WLI

There was light to moderate demand and trade for fed cattle in the Northern Plains on Thursday. Live prices were steady to 50¢ higher than the previous day at $128.00-$128.50/cwt., which is $1.50-$2.00 lower than last week. Dressed trade in Nebraska was steady to $1 lower than the previous week at $204-$205. Although there was also light to moderate demand and trade in the western Corn Belt, there were too few transactions to establish a trend on a live basis or in the beef.

Futures traders seemed mostly content with newfound price levels following the previous session’s downturn. There was some follow-through pressure on Thursday, especially in nearby contracts on apparent position taking, but nothing steep.

After $1.30 and 85¢ lower in the front two contracts, respectively, Live Cattle futures closed 27¢ lower to 22¢ higher.

Feeder Cattle futures closed an average of 53¢ lower (7¢ to $1.02 lower).

Choice boxed beef cutout value was $1.03 higher on Thursday afternoon at $218.40/cwt. Select was 14¢ higher at $212.06.

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Major U.S. financial indices closed mixed on Thursday, as investors continued to digest the impact of increased inflation and higher interest rates.

The Dow Jones Industrial Average closed 164 points higher. The S&P 500 closed 2 points higher. The NASDAQ closed 8 points lower.

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Credit is getting tougher to come by for some agricultural producers, if the latest Creighton University Rural Main Street Index is any indication.

A third of the bankers surveyed during the process reported no change in their lending practices over the last year, while 45.2% reported increasing collateral requirements, 21.4% indicated rejecting a higher percentage of loan applications, and 11.9% reported reducing the average size of farm loans.

Each month, community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

Cattle futures plunged fast yesterday—led by Feeder Cattle—for no apparent reason or logic. Arguably, Cattle futures were in oversold territory. Yes, there are larger beef supplies on the horizon, and there’s bound to be positioning ahead of Friday’s Cattle on Feed report. On the other hand, cash fed cattle prices last week were the highest since June, front-end supplies remain snug by all accounts, and wholesale beef value are on the rise with plenty of seasonal upside. So, the best bet for the unforeseeable free-fall is computerized algorithmic trading that tripped some unknown trigger and sent the dominos tumbling.

After 65¢ lower in the nearly spent spot month, Live Cattle futures closed an average of $1.43 lower, (95¢ lower to $1.85 lower).

Feeder Cattle futures closed an average of $2.65 lower ($2.00 to $3.15 lower).

The sudden decline was apparently enough to entice some feedlots to pull the trigger. There were a few early trades in the Southern and Northern Plains at $128/cwt. on slow trade and light to moderate demand. That’s $2 shy of last week’s trade, but there were too few transactions to trend.

That helps explain why there were no takers for the handful of cattle (218 head) offered in the weekly Fed Cattle Exchange auction. One lot of heifers was passed out at $126.25.

Wholesale beef values continued to gain momentum. Choice boxed beef cutout value was $1.45 higher on Wednesday afternoon at $217.37/cwt. Select was $1.52 higher at $211.92.

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Equity markets extended losses for the second consecutive day with major U.S. financial indices closing mostly solidly lower on Wednesday. Softness was widely attributed to the benchmark 10-year Treasury yield reaching its highest level in four years, as well as minutes from the last Federal Reserve meeting that suggest gradual, continued increases in interest rates.

The Dow Jones Industrial Average closed 166 points lower. The S&P 500 closed 14 point lower. The NASDAQ closed 16 points lower.

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Heading into Friday’s monthly Cattle on Feed report, Allendale, Inc. sees January placements at 1.97 million head, which would be 0.4% less than last year.

“There have been 10 months in a row of higher placements (year over year) as cow-calf producers end expansion plans,” say Allendale analysts. “This report may stop that 10-month streak. Finished cattle from January through March are estimated with a $123 breakeven, according to Kansas State University. This increases to $127 and $130 for April and May. From June on out, $120-$124 breakevens are noted.”

Allendale anticipates January marketing at 1.85 million, which would be 5.5% more than a year earlier and the most for the month in five years. “There was one more weekday in January 2018 than January 2017. This artificially increased the actual number,” say Allendale analysts.

Add it up and Allendale sees the total cattle on feed inventory Feb. 1 at 11.51 million head (+8.5%), the largest total for the month in six years.

Cattle futures stuttered to a mostly narrowly mixed close to begin the trading week on Tuesday. Last week’s higher cash trade offers optimism, but traders continue to cast a wary eye toward deferred contracts with looming larger supplies.

Live Cattle futures closed marginally mixed, (30¢ lower to 20¢ higher).

Feeder Cattle futures closed mostly narrowly mixed (7¢ to 22¢ higher across the front half of the Board and then 12¢ to 85¢ lower).

Wholesale beef values appear to have rounded the seasonal corner, with a second consecutive day of healthy gains. Choice boxed beef cutout value was $3.35 higher on Tuesday afternoon at $215.92/cwt. Select was $2.97 higher at $210.40.

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Major U.S. financial indices closed mostly sharply lower on Tuesday, with renewed volatility and investors eyeing higher interest rates.

The Dow Jones Industrial Average closed 254 points lower. The S&P 500 closed 15 point lower. The NASDAQ closed 5 points lower.

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“In recent months, the number of cattle placed into U.S. feedlots has been bolstered by the large 2017 calf crop, poor small grains (e.g., wheat) grazing conditions in the Southern Plains and rather good demand for animals to put on-feed,” say analysts with the Livestock Marketing Information Center (LMIC), in the most recent Livestock Monitor. “The spike up in placements is a double-edge sword. In the short term, feeder cattle supplies outside feedlots as of January 1, 2018, were calculated to be below a year earlier (down 2.3% or 607,000 head), which tends to support prices. However, the placement pattern since last fall has put more slaughter cattle in the marketing window of late-May through mid-August than a year ago. Note that many of those animals are heifers. Those large marketings will likely pressure slaughter-ready steer and heifer prices, which are forecast to be below 2017’s. Those prices suggest dampened demand for feeder cattle late this spring on into the summer months.”

Futures and equity markets were closed Monday in observance of President’s Day. When traders get back to work Tuesday, there is no apparent reason for them to poor-mouth Cattle futures. Cash fed cattle prices ended mostly $4-$5 higher last week on a live basis at mostly $130/cwt. Dressed trade was $5 higher at $205.

Wholesale beef values also bounced higher to start the week. Choice boxed beef cutout value was $2.69 higher on Monday afternoon at $212.57/cwt. Select was $2.31 higher at $207.43.

There’s sure to be plenty of wariness, though, with the monthly Cattle on Feed report due out on Friday.

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“The strong start for beef and cattle markets is encouraging, but plenty of challenges remain in 2018,” says Derrell Peel, extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Beef production, already up over 3% so far this year, is expected to be up 4.5-5.0% for the year. Increased beef production will result from increased cattle slaughter and likely higher carcass weights. Feedlots are carrying larger inventories of feedlot cattle into the year and the 2% increase in the 2017 calf crop ensures that feeder numbers will continue to grow in 2018. Strong domestic and international demand is critical to limit the supply pressure of growing beef production in 2018.”

Supply and demand factors that Peel says are critical this year include carcass weights and trade issues.

“Carcass weights will be the key to just how much supply pressure will affect beef markets in the coming year,” Peel says. “Currently average cattle carcass weights are higher year over year as a result of heavier heifer and cow carcasses; with steers about equal to last year. Carcass weights are likely to bounce back some from last year’s sharp drop but just how much will determine total beef production. Along with increased beef production, growing pork and poultry production will result in record total U.S. meat production in 2018, adding to the supply challenges for all meat industries.”

As for trade issues, Peel explains decisions regarding NAFTA and KORUS could have far-reaching ramifications for cattle and beef markets, as could trade tensions with China.

“U.S. macroeconomic and global economic conditions generally could rise up to be a more prominent factor in beef markets,” Peel says. “Recent volatility in the stock market is a reminder that external factors can jump up quickly and may impact agricultural markets. Interest rates are likely to rise faster and more in 2018.”