WLI

After follow-through pressure, Feeder Cattle futures closed higher, able to claw back some of the losses from the previous day, although trade continued light amid range-bound chop. Live Cattle drifted to a mixed close.

Live Cattle futures closed an average of 42¢ lower through the front four contracts, (5¢ to 52¢ lower) and then an average of 26¢ higher.

Feeder Cattle futures closed an average of 52¢ higher across a broad range of 17¢ higher to $1.07 higher, with most of the support in deferred contracts.

Boxed beef cutout values were weak to lower on moderate demand and offerings through Tuesday afternoon, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 86¢ lower at $216.83/cwt. Select was 32¢ lower at $201.57.

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Major U.S. financial indices closed slightly higher Tuesday, following the previous day’s steep decline. Support included surging oil prices with the U.S. State Department telling U.S. companies they must cease all purchases of crude oil from Iran by the beginning of November.

The Dow Jones Industrial Average closed 30 points higher. The S&P 500 closed 5 points higher. The NASDAQ closed 29 points higher.

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Pasture and range conditions held about steady last week, according to the latest weekly Crop Progress report (week ending June 24).

49% of pasture and range is in Good (41%) or Excellent (8%) condition, compared to 48% a week earlier, and 60% a year earlier. 20% is rated as Poor (14%) or Very Poor (6%), the same as a week earlier and 13% last year.

States with 30% or more pasture and range rated as Poor or Very Poor include: Arizona (89%), California (40%), Colorado (53%), Missouri (35%), New Mexico (68%), Texas (41%) and Utah (36%). 

Overall, crop progress and conditions continue to be favorable.

5% of the corn is silking, compared to 4% last year and 3% for average.

77% is in Good (58%) or Excellent (19%) condition, compared to 67% last year. 5% is in Poor (4%) or Very Poor (1%) condition, compared to 8% last year.

95% of soybeans have emerged, which is 2% more than last year and 6% more than average. 12% are blooming, which is 4% more than last year and 7% more than the average. 73% is in Good (58%) or Excellent (15%) condition, compared to 66% last year. 5% is in Poor (4%) or Very Poor (1%) condition, compared to 8% a year earlier.

95% of sorghum is planted, which is 1% more than last year and 4% more than average. 20% is headed, which is even with last year but 1% behind the average. 56% is rated in Good (51%) or Excellent condition (5%), compared to 65% last year. 12% is in Poor (9%) or Very Poor (3%) condition, compared to 4% last year.

41% of winter wheat is harvested, which is 2% more than last year, but 8% ahead of the average. 37% is rated in Good (28%) or Excellent condition (9%), compared to 49% last year. 34% is in Poor (19%) or Very Poor (15%) condition, compared to 16% last year.

When all was said and done after late trade last week, live sales were $3-$5 lower at $108-$110/cwt. in the South and $108-$109 in the North. Dressed trade was $4-$9 less at $172-$173.

Lower cash fed cattle trade, more feedlot placements in May than expected and sharply lower outside markets all pressured Cattle futures significantly lower to start the week.

Live Cattle futures closed an average of $2.61 lower through the front four contracts, and then an average of $1.74 lower.

Feeder Cattle futures closed an average of $2.70 lower ($1.57 lower to $3.42 lower in spot Aug).

Boxed beef cutout values were steady to firm on moderate demand and offerings through Monday afternoon, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 53¢ higher at $217.69/cwt. Select was 13¢ lower at $201.89.

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Major U.S. financial indices closed sharply lower Monday, shoved down by increasing trade tensions with China. Apparently, the driver was a rumor that President Trump would restrict U.S. investment in Chinese technology companies—no official word, although the White House released an op-ed by Agriculture Secretary, Sonny Perdue, indicating a strategy to protect American agricultural producers from downturns in commodity markets, tied to trade disruptions (see below).

The Dow Jones Industrial Average closed 328 points lower. The S&P 500 closed 37 points lower. The NASDAQ closed 160 points lower.

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Although May feedlot placements were slightly more year over year, and more than expected, Derell Peel, Extension livestock marketing specialist at Oklahoma State University, points out in his weekly market comments, “May feedlot placements included a 9.8% year-over-year increase in placements under 700 lbs., likely augmented by poor summer grazing conditions in some areas that likely deflected some cattle into feedlots. At the same time, placements of cattle over 700 lbs. were down 4.6% from last year. This suggests that feedlot cattle supplies will tighten relatively in the third quarter. Fed cattle prices are expected to be lower year over year in the second half of the year, but the timing of fed cattle marketings will reduce the price pressure relative to the second quarter.”

Peel emphasizes early placements don’t change the number of cattle available, just the timing of when they hit the market.

“Longer term, cattle numbers are still increasing and a general trend of growing feedlot inventories is expected for several more months at least,” Peel says. “Placement patterns the last few months have impacted the timing of feedlot production and the fed cattle market has been struggling a bit under the weight of bunched fed cattle supplies in the second quarter.”

As it is, Peel explains feedlot inventories increased 26 of the last 28 months.

“Using a 12-month moving average of feedlot inventories (which removes seasonality and allows month to month comparisons of feedlot totals) shows that the current monthly average feedlot inventory is the highest since November, 2012.”

As for marketings, Peel points out average monthly feedlot marketings for the last 12 months are at the highest level since November of 2011.

“Increased beef production in the second half of the year will depend on the how much cattle slaughter increases and on how much carcass weights rebound from last year’s decline,” Peel says. “At the current time, annual beef production is projected to be up 4.0-4.5% year over year.”

Cash fed cattle trade ended up being another last-hour affair, with potentially another week of light volume. Through late Friday afternoon, the only reported prices from USDA were $109-$110/cwt. in the Texas Panhandle, which was $3 less than the previous week.

Other than 37¢ and 22¢ lower in the front two contracts, Live Cattle futures closed an average of 32¢ higher, except for 15¢ lower in the back contract.

Except for unchanged in the back contract, Feeder Cattle futures closed an average of 46¢ higher.

Boxed beef cutout values were steady to firm on light to moderate demand and light offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 25¢ lower in the afternoon at $217.16/cwt. Select was 41¢ higher at $202.02.

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Major U.S. financial indices closed mostly higher Friday, buoyed by oil and energy stocks. Crude Oil futures (WTI-CME) closed $2.18 to $3.04 higher through the next year with uncertainty about increased OPEC production.

Stocks were held in check by continued worries about the impact of a trade war with China.

The Dow Jones Industrial Average closed 118 points higher. The S&P 500 closed 5 points higher. The NASDAQ closed 20 points lower.

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Markets will likely view Friday’s monthly Cattle on Feed report as a touch bearish, with a few more year-over-year placements in May rather than the expected decline.

There were 2.124 million head placed in feedlots (capacity of 1,000 head or more) in May, which was 0.24% more (+5,000 head) than the previous May. Heading into the report, most analysts were expecting a third consecutive month of declines, projecting a decrease of 1-4%.

In terms of placement weights: 20.95% were placed at weights lighter than 600 lbs.; 16.01% at 600-699 lbs.; 22.60% at 700-799 lbs.; 24.67% at 800-899 lbs.; 11.06% at 900-999 lbs.; 4.71% weighing more than 1,000 lbs.

Marketings for May were in line with expectations: 2.056 million head, which was 5.38%  more (+105,000 head) than last year.

All told, the on-feed inventory June 1 was 11.553 million head, which was 4.12% more (457,000 head) than the same time a year ago. That’s the heftiest June 1 inventory since the data series began in 1996.

Total frozen poultry supplies were 4% more month-to-month and 7% more than last year.

Cattle futures leaked lower in light trade on Thursday as traders awaited direction from the cash market. Negotiated cash fed trade remained undeveloped through Thursday afternoon.

Except for 12¢ higher in the back contract, Live Cattle futures closed an average of 25¢ lower.

Feeder Cattle futures closed an average of 55¢ lower.

Boxed beef cutout values were lower 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 88¢ lower in the afternoon at $217.41/cwt. Select was 56¢ higher at $201.61.

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Major U.S. financial indices closed lower Thursday, pressured by ongoing worries about the impact of a trade war with China.

The Dow Jones Industrial Average closed 196 points lower. The S&P 500 closed 17 points lower. The NASDAQ closed 68 points lower.

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“While feeder prices have been on an uptrend over the past month, it can’t be simply attributed to lower corn prices alone,” says Josh Maples, a livestock economist at Mississippi State University. “However, we know that cattle prices are certainly paying attention to the corn market and research suggests that any continued corn price weakness can help to provide support for feeder cattle prices.”

Between historically favorable early-season crop conditions, trade uncertainty and other factors, corn prices began heading south in mid-May.

“Both nearby and new-crop corn futures prices tumbled by over 40¢ or approximately 10%,” Maples explains, in the most recent In the Cattle Markets. “The December 2018 corn futures contract price hit $4.26 May 23—its highest level since July 2017. Just 18 trading days later, it closed at a contract low of $3.77.”

During the same approximate period, both cash feeder cattle prices and Feeder Cattle futures increased. The CME Feeder Cattle Index reached its recent low May 22 at 133.43 and then began to edge higher; 142.21 on Wednesday. Spot Aug Feeder Cattle futures reached a contract low May 16 at 136.725. It increased since then, trading at 149.425 on Wednesday this week.

The reality of declining corn prices supporting calf and feeder cattle prices, and vice versa, is nothing new, of course. However, Maples also points to research from Kansas State University (KSU) that suggests feeder cattle prices since 2008 are even more sensitive to corn prices and fed cattle prices than previously. The study, Price Relationships between Calves and Yearlings: An Updated Structural Change was conducted by KSU agricultural economist, Glynn Tonsor and Emily Mollohan, a former KSU graduate student, who is now an instructor at Northeastern Junior College in Sterling, CO.

“Using monthly data, they found that a 1% increase in corn price reduces feeder cattle prices by about 0.18%,” Maples explains. “To put their findings into a current context, what might a 10% decline in corn prices imply for feeder cattle prices? It would suggest a 1.8% increase in feeder cattle prices. So, a decline from $4.00/bu. corn to $3.60 would suggest a feeder price increase from $150/cwt. to $152.70.”

Keep in mind, according to the KSU study, “The impact of live cattle price expectations on feeder cattle prices is three or more times larger than the same proportional impact of corn price, and this relative impact has increased since 2008.”

If yesterday’s weekly Fed Cattle Exchange auction is any indication, cash fed cattle prices this week should be at least steady. There were seven lots of heifers (1,469 head) from Nebraska selling for a weighted average price of $110/cwt. (1-9 day delivery). That was steady with the previous week’s country trade in that region. There were no sales of the other 656 head offered, although one lot was passed out at $112.

Cattle futures closed mostly slightly higher Wednesday with increased open interest in Feeder Cattle, but continued contraction in open interest for Live Cattle. Despite trade worries and a limit-down move in Lean Hogs, there appears a growing sense that Cattle futures are turning the corner past the bottom. Perhaps notions that feedlot placements were lower again last month (see below) added some firmness.

Except for 5¢ lower and 2¢ lower in Feb and Apr, respectively, Live Cattle futures closed an average of 30¢ higher (12¢ to 77¢ higher).

Except for 20¢ lower in spot Aug, Feeder Cattle futures closed an average of 32¢ higher (5¢ to 97¢ higher).

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

Choice boxed beef cutout value was $1.41 lower in the afternoon at $218.29/cwt. Select was $1.25 lower at $201.05.

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Major U.S. financial indices closed mixed Wednesday, buoyed by tech stocks, but pressured by lingering trade wonderments.

The Dow Jones Industrial Average closed 42 points lower. The S&P 500 closed 4 points higher. The NASDAQ closed 55 points higher.

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Heading into Friday’s monthly Cattle on Feed report, most analysts are expecting to see May placements 1-4% less year over year, May marketings 5% more and the June 1 on-feed inventory 3-4% more than last year.

For instance, analysts with Allendale, Inc. estimate May Placements 1.4% lower than last year at 2.089 million head. That would be the third consecutive month of year over year declines.

“Concerns over cattle feeding margins have limited interest in new placements,” say Allendale analysts. “May and June finished cattle have a $128 breakeven according to Kansas State University. The remainder of the year is set to be unprofitable with breakevens from $118 to $122. May placements supply the September through December slaughter period.”

Allendale projects May marketings to be 5.2% more than last year at 2.052 million head. “This would be the largest May marketing in 10 years,” say Allendale analysts.

For the Allendale folks, that would leave an estimated 11.519 million head on feed June 1, which would be 3.8% more than last year and the most for the month in the history of the current data series that began in 1996.