WLI

Front-month Live Cattle futures firmed Tuesday, following pressure in the previous session, perhaps suggesting traders took a harder look at currently favorable fundamentals; open interest continues to grow. Feeder Cattle gave back the previous day’s gains amid light trade.

Except for 47¢ higher in spot Apr, Live Cattle futures closed narrowly mixed (20¢ lower to 5¢ higher).

Feeder Cattle futures closed an average of 70¢ lower.

Corn futures closed mostly 1¢ to 2¢ higher.

Soybean futures closed 1¢ to 2¢ lower through Mar ’20 and then mostly fractionally higher.

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

Choice boxed beef cutout value was 49¢ higher Tuesday afternoon at $224.04/cwt. Select was 58¢ higher at $217.79.

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Major U.S. financial indices leaked lower Tuesday. Support included strong quarterly earnings from retailers such as Target and Kohl’s. Drag included the lack of resolution to trade talks between the U.S. and China.

The Dow Jones Industrial Average closed 13 points lower. The S&P 500 closed 3 points lower. The NASDAQ was down 1 point.

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Farmer sentiment weakened last month amid increasing concerns about marketing risk and continued uncertainty around tariffs, according to the latest  Purdue-CME Group Ag Economy Barometer.

The February barometer—based on a survey of 400 U.S. agricultural producers—declined 7 points from the previous month to 136.

“Last month we saw a significant boost in optimism among agricultural producers after the announcement of the second round of MFP payments; however, it appears the positive impact eroded quickly,” says James Mintert, the barometer’s principal investigator and director of Purdue University’s Center for Commercial Agriculture. “Compared to responses from a year ago, fewer farms said they expect their operation to grow in the future, which could be a sign of increasing financial stress. We’re also seeing a growing number of farms concerned about marketing risk, ranking it as the biggest risk facing their operations.”

The monthly survey includes measures of producer sentiment toward current conditions and future expectations. In February, both indexes declined. The Index of Current Conditions saw the biggest drop, down from 132 to 119, whereas the Index of Future Expectations weakened slightly, down from 148 to 145.

When producers were asked whether they have plans to grow or increase the size of their current operation in 2019, 50% of respondents said that they either “have no plans to grow” or “plan to reduce in size,” compared to 39% in 2018. Last month, when 25% of farmers surveyed indicated they expected to take out a larger operating loan in 2018 versus 2019, a follow-up question found that 27% of those farms were taking out larger loans due to unpaid operating debt carryover, suggesting they were experiencing financial stress.

Live Cattle futures softened Monday, perhaps on profit taking, given stronger cash prices and higher wholesale beef values. Feeder Cattle gained, though, with some chatter crediting support to the potential impact of the recent arctic blast.

Other than 30¢ and 2¢ higher in the back two contracts, Live Cattle futures closed an average of 44¢ lower.

Other than 2¢ lower in the front two contracts, Feeder Cattle futures closed an average of 86¢ higher.

Corn futures closed fractionally higher to 1¢ higher.

Soybean futures closed 4¢ to 5¢ higher.

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

Choice boxed beef cutout value was $2.26 higher Monday afternoon at $223.55/cwt. Select was 42¢ higher at $217.21.

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Major U.S. financial indices closed lower Monday, with more data pointing toward slowing domestic economic growth. In this case, it was less construction spending than expected for December, according to the latest report from the U.S. Department of Commerce.

The Dow Jones Industrial Average closed 206 points lower. The S&P 500 closed 10 points lower. The NASDAQ was down 17 points.

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“It appears that herd expansion is nearly over, although the level of beef replacement heifers is large enough to support a minimal level of additional herd expansion in 2019,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

Peel is referring to last week’s Cattle report. Although there were more beef cows Jan 1—299,500 more than a year earlier—significantly fewer beef heifers were retained as replacements.

Specifically, there were 5.92 million beef replacement heifers Jan. 1, according to the Cattle report. That was 183,300 head fewer than a year earlier or 3.0% less.

“Beef replacement heifers as a percent of the beef cow herd on Jan. 1 of 2019 was 18.7%. This ratio is down from 19.4% one year ago as heifer retention moves closer to levels consistent with zero herd growth,” Peel explains. “A record heifer retention level occurred in 2016 with beef replacement heifers at 21.0% of the beef cow herd. Over the past 30 years this ratio has averaged 17.8%.”

That doesn’t mean the herd will necessarily shrink much after hitting the cyclical peak.

 “While cyclical expansion may be mostly complete, there is no indication of herd liquidation at this time. Average cattle prices are expected to continue at current levels and seem likely to hold cattle numbers steady in 2019,” Peel says. “Future market conditions, good or bad, could prompt additional expansion or liquidation in 2020 and beyond. Producers should continue to monitor domestic and international market conditions to see what new cattle market direction emerges in the coming months.”

Negotiated cash fed cattle trade was $1.50-$3.50 higher on a live basis Friday at $128-$130/cwt. in the western Corn Belt, $128-$129 in Nebraska and, according to the Texas Cattle Feeders Association, at $128 in the Texas Panhandle. In the beef, prices were $3 more than the previous week at $205 with a few up to $206 in the western Corn Belt.

Live Cattle futures mostly edged higher on fundamental strength Friday, while nearby Feeder Cattle dropped, perhaps with queasiness about increased numbers waiting to go on feed, plus the slower pace of fed cattle marketing.

Other than 30¢ and 7¢ lower at either end of the board, Live Cattle futures closed an average of 16¢ higher.

Feeder Cattle futures closed an average of 92¢ lower across the front half of the board (20¢ lower to $1.65 lower in spot Mar) and then an average of 38¢ higher (5¢ higher to $1.30 higher in the back contract).

Corn futures closed 1¢ to 2¢ higher.

Soybean futures closed mostly 1¢ to 2¢ higher.

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

Choice boxed beef cutout value was $1.34 higher Friday afternoon at $221.29/cwt. Select was $1.52 higher at $216.79.

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Major U.S. financial indices closed higher Friday, with growing optimism regarding a U.S.-China trade deal. That was tempered by economic news, such as that from the Institute for Supply Management (ISM)—Manufacturing Report on Business—pointing to slowing domestic economic growth.

“Comments from the panel reflect continued expanding business strength, supported by notable demand and output, although both were softer than the prior month,” said Timothy R. Fiore, CPSM, C.P.M., Chair of ISM’s Manufacturing Business Survey Committee. “Demand expansion continued, with the New Orders Index reaching the mid-50s, the Customers’ Inventories Index scoring lower and remaining too low, and the Backlog of Orders returning to a low-50s expansion level. Consumption (production and employment) continued to expand but fell a combined 8.9 points from the previous month’s levels. Inputs — expressed as supplier deliveries, inventories and imports — stabilized at a mid-50s level and had a slight negative impact on the PMI®. Inputs continue to reflect an easing business environment, confirmed by Prices Index contraction.”

The Dow Jones Industrial Average closed 110 points higher. The S&P 500 closed 19 points higher. The NASDAQ was up 62 points.

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“The April live cattle contract is running more than a $9 premium to the June contract and more than a $13 premium to the August contract. At the same time, the finished cattle market is trading between a negative $1 to negative $2 basis compared to the April contract,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “Considering this scenario, there is a large price gap to fill between now and the June contract. As likely or as unlikely as it may seem that finished cattle prices will decline $9 between April and June, the market could actually have more swing than what is being represented by futures. Steer slaughter the first couple of months of 2019 has been below previous year levels, which likely means there are more animals waiting in the balance the next few months.”

Fed cattle slaughter in December of 2.01 million head was 0.67% less (-13,500 head) than the previous December, according to the latest USDA Livestock Slaughter report. December beef production of 2.12 billion lbs. was 1.52% less (-32.6 million lbs.) than the same month in 2017.

Negotiated cash fed cattle trade, undeveloped through Thursday afternoon, is setting up to be another late or after-hour affair again this week.

Live Cattle futures mostly tread water, while continued anemic trade, likely month-end position squaring and pessimism about growing fed cattle supplies later in the year helped pressure Feeder Cattle.

Other than 55¢ higher in spot Feb and unchanged in Jun, Live Cattle futures closed an average of 19¢ lower.

Feeder Cattle futures closed an average of $1.03 lower through the front three contracts and then an average of 27¢ lower, except for 12¢ higher in Nov.

Corn futures closed mostly 2¢ to 3¢ lower.

Soybean futures closed mostly 3¢ to 6¢ lower.

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

Choice boxed beef cutout value was 49¢ higher Thursday afternoon at $219.95/cwt. Select was $2.48 higher at $215.27.

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Major U.S. financial indices closed lower Thursday, presumably on failed talks between the U.S. and North Korea, regarding the latter’s nuclear weapons.

Pessimism came despite stronger domestic economic growth in the fourth quarter than many expected. Real gross domestic product (GDP) increased at an annual rate of 2.6% in the fourth quarter of 2018, according to the initial estimate released by the Bureau of Economic Analysis. In the third quarter, real GDP increased 3.4%.

The Dow Jones Industrial Average closed 69 points lower. The S&P 500 closed 7 points lower. The NASDAQ was down 22 points.

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Cow-Calf producers continued to expand the nation’s beef cowherd last year by close to 1%, according to the delayed Cattle report issued by USDA on Thursday.

Specifically, 31.77 million beef cows Jan. 1 were 299,500 more than a year earlier or 0.95% more.

Of the eight states with more than 1 million beef cows, five began this year with more numbers: 135,000 head more in Texas (+2.99%); 67,000 head more in South Dakota (+3.83%); 62,000 head more in Oklahoma (+2.97%); 31,000 head more in Nebraska (+1.62%); 25,000 head more in Kansas (+1.67%).

As expected at this stage of the cattle cycle—expansion nearing the plateau—producers are retaining fewer replacements: 5.92 million beef replacement heifers Jan. 1 were 183,300 head fewer than a year earlier or 3.0% less.

States with the most year-to-year growth in beef replacement retention included: Florida, Michigan, North Dakota, Oregon, South Carolina, Tennessee and Washington.

The total inventory of all cattle and calves Jan. 1 of 94.76 million head were 461,700 more than a year earlier or 0.49% more

Estimated feeder cattle supply (cattle outside feedlots) of 26.38 million head was 0.98% more (+255,400 head) than Jan. 1 a year earlier.

By and large, estimates ahead of the report were in line with USDA estimates or a touch more conservative.

One more thing, despite tough, wet conditions for planting winter wheat, the 1.9 million head grazing small grain pastures in Kansas, Oklahoma and Texas is 400,000 head more (+26.67%) than a year earlier.