WLI

Despite sharply lower outside markets, Cattle futures renewed gains on Tuesday, buoyed, in part, by notions that last week’s anemic trade volume of fed cattle means packers must step up to the plate this week. Moreover, all indications suggest cattle feeders remain plumb current in marketing.

Except for 22¢ higher and 37¢ higher on either end of the board, Live Cattle futures closed an average of 77¢ higher.

Feeder Cattle futures closed an average of $1.08 higher; an average of 79¢ higher across the front half and then an average of $1.37 higher.

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

Choice boxed beef cutout value was $1.01 lower in the afternoon at $219.70/cwt. Select was $1.90 lower at $202.30.

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Major U.S. financial indices closed sharply lower Tuesday, in the wake of President Trump doing exactly what he said he would do: apply more tariff pressure to China if that nation retaliated against tariffs levied last week.

“On Friday, I announced plans for tariffs on $50 billion worth of imports from China. These tariffs are being imposed to encourage China to change the unfair practices identified in the Section 301 action with respect to technology and innovation. They also serve as an initial step toward bringing balance to our trade relationship with China,” said President Trump, in a White House Statement. “However and unfortunately, China has determined that it will raise tariffs on $50 billion worth of United States exports. China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong…Therefore, today, I directed the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10%. After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced. If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 billion of goods. The trade relationship between the United States and China must be much more equitable.”

The Dow Jones Industrial Average closed 287 points lower. The S&P 500 closed 11 points lower. The NASDAQ closed 21 points lower.

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“The weekly average fed steer price in the 5-area marketing region likely reached a second-quarter peak of $124.81/cwt. for the week ending May 6,” says analysts with USDA’s Economic Research Service, in the latest monthly Livestock, Dairy and Poultry Outlook. “During that week, the price was nearly $20 above the asking price of the June Live Cattle contract. Although the spread narrowed during the month, the prospect of lower prices during June likely influenced feedlot operations to promptly market their cattle.”

Although marginally improved, by at least one measure, feedlots will face heavy economic pressure for the remainder of the year.

“Currently, the net returns projected for closeouts in May are minus-$118.09/head for steers and minus-$80.18/head for heifers,” according to the most recent Historical and Projected Kansas Feedlot Net Returns from Kansas State University (KSU). “Current projections indicate losses spanning the rest of 2018, with some improvement from last month’s expectations. If realized fed cattle basis continues to be stronger than projected, then that will further improve returns.”

Analysts emphasize these estimated returns are on a cash-to-cash-basis, assuming no price risk management.

Estimated net returns for fed steers in Kansas feedlots decline from minus-$249.05/head in June to minus-$64.00 in December. Net returns for heifers decline from minus-$162.54 in June to minus-$37.41 in December.

When all was said and done in last week’s light volume of negotiated fed cattle trade, live sales were $2-$3 lower in the Southern Plains at $112-$113/cwt., $4-$5 less in Nebraska at $110 and $3-$5 less in the western Corn Belt at $110-$112. Dressed sales were $3-$6 lower at $176-$181.

Week to week on Monday, the 5-area weekly weighted average was $3.18 lower on a live basis at $111.28 and $5.20 lower in the beef at $177.55.

Cattle futures closed mixed on Monday, amid light trade and declining open interest in Live Cattle. Support in the front months included the surge to end last week. Pressure included lower fed cattle prices and wonderments about the impact of the U.S.-China tariff battle.

Live Cattle futures closed mixed from 45¢ lower to 55¢ higher.

Feeder Cattle futures closed an average of 77¢ higher across the front half of the board (47¢ higher to $1.00 higher in spot Aug) and then an average of 26¢ lower.

Boxed beef cutout values were lower for Choice and higher for 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 $220.71/cwt. Select was $1.47 higher at $204.20.

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Major U.S. financial indices closed mainly lower Monday, with pressure continuing from the brewing trade war between the U.S. and China.

The Dow Jones Industrial Average closed 103 points lower. The S&P 500 closed 5 points lower. The NASDAQ closed fractionally higher.

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“In 2017, unexpectedly strong domestic and international beef demand provided extra support for cattle and beef prices in the face of growing beef supplies. To some extent, that has continued in 2018, though not as pronounced as a year ago,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “After holding quite firm through May, boxed beef prices were under pressure into mid-June with Choice boxed beef price dropping about $5/cwt. last week…Fed cattle prices have declined seasonally but are holding generally better than expected. Remember in early April when June Live Cattle futures dropped under $100/cwt. and have since traded as high as $110/cwt. and now are trading about $108.”  

A silver lining to the seasonal decline in fed cattle prices, is that wider packer margins provide ongoing incentive to keep harvesting cattle aggressively.

Year-to date cattle slaughter is 3.8% more than last year, driven by increases in female slaughter, according to Peel. He explains, “Heifer slaughter is up 8.0% year over year and cow slaughter is up 8.1%. Beef cow slaughter is up 12.2% and dairy cow slaughter is 4.5% more than last year. Steer slaughter is up a scant 0.1% year over year.”

Beef production is 3.6% more so far this year, but lighter year-to-year carcass weights, in part due to the aggressive marketing, mean slightly less production that originally anticipated.

“There are a variety of supply and demand factors to watch in the second half of the year,” Peel says. “Beef production will be determined by slaughter rates, but even more by carcass weights moving forward. Drought conditions do not appear to be causing significant herd liquidation at this time, but the threat is still there. Further, slowing of heifer retention and herd growth (in part due to drought conditions) continues to add to female slaughter and could continue through the end of the year.”

Ultimately, the outcome of current trade trials will also have plenty to say about beef’s fortunes.

“The uncertainty, volatility and reality of a trade war will likely have greater negative impacts on beef and other markets in the second half of the year,” Peel says. “Beef trade in early 2018 has been very supportive to cattle and beef markets, but this could change going forward. Beef markets may be directly impacted in terms of exports, but significant, if not bigger impacts, may be the indirect result, for example, of reduced pork exports and increased domestic supplies of competing meats.”

Cattle futures surged higher Friday, recovering much of the week’s decline. Perhaps bears are finally convinced the bad news of stout summer supplies took the last train out a while back.

Live Cattle futures closed an average of $2.34 higher through the front four contracts and then an average of $1.45 higher.

Negotiated cash fed cattle trade remained undeveloped through late Friday afternoon. The previous week’s stronger prices, as well as the surge in Cattle futures Friday likely added to seller reluctance. On the other end of the trade, it could be that heavy out-front purchases in recent weeks enabled packers to be more patient.

Except for 82¢ higher in the back contract, Feeder Cattle futures closed an average of $3.12 higher ($2.62 higher to $4.30 higher in spot Aug).

Boxed beef cutout values were weak on Choice and higher for Select with light to moderate demand and offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 49¢ lower in the afternoon at $221.59/cwt. Select was 76¢ higher at $202.73.

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Major U.S. financial indices closed lower Friday, but well off of session lows. Primary pressure was attributed to President Trump saying the U.S. will impose a 25% tariff on up to $50 billion of Chinese imports, followed by Chinese officials vowing retaliation in kind.

The Dow Jones Industrial Average closed 84 points lower. The S&P 500 closed 2 points lower. The NASDAQ was down 14 points.

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Odds of an all-out trade war between the U.S. and China spiked higher Friday with the White House saying it will impose new tariffs—first threatened in April—on Chinese imports beginning July 6.

“In light of China’s theft of intellectual property and technology and its other unfair trade practices, the United States will implement a 25% tariff on $50 billion of goods from China that contain industrially significant technologies,” said President Trump Friday. “The United States will pursue additional tariffs if China engages in retaliatory measures, such as imposing new tariffs on United States goods, services, or agricultural products; raising non-tariff barriers; or taking punitive actions against American exporters or American companies operating in China.”

The news contributed to strong pressure on domestic grain markets Friday, especially soybeans.

By Saturday morning, China did retaliate. Citing a statement from the Ministry of Finance of the People’s Republic of China, various reports explained China is imposing new tariffs on about $50 billion worth of U.S. imports, including soybeans and pork.

“We must take strong defensive actions to protect America’s leadership in technology and innovation against the unprecedented threat posed by China’s theft of our intellectual property, the forced transfer of American technology, and its cyber attacks on our computer networks,” said Ambassador Robert Lighthizer. 

In the meantime, hopefully negotiators will heed market comments made in early April by Derrell Peel, Extension livestock marketing specialist at Oklahoma State University: “As we work through the escalating trade tensions that are currently roiling markets, it will be beneficial if all sides remember that trade adds value and is not a zero-sum game.”

Domestically, Andrew P. Griffith, agricultural economist the University of Tennessee points out in his weekly market comments that consumer beef demand was 3.2% more year over year in the first quarter this year.

Although beef production continues to increase, Griffith explains retail beef prices continue at similar levels to last year.

Beef production year to date is 3.7% higher than the same time period in 2017 and 8.3% greater than the same 23-week period in 2016, according to Griffith.

“The all-fresh beef retail price for May was $5.68/lb., which is 7¢ lower than April and 5¢ higher than May one year ago. In the past 24 months, the all-fresh beef retail price has averaged $5.66/lb., with a low of $5.49 in January 2017 and a high of $5.85 in June 2016,” Griffith says.

Cattle futures closed solidly lower Thursday amid trade worries, pressure on commodities overall, lower wholesale beef prices and the lack of cash direction.

Live Cattle futures closed an average of $1.60 lower (92¢ at the back of the board to $2.12 lower).

Feeder Cattle futures closed an average of $1.61 lower.

Boxed beef cutout 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 $1.82 lower in the afternoon at $222.08/cwt., the lowest since the end of April. Select was 33¢ lower at $201.97.

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Major U.S. financial indices closed mixed Thursday. Support came from media and tech stocks, including Comcast’s announced bid for major portions of Twenty-First Century Fox.

The Dow Jones Industrial Average closed 25 points lower. The S&P 500 closed 6 points higher. The NASDAQ was up 65 points.

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Convenience is trumping some of the concerns consumers previously had about shopping online for groceries, such as higher costs, fees or waiting for delivery, according to the NPD Group (NPD).

In early 2017, NPD reported that 6% of U.S. consumers shopped online for groceries. That’s now up to 16%, or over 52 million people, shopping online for groceries, using either delivery or click-and-collect. 

Keep in mind that it was about a year ago when Amazon announced its plans to acquire Whole Foods, ultimately pressing brick-and-mortar national grocery retailers to move faster toward offering online delivery and pickup services.

Amazon Prime members, men, and young adults and those who find grocery shopping a necessary evil were among the first groups to shop for their groceries online, according to NPD. At the same time, growth in click-and-collect and speedy delivery options launched by major grocery chains expanded the appeal of online shopping to the broader population.

“This past year has been a game of one-upmanship among the major grocery chains,” says Darren Seifer, NPD food and beverage industry analyst. “We went from two-day delivery, to one-day, to same-day, to two-hour delivery; with the speed of delivery being defined in superlatives, like fast to ultra-fast. It’s been a fascinating year and the best part about it is that in the end, consumers are the winners of the game.”    

The NPD folks point out that online grocery shoppers take an omnichannel approach and still shop at brick-and-mortar grocers, too.