEO. “Exports to Japan can definitely achieve a similar trajectory if the U.S. can get back on a level playing field with our competitors, so we are encouraged by the progress in the U.S.-Japan trade negotiations.”

U.S. beef faces a significant tariff rate disadvantage in leading market Japan, where June exports totaled 29,794 mt, down 4% year-over-year, while value was down 7% to $179 million. For the first half of the year, exports to Japan were 1% below last year’s pace in both volume (157,839 mt) and value (just over $1 billion).

All of U.S. pork and beef’s major competitors gained tariff relief in Japan this year through the Comprehensive and Progressive Agreement for Trans-Pacific Partnership (CPTPP) and the economic partnership agreement between Japan and the European Union, making red meat trade a major focus of the U.S.-Japan trade agreement negotiations that continued last week.

Through late Friday afternoon, the week’s negotiated cash fed cattle trade was $1 lower in the Southern Plains at $111/cwt. Dressed sales in Nebraska were $2 higher than the bulk of the previous week’s trade at mostly $185. In the western Corn Belt, prices were steady: $115-$116 on a live basis and at mostly $185 in the beef.

Even so, newly announced tariffs on an additional $300 billion worth of Chinese imports—scheduled to go into effect Sept. 1—higher grain futures prices and increased uncertainty weighed on Cattle futures Friday.

Live Cattle futures closed an average of $1.01 lower (22¢ lower in spot Aug to $1.27 lower).

Feeder Cattle futures closed an average of $2.61 lower ($1.60 to $3.55 lower).  

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

Choice boxed beef cutout value was 49¢ higher Friday afternoon at $214.73/cwt. Select was $1.29 higher at $190.63.

Grain futures rebounded some Friday, but still closed lower week to week.

Corn futures closed 6¢ to 7¢ higher through Jul ’20 and then mostly 1¢ to 4¢ higher.

Soybean futures closed 2¢ to 3¢ higher through Sep ’20 and then fractionally higher to 1¢ higher.

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Major U.S. financial indices closed sharply lower again Friday with continued pressure from the previous day’s news that the U.S. will impose a 10% tariff on an additional $300 billion worth of Chinese imports, beginning Sept. 1.

Indices closed off of session lows, though, helped along by a monthly employment report that was in line with expectations.

Total nonfarm payroll employment increased by 164,000 in July, compared to the previous month, according to the Employment Situation Summary from the U.S. Bureau of Labor Statistics. The unemployment rate was unchanged at 3.7%. Average hourly earnings for all employees on private nonfarm payrolls

rose by 8¢ to $27.98. Over the past 12 months, average hourly earnings have increased by 3.2%.

The Dow Jones Industrial Average closed 98 points lower. The S&P 500 closed 21 points lower. The NASDAQ was down 107 points.

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Some positive news for U.S. beef trade.

The Unites States reach a new agreement with the EU on Friday that establishes a duty-free tariff rate quota (TRQ) exclusively for the United States. Under the agreement, American ranchers will have an initial TRQ of 18,500 metric tons annually, valued at approximately $220 million, according to the United States Trade Representative (USTR). Over seven years, the TRQ will grow to 35,000 metric tons annually, valued at approximately $420 million.

Under the current agreement, U.S. duty-free beef exports to the EU are only approximately 13,000 metric tons annually, valued at approximately $150 million, and risked declines going forward. The new agreement will go into effect following the European Parliament’s approval, which is expected this fall.

Negotiations for the new agreement stemmed from the National Cattlemen’s Beef Association, U.S. Meat Export Federation (USMEF), and the North American Meat Institute requesting (in 2016) the USTR to take tariff action under Section 301 of the Trade Act of 1974 to enforce the World Trade Organization dispute finding in favor of the United States against the EU’s ban on the use of hormones in cattle production. As a part of the new agreement, the U.S. will conclude those proceedings.

“This agreement provides more reliable and consistent access to the EU market and will be a tremendous boost for the U.S. beef industry,” says Dan Halstrom, USMEF president and CEO. “The agreement sends a very positive signal to customers in Europe who see a bright future for U.S. beef and to producers who are interested in expanding their non-hormone treated cattle (NHTC) business but have grown frustrated as they struggled to recover the additional production costs. USMEF greatly appreciates the tireless efforts of USTR and USDA to secure better access to this very high-value beef market.”

Negotiated cash fed cattle sales were mostly inactive on light to moderate demand through Thursday afternoon, with too few transactions to trend, according to the Agricultural Marketing Service. So far this week, live sales are $1 lower in the Southern Plains at $111/cwt. Dressed trade in the North is steady at $185. Live sales in the western Corn Belt are steady at $115-$116.

Live Cattle futures closed higher Thursday, despite continued hard pressure on Lean Hogs.

Except for 20¢ lower in the back two contracts, Live Cattle futures closed an average of 52¢ higher (7¢ higher to $1.07 higher).

Feeder Cattle futures continued to sink lower, though, closing an average of 62¢ lower.

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

Choice boxed beef cutout value was 70¢ higher Thursday afternoon at $214.24/cwt. Select was 35¢ lower at $189.34.

Grain futures continued under pressure on Thursday with the continued stalemate between the U.S. and China, favorable crop weather and reports of bumper production in parts of Europe and South America.

Corn futures closed 5¢ to 7¢ lower through Jul ’20 and then fractionally mixed to 3¢ lower.

Soybean futures closed 15¢ to 17¢ lower through Sep ’20 and then 9¢ to 12¢ lower.

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Major U.S. financial indices closed sharply lower again Thursday on tweets from President Trump that the U.S. will impose a 10% tariff on an additional $300 billion worth of Chinese imports, beginning Sept. 1. Until then, markets rebounded sharply higher after the previous session’s steep decline.

West Texas Intermediate Crude oil futures on the CME tumbled $4.55 to $4.63 for the remaining 2019 contracts.

The Dow Jones Industrial Average closed 280 points lower. The S&P 500 closed 26 points lower. The NASDAQ was down 64 points.

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Participating in Beef Quality Assurance (BQA) programs yields a variety of benefits, everything from records that enable improved decision making to proven animal health practices and monitoring that help ensure animal well being. Never mind the verification of quality, safe production it provides consumers.

Recent research also indicates buyers are willing to pay more for calves and feeders at video auction if those cattle come from BQA-certified producers.

Bottom line, buyers paid an average premium of $16.80 per head for cattle in lots with BQA included in the lot description. That’s based on 8,815 video lot records of steers and heifers sold in nine western states through Western Video Market from 2010 to 2017.

The study—Effect of Mentioning BQA in Lot Descriptions of Beef Calves and Feeder Cattle Sold Through Video-based Auctions on Sale Price—was conducted by Colorado State University’s departments of Animal Sciences and Agricultural and Resource Economics.

“This study was a first of its kind opportunity to utilize advanced data analysis methods to discover if there was a true monetary value to participate in BQA,” says Chase DeCoite, director of Beef Quality Assurance. “Study results clearly show that participation in BQA and BQA certification can provide real value to beef producers. It means that the initiatives within the industry are rewarding cattlemen and women who take action to improve their operations and our industry.”

CSU’s statistical analysis determined a $2.71/cwt. premium when BQA was mentioned in the lot description. That premium is relative to the average weight of cattle in the study, which is how researchers arrived at the premium of $16.80 per head. If you figure the per-head premium is constant, it implies higher weight-based premiums at lighter weights and vice versa, according to researchers. For instance, $3.73/cwt. at 450 lbs. versus $2.24 at 750 lbs.

“In addition to the BQA mention, our study controlled for other factors–such as lot characteristics, cattle attributes, and value-added practices like age/source verification and natural certification–that also influenced beef calf and feeder cattle sale prices. Importantly, the BQA premium existed even after accounting for these influential variables,” says Daniel Mooney, CSU assistant professor of agricultural and resource economics.

Mooney adds that results of the study emphasize the importance of transferring information from sellers to buyers, as well as the importance of collecting BQA certification information during the auction process.

“The value of a seller being BQA Certified can really only be captured when information is shared between seller and buyer, which is consistently done via the sale of cattle by video auction companies,” explains Jason Ahola, CSU professor of animal sciences. “By sharing the BQA status of the owner or manager of a set of cattle, the buyer can access information that is generally otherwise difficult to find in traditional marketing channels. This was a big reason for us to conduct the study, as it became clear that data on sellers’ BQA status were available on a large number of cattle sold through video auctions as well as other traits associated with the cattle. This information affected the ultimate selling price of the cattle.”

Even without documentation of a premium in the past, the results also suggest that over time many producers have proactively chosen to highlight and emphasize their participation in BQA when marketing their cattle.

Cash fed cattle trade wobbled from the blocks Wednesday, with hints of slightly lower prices in the South and steady to higher prices in the North.

For instance, there were four lots (475 head) offered for 1-9 day delivery in the weekly Fed Cattle Exchange auction. One lot (133 Kansas heifers) sold for a weighted average price of $111/cwt. Country trade there last week was at $112.

By late afternoon, USDA’s Agricultural Marketing Service also reported early negotiated cash fed cattle sales at $111 in the Southern Plains, but too few transactions to trend.

Conversely, at the fat auction in Tama, IA, Choice steers and heifers traded $1.50-$1.75 higher. For instance, 209 Ch 2-4 steers weighing an average of 1,324 lbs. at $119.03.

Likewise, slaughter steers sold $2-$3 higher at Sioux Falls Regional in South Dakota; $1 higher for heifers.

AMS reported cash trades in the western Corn Belt at $185 on a dressed basis, which was steady to $3 higher than last week. Buyers paid $185 in Nebraska, which was $2 more than the bulk of the previous week’s trade.

Another day of limit-down pressure in Lean Hog futures cast a pall over Cattle futures Wednesday, likely helped along by month-end position squaring. At least part of the pressure on Lean Hogs stems from the lack of progress in trade talks with China.

Live Cattle futures closed an average of $1.02 lower (65¢ lower to $1.42 lower).

Feeder Cattle futures closed an average of $1.25 lower.

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

Choice boxed beef cutout value was 49¢ lower Wednesday afternoon at $213.54/cwt. Select was $1.44 lower at $189.69.

Favorable weather and the aforementioned sluggish trade talk between the U.S. and China helped pressure Grain futures Wednesday.

Corn futures closed 9¢ to 11¢ lower through Jul ’20 and then mostly 3¢ to 4¢ lower.

Soybean futures closed 10¢ to 15¢ lower through Sep ’20 and then mostly 8¢ to 9¢ lower.

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Major U.S. financial indices closed sharply lower Wednesday, following a mostly flat session ahead of the announcement from the Federal Open Market Committee (FOMC), regarding interest rates.

As expected, the FOMC reduced interest rates (25 basis points).

“In light of the implications of global developments for the economic outlook, as well as muted inflation pressures, the Committee decided to lower the target range for the federal funds rate to 2.0 to 2.25%,” according to an FOMC statement. “This action supports the Committee’s view that sustained expansion of economic activity, strong labor market conditions, and inflation near the Committee’s symmetric 2% objective are the most likely outcomes, but uncertainties about this outlook remain. As the Committee contemplates the future path of the target range for the federal funds rate, it will continue to monitor the implications of incoming information for the economic outlook and will act as appropriate to sustain the expansion, with a strong labor market and inflation near its symmetric 2% objective.”

Apparently, it was a news conference following the announcement, and interpretation that this may be the only cut, that sent investors fleeing.

The Dow Jones Industrial Average closed 333 points lower. The S&P 500 closed 32 points lower. The NASDAQ was down 98 points.

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“We have to remember that only 4% of the world’s consumers live in this country,” says Randy Blach, CattleFax CEO. “Currently 14% of beef and beef by products are exported. More than 20% of the value of every fed steer is generated by exports. We need to have more outlets for not only our beef, but our poultry and pork.”

Through January of this year, U.S. beef exports equated to an average of $309.33 per head of fed slaughter, according to data released by USDA and compiled by the U.S. Meat Export Federation.

Blach was sharing insights at the Cattle Industry Summer Business Meeting near Denver on Tuesday. With record meat consumption expected next year, he emphasized the importance of opening export markets and resolving trade issues.

Here and abroad, Blach explains increased beef quality expands opportunity. Today, upwards of 80% of the U.S. fed beef supply grades Prime and Choice each week. Production of beef achieving those grades increased 50% during the last 15 years. Along the way, he says beef captured an additional 7% of market share of meat spending from poultry and pork.

By way of reference, the combined percentage of carcasses grading Prime and Choice each week so far this year ranges from 77.11% (week ending June 28) to 83.20% (week ending Mar. 29), according to USDA’s National Steer and Heifer Estimated Grading Percent Report.

More specifically, the percentage of carcasses grading Prime ranges from 6.87% (July 19) to 10.10% (Mar. 22). Carcasses grading Choice ranged from 69.59% (May 24) to 73.88% (Feb. 8). The range for carcasses grading in the upper two-thirds of Choice is 30.14% (May 31) to 35.46% (Mar. 22).

“It’s a great, great success story,” Blach says. “We have to continue to be the highest quality protein provider, delivering products we can stand behind that consumers love.”

Follow-through pressure on Lean Hog futures pressured Live Cattle futures once again on Tuesday. Other than 35¢ higher at the back, Live Cattle futures closed an average of 31¢ lower.

Conversely, lower grain futures boosted Feeder Cattle. Feeder Cattle futures closed an average of 88¢ higher, across a range of 52¢ to $1.30 higher.

Wholesale beef values were higher on Tuesday, with good demand and moderate offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 77¢ higher Tuesday afternoon at $214.03/cwt. Select was $1.37 higher at $191.13.

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Despite crop development lagging significantly behind the average, Corn futures closed mostly 5¢ to 6¢ lower through Jul ’20 and then mostly 1¢ to 2¢ lower.

Soybean futures closed mostly 7¢ lower through Mar ’20 and then mostly 2¢ to 4¢ lower.

According to the most recent Crop Progress report, for the week ending July 28, only 58% of corn was silking, which was 42% less than last year and 25% less than average. 13% was at the dough stage, compared to 35% last year and 23% for average. 58% was in Good or Excellent condition, which was 14% less than last year.

Similarly, 57% of soybeans were blooming, which was 28% less than the previous year and 22% less than average. 21% were setting pods, which was 37% less than last year and 24% less than a year earlier. 54% were rated in Good or Excellent condition, compared to 70% a year earlier.

By the way, forage conditions continue strongly positive compared to last year, with

64% of the nation’s pasture and range was rated in Good or Excellent condition, compared to 41% last year. 10% was rated as Poor or Very Poor, compared to 29% a year earlier. States with 20% or more rated as Poor or Very Poor include: AZ (35%); CA (40%); NM (39%); OR (23%); WA (22%).

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Major U.S. financial indices edged lower Tuesday, despite another round of positive quarterly earnings reports from heavyweights such as Proctor & Gamble and Merck. Pressure came from comments made by President Trump, which some investors, apparently, feared would stall trade negotiations with China.

The Dow Jones Industrial Average closed 23 points lower. The S&P 500 closed 7 points lower. The NASDAQ was down 19 points.

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“If feedstuff costs do not skyrocket, cattle feeders are expected to generally breakeven or post small profits late this year,” say analysts with the Livestock Marketing Information Center (LMIC). “In the situation where corn cost is already locked-in, November breakeven sales price is in the range of $105.50-106.50/cwt. per cwt., and $111-112 for December.”

LMIC calculated the June closeout at -$60.66 for steers placed on feed in a Southern Plains feedlot weighing 750 lbs.

For the same month, Iowa State University (ISU) calculated a loss of $39.71 per head for yearling-placed cattle; -$100.61 for calf-feds closed out in June. Both of the calculations include a manure credit.

“Neither the LMIC nor ISU estimates are survey-based, but they do provide indications of the direction of change,” say LMIC analysts, in the latest Livestock Monitor. “Of course, in late 2018 and the first several months of 2019 many cattle feeders had much worse results than these calculations, which are based on normal weather. Very muddy feedlot conditions resulted in red ink for many cattle feeders. The baseline production systems and assumptions for the LMIC and ISU are different. Besides using different prices and costs, ISU incorporates, for example, Modified Distillers Grains in the ration, which is a common feedstuff there.”