WLI

All of the fundamental dominos in favor of cattle markets for so long are lining up in the other direction. Along with increasing supplies, last week’s sharply higher grain prices took a toll on Cattle futures and cash prices. On Monday, it was the weekend news that China is imposing additional tariffs on a list of U.S. imports, including pork (see below).

Although Cattle futures tried for support early, they couldn’t withstand the pressure of tumbling Lean Hog futures and related technical selling.

Live Cattle futures closed an average of $1.28 lower through the front three contracts (87¢ to $1.62 lower) and then an average of 30¢ lower.

Except for 22¢ lower in newly minted away Mar, Feeder Cattle futures closed an average of $1.22 lower (65¢ to $1.65 lower).

Choice boxed beef cutout value was $1.24 lower Monday afternoon at $219.80/cwt. Select was $1.81 higher at $210.50.

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Major U.S. financial indices closed sharply lower on Monday, led by tech stocks—fears over increased regulation—and concerns about trade wars, with China’s weekend tariff retaliation.

The Dow Jones Industrial Average closed 458 points lower. The S&P 500 closed 58 points lower. The NASDAQ closed 193 points lower.

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China is imposing an additional 25% tariff on U.S. pork imports.

That’s on top of duties that were already in place of 20% and 12% for chilled pork and frozen pork, respectively, according to Import Duties by Country, compiled by the U.S. Meat Export Federation (USMEF).

“China was the third largest value market, with more than $1 billion in U.S. pork being shipped there last year,” says Neil Dierks, CEO of the National Pork Producers Council. “Exports are extremely critical to the financial well-being of our producers. Over the past 10 years, the United States, on average, has been the top exporter of pork in the world, and we’re the lowest-cost producer. In any given year, we export pork to more than 100 nations, and those exports support 110,000 American jobs. Last year, nearly $6.5 billion of U.S. pork was exported, which was more than 26% of U.S. pork production.”

For context, Glynn Tonsor, agricultural economist at Kansas State University explains, “The Chinese market for U.S. red meat indeed remains highly valued both today and for the foreseeable future. However, the U.S. export portfolio is more diverse than in the past, and hence likely less impacted by any changes in trade with any single country.” He adds that total U.S. pork exports last year exceeded 5.6 billion lbs., up from 109 million lbs. in 1987.

Tonsor provides an insightful factsheet that summarizes the relative concentration of export destinations for U.S. beef and pork.

In it, he explains, “The Herfindahl-Hirschman Index (HHI) is an often-used measure of market concentration where lower values reflect less concentration and a value of 1 reflects reliance on one sole country.”

By that measure, market concentration is relatively low for both U.S. beef and pork exports. The HHI for pork last year was around 0.20; about 0.18 for beef.

Cattle markets head into the new week with a fair bit of uncertainty and plenty of questions tied to Thursday’s USDA reports. For instance the Prospective Plantings report—fewer corn and soybean acres than expected—boosted spot grain cash bids and futures prices significantly higher when it came out during trading hours on Thursday, despite sharply higher stocks. With futures and equity markets closed in observance of Good Friday, there was no chance to judge follow-through action. Likewise, the quarterly Hogs and Pigs report came out after futures trade on Thursday. It has the inventory of market hogs (66.7 million head) 3% higher than the previous year, though 1% less than the previous quarter.

The higher grain prices helped push Cattle futures sharply lower to end the week.

Live Cattle futures closed an average of $4.62 lower through the front five contracts week to week on Thursday and then an average of $2.42 lower. Analysts with the Agricultural Marketing Service point out the June contract closed the week at the lowest level since late April of last year.

Except for $1.92 lower in expiring March, Feeder Cattle futures closed an average of $4.40 lower week to week on Thursday; about $11 lower over the last three weeks.

Cash fed cattle trade for the week also added pressure. Live prices were $5 lower in the Southern Plains at $121/cwt.; $3-$4 lower in Nebraska at $120-$122. Dressed trade ended in Nebraska at $190, which was $10-$13 less than the previous week.

Choice boxed beef cutout value was 4¢ higher Friday afternoon at $221.04/cwt. Select was 99¢ lower at $208.69.

“Significant equity has vanished from the cattle complex in recent weeks as

feedlot managers trade a substantial amount of cattle out front for future

delivery in order to lock in a price ahead of calf-feds hitting the supply chain in late April to early May,” say analysts with the Agricultural Marketing Service (AMS). “…packers bought the second largest weekly total purchased for 15 to 30-day deliveries since the data series started in March of 2010.”

AMS analysts note that mild winter weather in the Southern Plains will likely contribute to the expected year-over-year increase in carcass weights.

Surging futures prices for grains and soybeans—tied to USDA’s much-anticipated reports (see below)—and technical selling helped fuel aggressive selling in Cattle futures on Thursday.

Live Cattle futures closed an average of $2.46 lower ($1.70 to $3.00 lower).

Except for 37¢ lower in expiring Mar, Feeder Cattle futures closed an average of $4.17 lower.

Futures and equity markets will be closed in observance of Good Friday.

Choice boxed beef cutout value was 62¢ lower Thursday afternoon at $221.00/cwt. Select was $1.95 lower at $209.68.

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Major U.S. financial indices closed sharply higher on Thursday, buoyed in part by a rebound in tech stocks and investors squaring positions for the week, month and quarter.

The Dow Jones Industrial Average closed 254 points higher. The S&P 500 closed 35 points higher. The NASDAQ closed 114 points higher.

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Corn growers intend to plant 88.0 million acres in 2018, down 2%, or 2.14 million acres from last year. That’s according to the Prospective Plantings report from USDA’s National Agricultural Statistics Service (NASS). If realized this will be the lowest planted acreage since 2015. That’s on the low side of most estimates ahead of the report.

Soybean acres are also estimated lower at 89.0 million acres, which is 1% less than last year. If realized, the planted area of soybeans in Indiana, Kentucky, North Dakota, Pennsylvania, and Wisconsin will be the largest on record.

Acreage for all wheat planted this year is estimated at 47.3 million acres, up 3% percent from 2017, but it would be the second lowest all wheat planted area on record since records began in 1919.

Harvested acres of all hay are estimated to be about even with last year at 53.7 million acres.

NASS’s acreage estimates are based on surveys conducted during the first two weeks of March from a sample of approximately 82,900 farm operators across the United States.

Corn Stocks Up 3%

USDA also released the quarterly Grain Stocks report on Thursday.

Corn stocks totaled 8.89 billion bu. Mar. 1, up 3% from the same time last year. On-farm corn stocks were up 2% from a year ago; off-farm stocks were up 5%.

Soybeans stored totaled 2.11 billion bu., up 21% from the previous year. On-farm soybean stocks were up 28% from a year ago, while off-farm stocks were up 17%.

All wheat stored totaled 1.49 billion bu., down 10% from a year ago. On-farm all wheat stocks were 26% less than last year; off-farm stocks were 6% less.

Early negotiated cash fed cattle trade took a steep step lower on Wednesday, with early live prices mostly $5 lower in the Southern Plains and Nebraska at $120.50 (Nebraska) to $121/cwt. Dressed trade in Nebraska was $10-$13 lower at $190.

There were only 409 head (three lots) offered and no sales in the weekly Fed Cattle Exchange Auction on Wednesday. There were two lots of heifers passed out at $120 and $121/cwt.

Cattle futures, especially Feeder Cattle, closed higher, perhaps buoyed by rolling contracts ahead.

Live Cattle futures closed an average of 61¢ higher.

Except for 55¢ higher in spot Mar, Feeder Cattle futures closed an average of $1.95 higher ($1.22 to $2.47 higher).

Choice boxed beef cutout value was 78¢ lower Wednesday afternoon at $221.62/cwt. Select was $2.61 lower at $211.63.

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Major U.S. financial indices edged lower on Wednesday, with tech stocks once again applying most of the pressure.

The Dow Jones Industrial Average closed 9 points lower. The S&P 500 closed 7 points lower. The NASDAQ closed 59 points lower.

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Heading into Thursday’s Prospective Plantings report from USDA, most estimates favor corn losing more ground to soybeans, with wheat about even with last year.

For instance, analysts with Allendale, Inc. have corn acres at 88.5 million acres, compared to USDA’s estimate at the Agricultural Outlook Forum (AOF) of 90.0 million and last year’s 90.2 million.

Allendale has soybean acres at 92.1 million acres, compared to 90.1 acres last year and the AOF estimate of 90.0 million.

Allendale estimates total wheat acres at 46.9 million acres, compared to 46.0 million last year. The AOF estimate was 46.5 million acres.