WLI

Cash fed cattle prices took a solid step higher in late week trade…Equity markets settled narrowly mixed ahead of the long weekend…Coming up on your Cattle Current Market Update with Wes Ishmael.

Cattle feeders were rewarded for their marketing patience on Friday. Cash fed cattle prices were $3-$4 higher than the previous week on a live basis at $129-$130/cwt. Dressed trade was $5 higher at $205.

Although higher week to week, Cattle futures closed narrowly mixed on Friday as traders positioned ahead of the weekend, extended to three days for futures and equity markets by President’s Day.

After 82¢ higher in spot Feb, Live Cattle futures closed narrowly mixed, (12¢ lower to 40¢ higher).

Feeder Cattle futures closed narrowly mixed, 10¢ lower to 10¢ higher across the front half of the Board and then 15¢ to 55¢ higher.

Wholesale beef values continue to offer optimism. Choice boxed beef cutout value was 84¢ higher on Friday afternoon at $209.88/cwt. Select was 2¢ lower at $205.12.

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Major U.S. financial indices drifted to a narrowly mixed close on Friday, with investors apparently playing defense ahead of the long holiday weekend.

Support included 9.7% more housing starts in January than the prior month and 7.3% more than the previous year, according to the federal government’s Monthly New Residential Construction report.

The Dow Jones Industrial Average closed 19 points higher. The S&P 500 closed 1 point higher. The NASDAQ closed 16 points lower.

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“Light boxed beef movement has allowed packers to keep wholesale beef prices elevated the first six weeks of the year, but a more seasonal tone came into the Thursday and Friday market,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “February beef demand is always weak relative to most other months and that weakness is beginning to show up in wholesale beef prices.”

However, Griffith also notes that both Choice and Select cutout values remain above $200/cwt.

“This is important from the standpoint that the $200 mark was a major resistance point prior to the trough of cattle inventory in the current cattle cycle,” Griffith explains. “Since that resistance was broken, the same price point has provided significant support. Choice and Select cutouts could dip below the invisible support line, but the risk of a total collapse is small…”

Packers and feedlots remained a good $4-$5 apart by most accounts, through late Thursday afternoon, but expectations continue for steady to higher cash trade. That and a step higher in wholesale beef values helped lift Cattle futures.

Choice boxed beef cutout value was $1.23 higher on Thursday afternoon at $209.04/cwt. Select was $1.63 higher at $205.14.

Except for 20¢ higher at the back of the board, Live Cattle futures closed an average of $1.18 higher (62¢ to $2.02 higher in near Apr).

Feeder Cattle futures closed an average of $1.49 higher ($1.02 to $1.95 higher).

Major U.S. financial indices closed sharply higher again on Thursday. Apparently investors are getting more comfortable with higher inflation and interest rates, or at least considering them byproducts of growing fundamental economic strength.

The Dow Jones Industrial Average closed 306 points higher. The S&P 500 closed 32 points higher. The NASDAQ closed 112 points higher.

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U.S. beef exports are poised to build upon two consecutive years of double digit growth, according to analysts with USDA’s Economic Research Service (ERS), in the latest Livestock, Dairy and Poultry Outlook.

The forecast for 2018 beef exports was revised upward by 40 million lbs. from the previous month’s forecast to 3.0 billion lbs. based on continuing strong demand in overseas markets and the weakening of the U.S. dollar at the beginning of 2018,” ERS analysts say. “The U.S. dollar trade index has dropped to the lowest level since June 2015, making U.S. products more attractive in foreign markets.”

Cash cattle trade remained undeveloped through Wednesday afternoon. So far, there’s not any reason to believe prices will be any worse than steady, likely higher.

For instance, slaughter steers sold $1-$2 higher at Sioux Falls Regional at $126.25-$127.50/cwt. (Ch-2-4). Slaughter heifers sold $2 higher in a light test at $126.25-$128.00 (Ch 2-4).

Only 255 head (three lots of heifers) were offered in the weekly Fed Cattle Exchange auction. There were no sales, but one P.O at $124/cwt.

Expectations for steady-to-higher cash trade, the lower U.S. dollar and higher Lean Hogs helped lift Cattle futures.

Live Cattle futures closed an average of 39¢ higher (17¢ to 82¢ higher in spot Feb.).

Feeder Cattle futures closed an average of 65¢ higher (30¢ lower to 92¢ higher).

Choice boxed beef cutout value was 45¢ higher on Wednesday afternoon at $207.81/cwt. Select was 38¢ higher at $203.51.

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Major U.S. financial indices took a step higher on Wednesday, following early pressure tied to the inflation indicated by the Consumer Price Index (CPI).

The CPI increased 0.3% in January on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, before seasonal adjustment, the CPI for all items is up 2.1%. The index for all items less food and energy rose 1.8% over the past year, while the energy index increased 5.5% and the food index advanced 1.7%.

The Dow Jones Industrial Average closed 253 points higher. The S&P 500 closed 35 points higher. The NASDAQ closed 130 points higher.

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Increased late-year feedlot placements due to drought and relatively slower growth in last year’s calf crop, lowered USDA’s expectations for beef production this year by 35 million lbs. to 27.7 billion lbs. That’s still 6% more than last year’s estimated production of 26.2 billion lbs., which was 3.8% more than in 2016.

“This reflects anticipation of fewer cattle to be placed in feedlots in the first half of the year and marketed in the second half, although it is largely offset by the first-half marketing of cattle placed in late-2017,” say analysts with USDA’s Economic Research Service (ERS) in the latest Livestock, Dairy and Poultry Outlook.

ERS analysts note that the timing and weight of placements in the coming months will increasingly depend on precipitation in the Southern Plains.

“Despite higher cattle slaughter and beef production during January 2018 relative to January 2017, wholesale beef prices climbed above 2017,” ERS analysts say. “With packer margins above 2017 in early 2018, January fed steer prices also averaged above year-earlier levels. On expectations of continued demand strength, fed steer price forecasts for the first and second quarters were raised to $122-$126/cwt. and $117-$125, respectively. Although first-quarter fed steer prices are expected to average above 2017, second-quarter prices could be pressured by marketings.”

Cattle futures trade on Tuesday seemed to be mostly a game of wait and see with traders having no compelling reason to stake a definitive claim on either side of the fence.

Live Cattle futures closed narrowly mixed (30¢ lower to 27¢ higher).

Feeder Cattle futures closed narrowly mixed but mostly marginally higher (40¢ lower to 22¢ higher).

Choice boxed beef cutout value was 88¢ lower on Tuesday afternoon at $207.36/cwt. Select was 84¢ lower at $203.13.

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Major U.S. financial indices settled slightly higher on Tuesday, hinting at some stability, at least for the day. No doubt, investors will look to Wednesday morning’s release of the monthly Consumer Price Index for further hints about inflation.

The Dow Jones Industrial Average closed 39 points higher. The S&P 500 closed 6 points higher. The NASDAQ closed 31 points higher.

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“Changes in where consumers buy groceries, when they buy, and what they buy will inevitably force changes all the way through the supply chain. Nowhere will these changes be more dramatic than in perishables such as meat,” says Don Close, RaboResearch Food & Agribusiness Senior Protein Analyst.

The where in this case is online, versus brick and mortar stores.

Close recently authored an in-depth report—Food Fight, Online and Brick & Mortar Battle for Business—exploring the swift transition some consumers are making to purchase their food online, and what that means to beef, specifically.

The report projects 20% of food purchased for in-home consumption will be purchased online by 2025. For perspective, Close says total domestic annual food sales are currently around $1.5 trillion; approximately half of that is for in-home consumption.

Close notes that access to a broader pool of customers, independent of geography, provides online shopping outlets with the ability to meet a wider variety of customer requests than brick and mortar stores. As examples, he mentions the opportunity for customers to buy specific beef grades and brands.

Think your way through that and a broader pool of customers for beef with narrower specifications likely provides incentive for suppliers to further segregate beef, expanding value and price differences.

“These niche desires will result in additional demands on cattle quality and production specifications, which will lead to a wider price spread across all classes of cattle, as well as a more detailed premium and discount schedule,” Close says. “These changes are indicative of a permanent change in the way food reaches the average American consumer—and if the beef industry is to ward off any further decline in beef consumption, it must embrace these changes and make beef an integral part of the consumption experience, regardless of where it is purchased.”

Cash fed cattle prices ended up mainly steady in late trade last week with live sales at mostly $126.00-$126.50/cwt. and dressed sales at $200.

The higher cash trade last week on lighter volume and another day of gains in outside markets helped lift Cattle futures to strong gains on Monday.

Live Cattle futures closed an average of 97¢ higher (60¢ to $1.37 higher).

Feeder Cattle futures closed an average of $1.37 higher (82¢ to $1.82 higher).

Choice boxed beef cutout value was $1.72 higher on Monday afternoon at $208.24/cwt. Select was $1.23 higher at $203.97.

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Major U.S. financial indices closed sharply higher again on Monday, extending gains from the previous session as the market seeks a new equilibrium following the recent steep and wild gyrations. At least part of the correction is tied to rising treasury yields, tied closely to interest rates, and the likelihood they will accelerate inflation.

Support on the day included news that the White House will roll out a plan for the federal government to spend $200 billion on infrastructure over the next decade.

The Dow Jones Industrial Average closed 410 points higher. The S&P 500 closed 36 points higher. The NASDAQ closed 107 points higher.

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“Beef purchasing decisions have become less sensitive to retail beef prices,” says Glynn Tonsor, agricultural economist at Kansas State University (KSU). “While prices will always matter, this reinforces the importance of industry focus on beef quality aspects of taste, appearance, convenience and freshness.”

That’s one of the conclusions of a newly released study commissioned by the Beef Checkoff Program, Assessing Beef Demand Determinants. The study summarizes the current knowledge of consumer demand for beef and identifies the best opportunities for the industry to influence demand positively.

Among other things, the research updated elasticity estimates (sensitivity of purchasing behavior to prices). In other words, if the price goes up by 1%, how many fewer pounds are purchased? This study showed that a 1% increase in price has a smaller impact on beef consumption than it used to.

“What I believe that signals is that beef quality issues such as taste, appearance and freshness have elevated over time,” Tonsor says.

Beef quality, consumer incomes, attention to beef in health articles in medical journals and the general media, and shifts in race composition of the U.S. population are key determinants affecting beef demand in the long term, according to the report.

Authors of the new study include Tonsor, fellow KSU agricultural economist, Ted Schroeder, and Jayson Lusk, distinguished professor and head of the Department of Agricultural Economics at Purdue University.

As beef supplies increase, beef demand is positively positioned to utilize the report’s findings.

“Both beef supplies and cattle prices increased in 2017 relative to 2016 – an outcome only possible with demand growth,” according to the report. “A perpetual industry priority is to better understand and monitor beef demand, and to inform stakeholders because demand directly influences overall industry success.”