WLI

USDA shocked the market Friday with its latest Acreage report (see below), which sent Corn futures diving hard. That fueled gains in Feeder Cattle futures, which closed an average of 50¢ higher (12¢ higher to $1.05 higher in spot Aug). Prices at the close were well off of session highs with likely week-end and month-end position squaring. 

Live Cattle futures closed mixed, from 71¢ lower across the front half of the board—not counting expiring June—to an average of 13¢ higher across the back half, not counting newly minted Dec ’20.

Negotiated cash fed cattle trade began to develop by late Friday afternoon, but there were too few transactions to trend in any region.

Early live sales in the Southern Plains were at $109/cwt. on a live basis, in the middle of the previous week’s trading range. The Texas Cattle Feeders Association also reported its members trading at $109. Early live sales in Nebraska were steady to higher at $109.00-$111.50. In the western Corn Belt, though, the $109-$112 for early live sales was $1-$3 less than the previous week. Earlier week dressed sales in the latter two regions were at $180, which was steady in Nebraska and steady to lower in the western Corn Belt.

Through Thursday, the 5-area direct weighted average price for steers was $110.58/cwt.

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

Choice boxed beef cutout value was 63¢ higher Friday afternoon at $219.03/cwt. Select was $1.34 lower at $195.56. At $24.10, the Choice-Select spread Friday afternoon was the highest since May of last year.

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Major U.S. financial indices closed higher on Friday, led by stronger prices for shares of the nation’s largest banks, after they passed the federal stress test administered each year.

The Dow Jones Industrial Average closed 73 points higher. The S&P 500 closed 16 points higher. The NASDAQ was up 38 points.

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USDA’s Acreage report issued on Friday always was going to raise questions, given the uncertainty borne by late and prevented planting, the timing of the survey process and whatnot. Even so, few expected to see so many corn acres.

USDA estimated corn acreage at 91.7 million acres, up 3% from last year. That’s less than the 92.8 million acres estimated in the March Prospective Plantings report, but more than the 89.8 million acres estimated by the World Agricultural Outlook Board (WAOB ) in the June World Agricultural Supply and Demand Estimates, and about 5 million acres more than average estimates ahead of the report. Keep in mind, the acreage report is based on producer surveys, whereas the WAOB estimate is model-based.

USDA’s Grain Stocks report provided some corn market support, with USDA estimating corn stocks in all positions June 1 at 5.20 billion bu., which was 2% less than the previous year.

Of the total corn stocks, 2.95 billion bu. are stored on farms, up 7% from a year earlier. Off-farm stocks, at 2.25 billion bu., are down 12% from a year ago.

Corn futures closed 13¢ to 21¢ lower through Jul ’20 on Friday and then 2¢ to 6¢ lower.

News was as bullish for soybeans as it was bearish for corn, at least in terms of acreage. USDA estimated 80.0 million acres of soybeans, which would be 10% less than last year and the fewest U.S. acreage since 2013. That’s far less than the 84.6 million acres forecast in the Prospective Plantings report and June WASDE.

Soybean futures closed mostly 10¢ to 12¢ higher.

Soybean stocks were more bearish, with soybeans stored in all positions estimated at 1.79 billion bu., which would be 47% more than a year ago, as a variety of factors, including trade issues and impacts from African Swine Fever weigh on U.S. soybean exports.

On-farm soybean stocks totaled 730 million bu., up 94% from a year ago. Off-farm stocks of 1.06 billion bu., were 26% more than a year ago.

USDA pegs the all wheat planted area at 45.6 million acres, which would be 5% less than last year and just slightly less than the 45.8 million acres estimated in March’s Prospective Plantings report and the June WASDE.

Old crop all wheat stored in all positions June 1 totaled 1.07 billion bu., down 2% from a year earlier. On-farm stocks are estimated at 207 million bu., up 58% from last year. Off-farm stocks of 865 million bu. were 11% less than a year ago.

According to the Agricultural Marketing Service (AMS), USDA will re-survey producers in 14 states next month regarding acres planted to corn, cotton, sorghum and soybeans.

“If the newly collected data justify any changes, NASS will publish updated acreage estimates in the Crop Production report to be released Aug. 12,” AMS analysts explain.

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.