WLI

There were a few early negotiated fed cattle sales in Nebraska Monday at $122.50/cwt., but too few to trend. Live sales there last week were at mostly $123.

Cattle futures closed higher, buoyed by firmer outside markets and oversold conditions. There’s also the most open interest in Live Cattle for at least nine months.

Live Cattle futures closed an average of 76¢ higher (37¢ higher at the back to $1.27 higher in spot Feb).

Feeder Cattle futures closed an average of 98¢ higher.

Corn futures closed fractionally mixed.

Soybean futures closed mostly 1¢ to 2¢ higher.

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

Choice boxed beef cutout value was 23¢ lower Monday afternoon at $214.28/cwt. Select was 55¢ higher at $208.21.

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Follow-through support helped major U.S. financial indices close higher Monday, maintaining robust gains from the previous session. Optimism included Friday’s employment report and hopes concerning trade talks with China.

The Dow Jones Industrial Average closed 98 points higher. The S&P 500 closed 17 points higher. The NASDAQ was up 84 points.

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“Evolving market dynamics make it easy to underestimate how the impacts and costs of trade issues will continue to grow in 2019,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. 

Direct impacts from tariffs are the most visible. In particular, Peel mentions the impact on U.S. pork and soybeans, resulting from reciprocal tariffs with China. There’s also the impact on U.S. pork and dairy products from tariffs imposed by some countries in retaliation for U.S. tariffs on steel and aluminum imports.

“Economic impacts of tariffs may be initially limited mostly to changes in margins if the disruptions are perceived to be short-lived,” Peel explains. “Later, the impacts will evolve from the initial market shock to larger and more permanent adjustments. With more time and ongoing uncertainty about trade issues, more and more of the cost of tariffs are passed on to buyers; alternative product flows develop; lost market shares become much more difficult to undo. The direct costs of tariffs are difficult to measure but certainly grow over time.”

Less visible is lost opportunity.

For instance Peel says, “The U.S. withdrew from the Trans-Pacific Partnership (TPP) two years ago. The remaining 11 countries continued and launched the revised TPP (CPTPP) in January 2019. Not only does the U.S. not have the benefit of tariff adjustments and increased market access with TPP; going forward the U.S. will be increasingly less competitive and likely lose ground relative to TPP participants. The stated U.S. intention to negotiate bilateral trade deals with Japan and others has so far not resulted in new agreements or even serious discussions.”

All of that is before considering the toll tariffs levy on the overall U.S. economy.

“It is nearly impossible to know how much trade and investment has been postponed or abandoned as a result of trade uncertainty the past two years,” Peel says. “The combined direct impacts, lost trade opportunities and ongoing uncertainty are reducing growth potential for U.S. and global economies, and those impacts are likely to grow in 2019, barring improvement in trade issues.”

Negotiated cash fed cattle trade for the week was generally steady in Nebraska and the Southern Plains at $123/cwt. ($122.00-$122.50 in Nebraska). Live sales were $1-$2 higher in the western Corn Belt at $121-$122. Dressed trade was steady in Nebraska at $195; steady to $4 higher in the western Corn Belt at $194-$195.

Higher grain prices helped pressure Feeder Cattle, while softer wholesale beef values and volatile outside markets weighed on Live Cattle.

Live Cattle futures closed an average of 98¢ lower (67¢ to $1.40 lower).

Feeder Cattle futures closed an average of $1.40 lower.

Corn futures closed 2¢ to 3¢ higher through Sep ‘20 and then 1¢ to 2¢ higher.

Soybean futures closed 7¢ to 10¢ higher through Sep ’20 and then mostly 4¢ higher.

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

Choice boxed beef cutout value was $1.98 lower Friday afternoon at $214.51/cwt. Select was $1.72 lower at $207.66.

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Major U.S. financial indices rocketed higher Friday, buoyed by a monthly jobs report that shattered expectations to the upside, as well as comments from the Fed, suggesting they may be more patient in making further increases to interest rates.

Total non-farm payroll employment increased by 312,000 in December, according to the U.S. Bureau of Labor Statistics. That left the unemployment rate at 3.9%, which was 0.2% more than the previous month.

In December, average hourly earnings for all employees on private non-farm payrolls rose 11¢ to $27.48. Over the year, average hourly earnings increased by 84¢, or 3.2%.

The Dow Jones Industrial Average closed 746 points higher. The S&P 500 closed 84 points higher. The NASDAQ was up 275 points.

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With the partial government shutdown dragging into the third week, analysts with the Livestock Marketing Information Center (LMIC) note the absence of some market reports and the risk of delayed key pending reports are adding to uncertainty.

“Actual slaughter data has been among the most missed weekly market data. That data is compiled by the National Agricultural Statistics Service (NASS) but is released by the Agricultural Marketing Service. It provides valuable information on weights, production, and the number of head slaughtered,” LMIC analysts explain. “The next couple of weeks hold several vital reports that could affect the tone of the entire year. For example, the annual Cattle Inventory is scheduled to be published at the end of this month. That report provides one of only two point estimates in the size of the beef herd, and the number of replacement animals producers are holding. The monthly Cattle on Feed report also is at risk. Without that type of information, cattle markets will be flying blind.”

Other reports scheduled soon include November trade data from the Foreign Agricultural Service, as well as the monthly World Agricultural Supply and Demand Estimates from USDA’s Economic Research Service.

“The most extended government shutdown occurred in 1995 to 1996 and lasted three weeks,” say LMIC analysts. “In the past, some data has been recovered and released at a later date. However, in cases where the data is done by survey, as with many of the USDA NASS reports, that data is usually not recoverable because the survey was not sent or collected.”

Negotiated cash fed cattle trade was steady at $123/cwt. in the Southern Plains through Thursday afternoon, with moderate demand and slow trade in the Texas Panhandle; moderate trade and demand in Kansas. There were a few live sales in Nebraska at the same price and steady with the prior week, but too few to trend.

Sharply lower outside markets and higher grain prices pressured Feeder Cattle futures on Thursday. Live Cattle softened some, but received support from steady cash fed cattle and wholesale beef values.

Except for 5¢ higher in away Feb, Live Cattle futures closed an average of 25¢ lower.

Feeder Cattle futures closed an average of $1.24 lower.

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

Soybean futures closed mostly 3¢ to 6¢ higher.

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

Choice boxed beef cutout value was 15¢ lower Thursday afternoon at $216.49/cwt. Select was $1.53 lower at $209.38.

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Major U.S. financial indices plunged Thursday, fueled by increasing worries about slowing global economic growth. A letter from Apple to investors seemed to fuel the selloff. Apple sees its first-quarter revenue at $84 billion, significantly lower than previous estimates and about $7 billion short of analyst expectations, according to various reports.

“While we anticipated some challenges in key emerging markets, we did not foresee the magnitude of the economic deceleration, particularly in Greater China,” explained Apple CEO, Tim Cook, in the letter. “In fact, most of our revenue shortfall to our guidance, and over 100 percent of our year-over-year worldwide revenue decline, occurred in Greater China across iPhone, Mac and iPad.”

Domestically, investors also appeared rattled by a softer Purchasing Managers Index (PMI®) than expected. The December PMI was 54.1%, down 5.2% from the previous month, according to the latest Manufacturing ISM® Report On Business®.

The Dow Jones Industrial Average closed 660 points lower. The S&P 500 closed 62 points lower. The NASDAQ was down 202 points.

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“Beef production in 2018 is projected to total nearly 27 billion lbs. of beef products resulting from the slaughter of 33 million head of cattle. The economic system that connects cattle production to beef consumption is remarkably complex and is a challenge for producers and consumers alike to understand and appreciate,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

Peel points to the diverse markets for beef, geographic production diversity, the array of demand factors affecting individual beef items, let lone beef overall, as well as beef’s perishability. Plus, meeting fresh beef demand requires a continuous flow of slaughter-ready cattle, despite the fact that about 80% of the nation’s calves are born in the spring.

“As we wrap up 2018, it’s worth a moment to pause and consider the amazing day-to-day performance and accomplishments of the U.S. cattle and beef industry,” Peel says. “Cow-calf and stocker producers, feedlots, packers, further processors and a host of other workers in transportation, stocking, cooking, serving and countless other industry participants work every day to make sure that restaurant diners and grocery shoppers don’t have to think about where and how beef came to be available at that moment…or indeed that it would be there at all. It truly is a miracle.” 

Negotiated cash fed cattle prices end up sharply higher in late trade last week: $4 higher at $123/cwt. in the Southern Plains and Nebraska; $1-$3 higher in the western Corn Belt at $119-$121. Dressed sales were $5 higher in Nebraska at $195; steady to $5 higher in the western Corn Belt at $190-$195.

Recently higher cash fed cattle prices and continued firmness in wholesale beef values continue to support Cattle futures. They were pressured on Wednesday by likely profit taking; added pressure for Feeder Cattle early from stronger grain prices.

Live Cattle futures closed narrowly mixed (from an average of 29¢ lower to an average of 22¢ higher), with a sharp increase in open interest.

Feeder Cattle futures closed an average of 71¢ lower through the front four contracts, but well off of session lows, erasing Monday’s gains. They were 7¢ lower to 2¢ higher across the back half of the board.

Corn futures closed fractionally higher to 2¢ higher.

Soybean futures closed 10¢ to 12¢ higher through Sep ‘19 and then mostly 6¢ to 9¢ higher.

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

Choice boxed beef cutout value was $1.29 higher Wednesday afternoon at $216.64/cwt. Select was 25¢ higher at $210.91.

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Major U.S. financial edged higher after early pressure on Wednesday. Support included higher crude oil prices, stronger tech stocks and bank shares.

The Dow Jones Industrial Average closed 18 points higher. The S&P 500 closed 3 points higher. The NASDAQ was up 30 points.

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“The past few years have been a demand-driven environment where stronger than expected beef demand led to stronger than expected calf and yearling prices,” says Josh Maples, Extension livestock economist at Mississippi State University. “These have been important transition years that coped with the sharp supply increases. Looking ahead, slower herd growth numbers begin to paint a brighter price picture for 2019 and 2020 if domestic demand and exports continue to grow.”

In the most recent issue of In the Cattle Markets, Maples explains beef production, including about 2% expected growth this year, would be about 15% more in 2019 than it was in 2015.

“This would be the fastest four-year growth since 1973-1977,” Maples says. “With respect to the cattle cycle, recent cowherd trends suggest 2020 could potentially mark the end of the current U.S. cattle inventory build-up. But, it is worth noting that this is looking like a unique cattle cycle. History might suggest that after herd growth stops, herd declines will follow, but the ingredients for near-term herd declines are not obvious at this point. Prices have mostly remained at or above profitable levels for cow-calf producers, which does not provide much incentive for liquidation.” He expects herd growth to be flat this year.

On the other side of the ledger, Maples emphasizes the strong domestic economy and international demand continue to support beef and cattle prices, despite increasing supplies of beef, pork and chicken.