WLI

Cattle futures weakened Thursday, following the previous day’s rally. Month-end positioning and lack of direction from undeveloped cash fed cattle trade seemed to be primary drivers. Reaction to the latest U.S. tariffs on NAFTA partners appeared muted until more is known about potential retaliation (more below).

After $1.07 lower in spot Jun, Live Cattle futures closed an average of 50¢ lower (30¢ to 70¢ lower).

Feeder Cattle futures closed an average of 56¢ lower—(from 22¢ lower at the back of the board to $1.15 lower in spot Aug).

Boxed beef cutout values were steady to weak Thursday on moderate demand and moderate to heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 48¢ lower in the afternoon at $228.20/cwt. Select was 9¢ higher at $204.47.

******************************

Major U.S. financial indices closed sharply lower Thursday after President Trump implemented a 25% tariff on steel imports and a 10% tariff on aluminum imports from NAFTA partners, Canada and Mexico, as well as the EU.

Those nation’s responded swiftly.

“Mexico intends to impose tariffs on some U.S. pork cuts and pork products,” according to a statement from the U.S. Meat Export Federation (USMEF). “Full details – such as the tariff rate and the exact products to which the tariffs could apply – are not entirely clear at this time…In 2017, Mexico was the largest volume market for U.S. pork exports at more than 800,000 metric tons, valued at $1.51 billion.”

“In response to these measures, Canada intends to impose tariffs on imports of steel, aluminum and other products from the United States—representing the total value of 2017 Canadian exports affected by the U.S. measures,” said Chrystia Freeland, Canadian Minister of Foreign Affairs. “That is $16.6 billion. We are imposing dollar-for-dollar tariffs for every dollar levied against Canadians by the United States.”

“The EU will use the possibility under WTO rules to rebalance the situation by targeting a list of US products with additional duties,” said EU Commissioner for Trade, Cecilia Malmström. “The level of tariffs to be applied will reflect the damage caused by the new U.S. trade restrictions on EU products.” 

Whether or not U.S. beef ends up being a direct target of retaliation, the situation adds a new layer of market uncertainty, including the impact on current NAFTA negotiations.

The Dow Jones Industrial Average closed 251 points lower. The S&P 500 closed 18 points lower. The NASDAQ closed 20 points lower.

Buyers stormed into Cattle futures early in yesterday’s session, though, pushing prices limit and near-limit higher in front-month Live contracts. There’s no definitive reason for the aggressive surge, but psychology surely got a lift from the weekly National Comprehensive Boxed Beef Cutout report indicating retailers intend to be aggressive in featuring and marketing beef. There were 7,589 loads reported for the week ending May 25—the most since the first week of September—with 6,072 loads for delivery up to 21 days. Perhaps there’s some compensatory gain to be had from latent and pent up grilling demand.

Live Cattle futures closed an average of $2.06 higher—an average of $2.97 higher in the front three contracts. 

Feeder Cattle futures closed an average of $2.98 higher. 

There were only 449 head offered in the weekly Fed Cattle Exchange auction—all from Kansas—but 225 head sold: two lots of heifers and one lot of steers for a weighted average price of $110/cwt. for delivery at 1-9 days. That price mirrored last week’s country trade in that region.

Boxed beef cutout values were firm to higher Wednesday on moderate to fairly good demand and moderate offerings, according to the Agricultural Marketing Service (AMS).

Choice boxed beef cutout value was $1.12 higher in the afternoon at $228.68/cwt. Select was 73¢ higher at $204.38.

****************************

Major U.S. financial indices closed sharply higher Wednesday, basically erasing steep losses from the previous session and for similar but opposite reasons. In this case, the Euro recovered some lost ground as fears about Italy exiting the EU subsided for the day. Crude oil prices bounced back, on speculation the OPEC countries and Russia will not raise production.

The Dow Jones Industrial Average closed 306 points higher. The S&P 500 closed 34 points higher. The NASDAQ closed 65 points higher.

******************************

“Feeder cattle prices are in the process of making a spring low. Prices have been pressured by forced early movement of cattle due to weather, escalating feed costs and weakness in deferred Live Cattle futures,” according to Rabobank’s Beef Quarterly for the second quarter. “Prices are expected to make a seasonal low, and the early forced placements of calves has reduced available supplies of cattle outside feedyards, which should be price supportive for summer and the second half of the year.”

Dry conditions continue as a primary market driver and wildcard.

Analysts with RaboResearch explain 34% of the U.S. cowherd resides in eight states currently amid Extreme or Exceptional drought; 70% of the cows are in 20 states under some level of measurable drought stress.

“The increased usage of hay for feeding—-following dry conditions and a moderate to severe winter—is driving hay prices higher, making forced feeding more expensive,” explain RaboResearch analysts. “…cow slaughter is already higher than previous years and the likelihood of some degree of forced liquidation during the coming grazing season is very high.”

Pasture conditions improved for the second consecutive week, according to the latest weekly Crop Progress report (week ending May 27).

49% of pasture and range is in Good (42%) or Excellent (7%) condition, compared to 63% last year. 17% is rated as Poor (12%) or Very Poor (5%) compared to 10% last year.

Sluggish negotiated cash fed cattle trade last week ended up lower across a broad range. Live sales were $4-$7 lower in Kansas at $110; $3.00-$3.50 lower in Nebraska at $109.00-$111.50; $2-$3 lower in Colorado at mostly $110; $2-$4 lower in the western Corn Belt at $110-$114. Likewise, dressed trade was $4-$5 lower in Nebraska at $176-$178; $2-$4 lower in the western Corn Belt at $180-$182.

More than anything, it seemed to be significantly lower outside markets (see below) that weighed on cattle futures Tuesday, increasing uncertainty and putting a halt to follow-through support early in the session.

Live Cattle futures closed an average of 79¢ lower (52¢ lower to $1.52 lower in spot Jun).

Feeder Cattle futures closed from 27¢ higher to 40¢ lower. 

Boxed beef cutout values were steady to weak Tuesday on light to moderate demand and moderate to heavy offerings, according to the Agricultural Marketing Service (AMS).

Choice boxed beef cutout value was 13¢ higher in the afternoon at $227.56/cwt. Select was 97¢ lower at $203.65.

**************************

Major U.S. financial indices closed sharply lower Tuesday, but off of session lows. Political turmoil in Italy was the primary source of pressure as investors fretted that upheaval in the third largest EU economy (GDP) could lead to that nation exiting the EU and the Euro, perhaps unraveling both. Never mind wonderments about Italy’s enormous debt. Softer crude oil prices added to the angst.

The Dow Jones Industrial Average closed 391 points lower. The S&P 500 closed 31 points lower. The NASDAQ closed 37 points lower.

****************************

“The recent trend of declines in animal placed into feedlots suggests that the number of animals in feedlots will decline seasonally until September,” say analysts with the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. “Importantly, the percentage increase compared to 2017’s is projected to continue dropping through the summer months. This year, the seasonal drop could be larger than normal. By Sept. 1, the number of cattle on feed could be only 1% to 3% above 2017’s.”

As noted in the last Cattle Current, according to Friday’s monthly Cattle on Feed report, total cattle on feed May 1—feedlots with 1,000 head or more capacity—of 11.558 million head were 5.09% more than the previous year. That’s the second most cattle on feed May 1 since the series began in 1996, according to the National Agricultural Statistics Service.

“Year-over-year increases in the on-feed count have been in place since early 2016; the percentage increase surged beginning in late 2017 as a result of more animals placed into feedlots, largely due to drought,” LMIC analysts explain. “Many of those lightweight animals have been in feedlots for 8-10 months. In the last two months that picture has been changing, with head placed significantly below a year ago.”

Placements in April were 8.28% less than a year earlier. In March, placements were 9.26% less. That was the first year-over-year decline for placements since February 0f 2017.

“The marketings of fed cattle throughout most of 2017 were strong, especially when compared to 2016’s,” LMIC analysts say. “Daily average marketings have remained above year-ago levels every month so far this year. Typically, the biggest months for fed cattle marketed are May and June; that is expected to be the situation again this year.”

Other than a few live trades reported in Nebraska at $109/cwt.—too few to trend—negotiated cash fed cattle trade remained undeveloped through late Friday afternoon.

Cattle futures found some traction late in the session, though, perhaps tied to confirmation of fewer year-over-year feedlot placements. The monthly Cattle on Feed report (see below), came out during trading hours. Overall, trade was sluggish ahead of the holiday weekend.

Other than 25¢ and 2¢ higher at either end of the board, Live Cattle futures closed an average of 58¢ higher.

Feeder Cattle futures closed an average of $1.28 higher. 

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

Choice boxed beef cutout value was $1.57 lower in the afternoon at $227.43/cwt. Select was 31¢ lower at $204.62.

******************************

Major U.S. financial indices closed mostly lower Friday, pressured by softer oil prices, tied to reports that OPEC will increase production. CME Crude Oil futures (WTI) closed $2.15 Lower (May ’19) to $2.83 lower (spot Jul). There was also ongoing uncertainty, following President Trump cancelling the meeting with North Korea’s leader.

The Dow Jones Industrial Average closed 58 points lower. The S&P 500 closed 6 points lower. The NASDAQ closed 9 points higher.

******************************

Logic suggests the market will view Friday’s Cattle on Feed report as neutral to perhaps a touch bearish, with numbers mostly in line with expectations ahead of the report.

Placements in April of 1.695 million head were 8.28% less than the previous year (153,000 head fewer). That’s about 1% more than estimates ahead of the report. In terms of weights, 42.45% were placed at weights of 699 lbs. or less; 50.73% at weights of 700-899 lbs.; 16.81% weighing 900 lbs. or more.

Marketings in April of 1.803 million head were 5.87% more than last year (100,000 head more).

Total cattle on feed May 1—feedlots with 1,000 head or more capacity—of 11.558 million head were 5.09% more than the previous year (560,000 head more). That’s the second most cattle on feed May 1 since the series began in 1996, according to the National Agricultural Statistics Service.