WLI

Negotiated cash fed cattle trade ended the week mainly steady with the previous week on a live basis at $115 in the Southern Plains, $116 in Nebraska and mostly $116-$117 in the western Corn Belt. Dressed trade was steady to $3 higher at $186 in Nebraska and at $185-$187 in the western Corn Belt.

Live Cattle futures tried to firm early in Friday’s session but gave way to further losses as sharp follow-through pressure continued in Feeder Cattle, despite sharply lower Corn futures on the day.

Added pressure on commodities came from news that President Trump plans to impose 5% tariffs on Mexican imports, beginning June 10, unless that country makes significant progress toward stemming the flow of illegal immigrants across its northern border into the U.S. Should that come to pass, the move also casts a shadow over ratification of the U.S.-Mexico-Canada trade agreement.

Live Cattle futures closed an average of $1.47 lower. That’s an average of $3.79 lower in the previous two sessions.

Feeder Cattle futures closed an average of $3.52 lower ($1.77 lower to $5.10 lower in spot Aug), in the heaviest trade volume since early April. That made for an average of $7.62 lower in the last two session.

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

Choice boxed beef cutout value was 37¢ lower Friday afternoon at $223.21/cwt. Select was $1.18 lower at $207.69.

Corn futures on Thursday closed 4¢ to 9¢ lower, presumably on profit taking, month-end position squaring and worries about tariffs on Mexico.

Soybean futures closed 9¢ to 11¢ lower. 

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Major U.S. financial indices dove lower Friday on the aforementioned threat of U.S. tariffs on Mexican imports.

Crude oil futures (WTI-CME) closed another $2.98 to $3.10 lower through the front six contracts. That’s $5.11 to $5.32 lower in the last two sessions.

The Dow Jones Industrial Average closed 354 points lower. The S&P 500 closed 36 points lower. The NASDAQ was down 114 points.

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African Swine Fever (ASF) continues to spread geographically and numerically.

According to analysts with CoBank’s Knowledge Exchange Division, it has already caused the loss of hundreds of millions of pigs across China and Southeast Asia, creating a massive shortfall in animal protein supply for those regions through 2020, and possibly for years to come. They add that the shortfall will have significant implications for the U.S. animal protein and feed sectors.”

Assuming the U.S. remains free of AFS, it stands to gain via more exports of pork and other animal proteins.

“The U.S. continues to remain a low-cost exporter of protein products and is in strong position to be a major beneficiary as China and other Asian markets ramp up their imports,” says Will Sawyer, CoBank lead economist for animal protein. “But if the trade dispute with China remains unresolved, the upside trade potential for the U.S. meat sectors may not be fully realized.”

At the same time, the U.S. looks to continue losing feed grain exports. The reduction of feed demand due to ASF will be especially painful for elevators, crushers, and feed mills focused on Chinese markets, according to CoBank.

In a new report from CoBank, African Swine Fever Implications for U.S. Ag, analysts project a 30% decline in the Chinese hog herd for 2019-20, compared to 2017-18, would reduce soybean meal consumption by 9 million metric tons (mmt) and corn consumption by 28 mmt.

Reduced feed grain demand will likely linger as China begins to rebuild its herd.

As of May 23, the World Organization for Animal Health (OIE) AFS situation report indicated a total of 3,835 ongoing outbreaks and 2,607 new outbreaks. For perspective, the previous report (Apr. 26-May 9) indicated 1,322 ongoing outbreaks and 157 new ones. Countries and territories reporting on new or ongoing ASF outbreaks included: Europe (Belgium, Hungary, Latvia, Poland, Romania, Russia and Ukraine); Asia (China, Hong Kong and Vietnam) and Africa (South Africa). 

In an effort to prevent a global ASF pandemic, OIE launched a global initiative for the control of ASF at its 87th General Session last week.

“Given the global socioeconomic repercussions of ASF, controlling the disease is a high priority for both affected countries and those free of the disease,” according to an OIE statement. “Although ASF poses no risk to human health, it is devastating for the economy of pig farms and for international trade, with repercussions for the livelihoods of farmers and for food safety.”

Cattle futures collapsed late in Thursday’s session with Feeder Cattle limit down in the front months and Live Cattle sharply lower.

Feeder Cattle futures closed an average of $4.10 lower.

No doubt, surging grain prices had plenty to do with the pressure in Feeder Cattle.

Corn futures on Thursday closed 11¢ to 17¢ higher through Jul ‘20 and then mostly 1¢ higher. Week to week, that’s an average of 41¢ higher through the front six contracts.

Soybean futures closed 16¢ to 17¢ higher through Mar ‘20 and then mostly 8¢ to 14¢ higher. Week to week, that’s an average of 66¢ higher through the front six contracts.

Other than spillover pressure, it was harder to explain the hard decline in Live Cattle, especially from a fundamental standpoint.

Live sales so far this week are mainly steady at $115/cwt. in the Southern Plains and at $116 in Nebraska. Though too few to trend, early dressed sales on Thursday were steady to $4 higher at $186-$187 in Nebraska and the western Corn Belt.

Wholesale beef values are higher, too. Week to week on Thursday, Choice boxed beef cutout value was $2.79 higher at $223.58/cwt. Select was $2.34 higher at $208.87.

But, Live Cattle futures closed an average of $2.32 lower.

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Major U.S. financial indices edged higher Thursday. Though worries about economic growth continue, the second estimate for first-quarter GDP growth of 3.1%, from the U.S. Bureau of Economic Analysis, provided some support.

Crude oil futures (WTI-CME) tumbled $2.13 to $2.22 lower through the front six contracts.

The Dow Jones Industrial Average closed 43 points higher. The S&P 500 closed 5 points higher. The NASDAQ was up 20 points.

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Slowing global economic growth is one factor behind expectations for reduced year-over-year U.S. agricultural exports, according to the most recent Outlook for U.S. Agricultural Trade, From USDA’s Economic Research Service (ERS).

“Per capita world GDP growth is expected to decrease from 2.1% in 2018 to 1.8% in 2019,” say ERS analysts. “Global trade tensions and the fading impact of fiscal stimulus in the United States, and monetary stimulus elsewhere, will lead to slowed growth for the remainder of 2019.”

Projected livestock, dairy and poultry exports were reduced $500 million to $29.9 billion.

Beef exports are forecast $300 million lower to $7.4 billion on softer prices and volumes. However, ERS analysts point out Australia’s weather-related struggles (lower exportable supplies) provide the U.S. opportunity to expand Asian market share.

“Overall, U.S. agricultural exports for fiscal year 2019 are projected at $137.0 billion, down $4.5 billion from the February forecast, due to reductions in grains, oilseeds, and livestock and products,” say ERS analysts. “Export forecasts for commodities published in the May 10 WASDE (grains, oilseeds, cotton, and livestock and products) include Chinese tariffs in place as of that date. The impact of additional retaliatory tariffs announced by China May 13 on exports of other commodities have been determined to be minimal for fiscal 2019.”

So far, signs point to at least steady prices for negotiated cash fed cattle trade this week.

Although there were too few transactions for a trend, early live sales were mainly steady on Wednesday at $115/cwt. in the Southern Plains and at $116 in Nebraska.

Early in the day, 137 head sold out of the 483 head offered in the weekly Fed Cattle Exchange auction. Two lots from Kansas sold for a weighted average price of $115/cwt.

The outlook for steady cash and recently stronger wholesale beef values helped Cattle futures recover some early ground, following early pressure.

Live Cattle futures closed an average of 44¢ higher, (7¢ to 80¢ higher). Perhaps traders are also starting to account for the higher production cost in the deferred contracts.

Feeder Cattle futures closed narrowly mixed, from an average of 26¢ lower to an average of 24¢ higher.

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

Choice boxed beef cutout value was 24¢ higher Wednesday afternoon at $223.53/cwt. Select was 46¢ lower at $209.99.

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

Soybean futures closed 10¢ to 16¢ higher through Aug ‘20 and then mostly 4¢ to 9¢ higher.

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Major U.S. financial indices closed lower again Wednesday, with continued pressure from declining bond yields and bank stocks, tied to signs of slowing economic growth here and abroad.

The Dow Jones Industrial Average closed 221 points lower. The S&P 500 closed 19 points lower. The NASDAQ was down 60 points.

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The Livestock Marketing Information Center (LMIC) projects second-quarter cattle prices to average slightly higher year over year: about 2% higher for fed cattle and 1% more for steer calves (500-600 lbs.) and feeders (700-800 lbs.).

That follows a first-quarter decline of 0.1% for fed steers (5-Area Direct). Basis the Southern Plains, feeder steer prices were 3.9% less (-$5.76/cwt.), while steer calves averaged 4.8% less (-$8.60/cwt.).

“U.S. cattle slaughter for the first quarter of 2019 was slightly above a year ago (up 0.7%), while tonnage produced was 0.8% below 2018’s,” say LMIC analysts, in the latest Livestock Monitor. “The year-over-year increase was due to larger heifer and cow (beef and dairy) harvests. Production declined because of lower dressed weights for steers, heifers, and cows.”

LMIC forecasts fed steer prices in the third quarter (July-September) to average $112-$115/ cwt., about 3% more year over year. Feeder steers are expected to be 3% to 4% below the previous year’s average of $155.99. Steer calf prices for the quarter are pegged flat to 1% higher.

In the fourth quarter, LMIC analysts say, “Compared to 2018, fed cattle prices may be higher (up 1% to 3%), 700-800-pound steers flat, and calves unchanged to 4% stronger.”

Surging grain futures prices helped pressure Feeder Cattle futures to start the week. That helped cap early support in Live Cattle. Lower outside markets, a sharp decline in Lean Hog futures and more cool, wet weather that could continue to dampen summer grilling demand also weighed.

Live Cattle futures closed narrowly mixed, from an average of 25¢ lower to an average of 21¢ higher.

Feeder Cattle futures closed an average of $1.17 lower.

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

Choice boxed beef cutout value was $1.65 higher Tuesday afternoon at $223.29/cwt. Select was $1.98 higher at $210.45.

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Grain futures closed sharply higher Tuesday, buoyed by ongoing planting and development delays, as illustrated in the most recent USDA Crop Progress report.

For instance, 58% of corn was planted as of May 26, which was 32% less than last year and 32% less than the 5-year average. 32% is emerged, which is 37% less than last year and 37% less than average.

Progress is even more bearish in some key states, compared to average: Planting is 60% behind average in Illinois; 63% behind in Indiana; 20% behind in Iowa; 27% off the pace in Minnesota and 13% less than average in Nebraska.

Likewise, 29% of soybeans are in the ground, compared to 74% for the previous year and 66% for the average. 11% are emerged, which was 33% less than last year and 24% less than average.

Progress is even more bearish in some key states, compared to average: Illinois (-60%);  Indiana (-63%); Iowa (-20%); Minnesota (-27%); Nebraska (-13%).

Corn futures closed mostly 17¢ higher through Jul ‘20 and then 2¢ to 6¢ higher.

Soybean futures closed 23¢ to 26¢ higher through Sep ‘20 and then mostly 17¢ to 22¢ higher.

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Major U.S. financial indices closed lower Tuesday, pressured by declining yield on the 10-year Treasury note and bank stocks.

The Dow Jones Industrial Average closed 237 points lower. The S&P 500 closed 23 points lower. The NASDAQ was down 29 points.

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“Both Live and Feeder cattle are likely due to a correction (technical) following the rapid move at the end of April and the stalling of that move in May. The recent Cattle on Feed report may be the catalyst to start the correction,” says Stephen Koontz, agricultural economist at Colorado State University, in the most recent issue of In the Cattle Markets. “Feedlots marketing aggressively and did not place as strongly as expected during April.”

Along with April placements being less than the trade anticipated, Koontz points out, “Cattle on feed over 90 days declined very slightly and cattle on feed over 120 days are down sharply—over 200,000 head. Cattle on feed over 120 days start to decline seasonally during May; this was seen, but more sharply than typical.”