WLI

Cattle futures held on to most of the previous session’s gains, but closed marginally lower Thursday.

Except for $1.57 higher in expiring Jun, Live Cattle futures closed an average of 30¢ lower.

Feeder Cattle futures closed an average of 48¢ lower.

Grains mainly tread water Thursday, ahead of Friday’s much-anticipated Stocks and Acreage reports from USDA.

Corn futures closed 2¢ to 3¢ lower through Jul ’20 and then mostly fractionally higher.

Soybean futures closed mostly 3¢ to 6¢ lower through Aug ’20 and then unchanged to fractionally higher.

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

Choice boxed beef cutout value was 67¢ lower Thursday afternoon at $219.03/cwt. Select was $1.66 lower at $196.90.

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Major U.S. financial indices closed narrowly mixed again Thursday, as investors await clues from the meeting scheduled between President Trump and China’s leader at the G20 Summit.

The Dow Jones Industrial Average closed 10 points lower. The S&P 500 closed 11 points higher. The NASDAQ was up 57 points.

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Carcass weights continue pointing to marketing currentness, according to USDA’s most recent Actual Slaughter Under Federal Inspection report.

Dressed steer weights of 849 lbs. for the week ending June 15 were 7 lbs. lighter than a year earlier. Dressed heifer weights were 4 lbs. lighter at 787 lbs.

There were 19,994 head more fed slaughter for the week, compared to a year earlier, and 21,005 head more total slaughter. Beef production for the week of 531.1 million lbs. was 13.3 million lbs. more than the same week a year earlier.

Cattle futures rocketed higher Wednesday, led by Feeder Cattle, apparently buoyed by technical buying and the simple fact they were so oversold.

Live Cattle futures closed an average of $1.43 higher ($1.10 higher at the back to $2.12 higher).

Although still a touch lower week to week, Feeder Cattle futures closed an average of $4.22 higher.

Cash fed cattle trade remained undeveloped. There were only 315 head (three lots) offered in the weekly Fed Cattle Exchange auction, and no sales.

Corn futures closed 2¢ to 4¢ lower through Jul ’20 and then fractionally mixed.

Soybean futures closed 6¢ to 9¢ lower through Sep ’20 and then mostly 2¢ to 5¢ lower.

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

Choice boxed beef cutout value was 6¢ higher Wednesday afternoon at $219.70/cwt. Select was 39¢ lower at $198.56.

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Major U.S. financial indices closed mixed and little changed on Wednesday, following the previous session’s decline.

The Dow Jones Industrial Average closed 11 points lower. The S&P 500 closed 3 points lower. The NASDAQ was up 25 points.

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Over time and in dichotomous terms, depending on one’s perspective, Feeder Cattle futures provide necessary price discovery and a valuable tool to manage price risk. Or, they’re too thinly traded and cash-settled against an index too divorced from daily reality to be of much use to producers.

Researchers at Kansas State University (KSU) tackle the facts in Overview of the CME Group Feeder Cattle Futures Contract by Ted Schroeder, KSU agricultural economist and Justin Bina, a Student Fellow of KSU’s Center for Risk Management Education and Research.

There are no definitive answers.

“Our research provides a better understanding of the issues surrounding the Feeder Cattle futures contract and the contract’s performance over time. However, more extensive research and, especially, discussion with industry users must be conducted to definitively gauge performance of the contract,” say Schroeder and Bina. “Moving forward, increased communication between contract users and CME Group about industry needs and feasibility issues is essential to guarantee successful future use of the contract for price discovery and price risk management purposes.”

The study provides invaluable insight for those conversations. Among the conclusions:

“Cash and nearby futures prices remain highly correlated across time and geographic locations. In addition, basis variation generally decreased in 2014–2018, an era of historically high feeder cattle prices and increased volatility. This implies that the feeder futures contract is a valid price discovery tool and generally tracks cash market conditions across numerous locations.”

“…Feeder Cattle futures trade volume—both front month and deferred contracts—has increased drastically in the last 15 years, but still pales in comparison to similar agricultural products. Discussions with industry users is necessary to determine if the contract should be considered ‘illiquid’ or ‘thinly traded,’ but it appears to be relative to other derivative products in the agricultural complex.”

“Recent volatility in the feeder cattle futures contract is not out of line with certain historical periods, though it has been more sustained in the last five years. Comparison to the other cattle crush inputs shows that feeder cattle volatility is similar across time to that of live cattle and substantially less than corn. However, Feeder Cattle volatility has increased disproportionately since around 2015. Speculative trade activity was assessed to determine its role in increased volatility in Feeder Cattle futures; however, we conclude that volatility does not increase due to an influx of speculative activity, but rather that speculators enter a market as a result of the risk (opportunity) already inherent in that market due to other economic factors.”

Negotiated cash fed cattle trade was undeveloped through Tuesday afternoon. There were a few early dressed sales in Nebraska and the western Corn Belt at $180/cwt., but too few to trend.

A reversal higher in Lean Hog futures and apparent short covering helped Live Cattle futures gain some, while Feeder Cattle continued marginally lower amid light trade.

Except for 2¢ lower in the back contract, Live Cattle futures closed an average of 52¢ higher (10¢ to 82¢ higher).

Except for 25¢ higher in the back contract, Feeder Cattle futures closed an average of 26¢ lower (7¢ to 47¢ lower).

Corn futures closed mixed from 1¢ higher to 3¢ lower. 

Soybean futures closed 3¢ to 8¢ lower.

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

Choice boxed beef cutout value was 10¢ lower Tuesday afternoon at $219.64/cwt. Select was 86¢ lower at $198.95.

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Major U.S. financial indices closed lower Tuesday. Pressure included reports that the Fed may take its time cutting rates, whereas plenty of recent market steam was tied to the notion the central bank would start shaving rates as soon as next month.

More fundamentally, consumer confidence declined to it lowest level this month in almost two years.

“After two consecutive months of improvement, Consumer Confidence declined in June to its lowest level since September 2017 (Index, 120.6),” says Lynn Franco, Senior Director of Economic Indicators at The Conference Board.

The Conference Board Consumer Confidence Index® declined to 121.5 in June from 131.3 in May. The Present Situation Index—based on consumers’ assessment of current business and labor market conditions—decreased from 170.7 to 162.6. The Expectations Index—based on consumers’ short-term outlook for income, business and labor market conditions—decreased from 105.0 last month to 94.1 this month.

 “The decrease in the Present Situation Index was driven by a less favorable assessment of business and labor market conditions. Consumers’ expectations regarding the short-term outlook also retreated,” Franco explains. “The escalation in trade and tariff tensions earlier this month appears to have shaken consumers’ confidence. Although the Index remains at a high level, continued uncertainty could result in further volatility in the Index and, at some point, could even begin to diminish consumers’ confidence in the expansion.”

The Dow Jones Industrial Average closed 179 points lower. The S&P 500 closed 27 points lower. The NASDAQ was down 120 points.

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Drought in Canada may continue pushing more feeder cattle into the U.S., according to the Livestock Marketing Information Center (LMIC).

Although much of the U.S. continues to deal with too much moisture, the LMIC folks explain, in the latest Livestock Monitor, producers in Alberta are contending with several seasons of dry conditions, although the province received some rain earlier this month. Similarly, there had been no rain in Saskatchewan since April, until some recent moisture.

“The implications for the U.S. is that at this point it remains likely there will be cattle that move off summer grazing earlier than normal and early weaning of spring-born calves,” LMIC analysts explain. “Canadian feedlots have been showing a higher year-over-year count since May of 2018. Potentially lower feed costs in the U.S. and the exchange rate could factor into more feeder cattle coming south this year.”

Moreover, cattle on feed in Canada is approaching 1 million head, an inventory level seldom eclipsed, according to LMIC.

“There could also be a capacity factor that limits how many of those early removals could end up in Canadian feedlots. Even with timely rainfall, pasture and range conditions remain delicate and support watching,” say LMIC analysts.

Follow through pressure in Lean Hogs, higher Corn futures and Friday’s Cattle on Feed report helped pressure Feeder Cattle futures sharply lower on Monday, while Live Cattle were narrowly mixed but mostly lower.

Except for an average of 29¢ higher in the front two contracts, Live Cattle futures closed an average of 28¢ lower.

Feeder Cattle futures closed an average of $2.05 lower ($1.70 to $2.45 lower).

After a profit-taking breather on Friday, grain futures continued higher on Monday with the latest Crop Progress report (see below) documenting the significant delay in development compared to the average.

Corn futures closed 3¢ to 4¢ higher through Jul ‘20 and then mostly 1¢ to 2¢ higher.

Soybean futures closed 5¢ to 6¢ higher through Jan ’21 and then 2¢ to 3¢ higher.

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

Choice boxed beef cutout value was 8¢ lower Monday afternoon at $219.74/cwt. Select was 26¢ higher at $199.81.

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Major U.S. financial indices closed narrowly mixed Monday, with traders apparently waiting for more direction from trade talks. President Trump and the Chinese leader are scheduled to meet at the G20 Summit that begins later this week. 

The Dow Jones Industrial Average closed 8 points higher. The S&P 500 closed 5 points lower. The NASDAQ was down 26 points.

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“The lack of summer thus far has limited seasonal beef demand,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “After early beef buying in April for Memorial Day, boxed beef cutout values have weakened, averaging 3.8% lower year over year for the last six weeks. The daily boxed beef price last Friday was down 6.2% from the peak price in late April. The weakness has been most pronounced in the high value middle meats, with loin primals averaging 7.9% lower year over year for the last six weeks and rib primals averaging 5.5% lower year over year for the same period. Chuck and round primals have fared somewhat better with round primals down only 1.8% year over year and chuck primals up an average of 1.3% over the last six weeks, compared to the same period last year. Both chuck and round values have showed more strength in the latest weekly data. Encouragingly, the ground beef market is showing a little life with both lean trimmings and 50% trimmings currently priced a bit higher compared to last year.”

Although there will likely be pent up demand for the 4th of July, Peel notes current weather forecasts indicate large swaths of the nation will still be experiencing below normal temperatures.

“Moreover, continued flooding and swollen rivers and lakes in some regions will limit recreational activities for some time yet,” Peel says.

Negotiated cash fed cattle prices last week ended up $2-$4 lower on a live basis at $108-$110/cwt. in the Southern Plains, mostly $110 in Nebraska and at $113-$114 in the western Corn Belt. Dressed trade was $3-$4 lower in Nebraska at $180-$183 and $6 lower in the western Corn Belt at $178-$180.

Limit-down moves in Lean Hog futures, lower cash fed cattle prices, the outlook for higher feed prices and perhaps some positioning ahead of the monthly Cattle on Feed report (see below) contributed to further erosion in Cattle futures on Friday.

Live Cattle futures closed an average of 88¢ lower (40¢ to $1.72 lower).

Feeder Cattle futures closed an average of $1.22 lower.

Grain futures ended the week lower on apparent profit taking.

Corn futures closed 6¢ to 7¢ lower through Jul ‘20 and then fractionally higher to 1¢ higher.

Soybean futures closed mostly 10¢ to 13¢ lower. 

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

Choice boxed beef cutout value was 90¢ lower Friday afternoon at $219.82/cwt. Select was $1.93 lower at $199.55.

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Major U.S. financial indices edged lower Friday. 

The Dow Jones Industrial Average closed 34 points lower. The S&P 500 closed 3 points lower. The NASDAQ was down 19 points.

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Markets will likely view Friday’s monthly Cattle on Feed report—feedlots with 1,000 head or more capacity—as neutral to slightly bearish.

Placements in May of 2.06 million head were 2.82% less (-60,000 head) than the previous year, whereas expectations ahead of the report were for a decline of about 4%. In terms of placement weight, 32.71% went on feed weighing less than 699 lbs.; 50.33% weighing 700-899 lbs.; 16.95% weighing 900 lbs. or more.

Marketings in May of 2.07 million head were 0.68% more (+14,000 head) than the previous year. Expectations ahead of the report were for an increase of 0.80%.

Cattle on feed June 1 of 11.74 million head were 1.62% more (+187,000 head) more than last year, the most for the month since the data series began in 1996. Heading into the report, expectations were for an increase of 1.30%.

More positive, the monthly Cold Storage report indicates beef in freezers as of May 31 was 6% less than the previous month and 13% less than the previous year. That follows the steep decline of the previous month when supplies were 5% less month to month and 9% less year over year.

Frozen pork supplies were 1% more than the previous month and year.

Total frozen red meat supplies were 2% less than the previous month and 6% less than the prior year.

Total frozen poultry supplies were 2% less than the previous month and 6% less than the previous year.