WLI

Volatility in equity markets and sluggish cash fed cattle trade continued to pressure Cattle futures on Friday. Though undeveloped, reports of early fed cattle trade indicated prices about steady with the previous week.

Except for 75¢ higher in spot Feb, Live Cattle futures closed narrowly lower (10¢ to 47¢ lower).

Feeder Cattle futures closed an average of 72¢ lower (27¢ to $1.17 lower).

Choice boxed beef cutout value was $2.01 lower on Friday afternoon at $206.52/cwt. Select was $1.05 lower at $202.74.

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Equity markets continued recent violent swings on Friday, with major U.S. financial indices gaining back about a third of what was lost in the previous session. Worries about rising treasury yields, tied closely to interest rates, and the likelihood they will accelerate inflation, continue to be a central focus.

The Dow Jones Industrial Average closed 330 points higher. The S&P 500 closed 38 points higher. The NASDAQ closed 97 points higher.

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Pastureland and ranchland values continued to increase faster than cropland values in the fourth quarter; at least they did in states within the 8th Federal Reserve District.

Quality farmland values rose 5% in the fourth quarter, compared to a year earlier, while ranchland and pastureland values increased 14.8%, according to the latest Agricultural Finance Monitor (AFM) published by the Federal Reserve Bank of St. Louis. Cash rents for Quality farmland increased 3.9%, while rents for ranchland and pastureland rose by 10.1%.

States in the 8th District are: Arkansas, Illinois, Indiana, Kentucky, Mississippi, Missouri and Tennessee.

“The St. Louis metropolitan area continues to creep up U.S. Highway 61 toward this area. In response, demand for lower-quality land for recreation is rising as the economic outlook for people from the city improves,” according to a Missouri lender. “This also causes other classes of land to hold their value.”

The AFM survey was conducted from Dec. 15 through the end of last year. Results are based on the responses from 23 agricultural banks within the boundaries of the Eighth Federal Reserve District.

After strong early support, apparent profit taking and another massive purge in equity markets put a lid on Cattle futures Thursday. Undeveloped cash fed cattle trade stalled traders, as well.

Live Cattle futures closed narrowly mixed, but mostly marginally lower (52¢ lower to 27¢ higher).

Feeder Cattle futures closed an average of 51¢ lower (2¢ to $1.05 lower in spot Mar).

Choice boxed beef cutout value was 84¢ lower on Thursday afternoon at $208.53/cwt. Select was 65¢ higher at $203.79.

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Investors renewed their massive selloff in equities on Thursday, pushing major U.S. financial indices sharply lower. Apparently, it was continued worries over increasing treasury yields, tied closely to interest rates and the expectation that business returns will decline in tandem and/or accelerate inflation.

The Dow Jones Industrial Average closed 1,032 points lower. The S&P 500 closed 100 points lower. The NASDAQ closed 274 points lower.

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Last year was a record breaker for U.S. red meat exports, with beef export value exceeding $7 billion for only the second time, according to data released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

Beef exports totaled 1.26 million metric tons (mt), up 6% percent from 2016. This was the fourth-largest volume on record and the second-largest of the post-BSE era. Beef export value reached $7.27 billion, up 15% year-over-year and 2% above the previous high achieved in 2014 ($7.13 billion).

“This was a remarkable year for beef exports, in our mainstay markets in northern Asia as well as emerging destinations in South America, Southeast Asia and Africa,” said USMEF President and CEO Dan Halstrom. “The U.S. beef industry gained significant market share in Japan despite considerable obstacles, and posted a record-breaking performance in South Korea and Taiwan. These markets are especially critical for chilled beef exports, which were up about 25% year-over-year. This had a tremendous impact on carcass value.”

Beef export value last year averaged $286.38 per head of fed slaughter, up 9% from 2016 and the second highest on record, trailing only the $300.36 average posted in 2014.

Negotiated cash fed cattle trade was yet to be established through Wednesday afternoon, but early indications point to prices being no worse than steady.

Slaughter steers sold mostly $1-$2 higher at Sioux Falls Regional in South Dakota on Wednesday. Slaughter heifers sold steady to $1 higher. Both at prices near steady with last week’s country trade.

Similarly, a single lot (148 heifers at 1,250 lbs.) sold out of the 829 head offered in the weekly Fed Cattle Exchange Auction, for a weighted average price of $126/cwt., which was fully steady with last week’s country trade.

Cattle futures made a stride toward increased stability on Wednesday with a mixed close, albeit with less support than at the outset of the day’s trading.

Live Cattle futures closed from 60¢ lower to 67¢ higher.

Feeder Cattle futures closed an average of 40¢ higher, except for 42¢ and 7¢ lower in the front two contracts.

Choice boxed beef cutout value was 94¢ higher on Wednesday afternoon at $209.37/cwt. Select was 41¢ higher at $203.14.

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On Wall Street Wednesday, major U.S. financial indices settled mostly slightly lower. Along with recent, violent volatility, investors seem to be keeping a close eye on rising treasury yields.

The Dow Jones Industrial Average closed 19 points lower. The S&P 500 closed 13 points lower. The NASDAQ closed 63 points lower.

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“Over the last two weeks, a rumor has come up in several Western cattle auctions, and even in the futures market, about an impending dairy cow buyout,” says David Anderson, Extension agricultural economist at Texas A&M University, in the latest In the Cattle Markets. “This rumor was used as the explanation for lower prices. Most remember (either you were around then, or you have heard the stories from your elders) the government dairy herd buyout in the 1980s to deal with ruinous levels of production, stocks, and prices. That was also a time period where farm programs used a number of tools to limit production (high acreage reduction programs and payment-in-kind). More recent herd retirement programs run by private industry remain embroiled in lawsuits. There is no appetite or serious talk for any herd buyouts, either in the federal government or private industry efforts.”

Although increasing global milk production is pressuring prices, Anderson explains trends in demand enabled the industry to absorb increased supplies the last several years.

“In the U.S., growing butter consumption, the shift to Greek and other yogurts, the use of milk in a variety of new drinks, and continued growth in cheese consumption supported expanding milk production,” Anderson says. “It appears that the market has reached the point where demand growth is not enough to offset supply growth at profitable prices.”

So, he says, milk prices have declined enough to force a little more cow culling and less milk production.

“Some cow culling has come from farms’ exiting production,” Anderson says. “Production growth in some regions of the U.S. hit the limit of processors to use the milk. The end result has been some producers losing their milk market.”

Last year, Anderson notes dairy cow slaughter was 3.7% more than in 2016. So far this year, it’s 3.6% more year over year.

Between the likelihood of increased dairy cow slaughter and more beef cow slaughter from the growing herd, Anderson looks for cull cow prices to remain lower than last year well into 2018.

Uncertainty borne by the massive selloff in equities helped pressure Cattle futures, especially early in Tuesday’s session. Perhaps some traders were also looking ahead to Thursday’s World Agricultural Supply and Demand Estimates.

For the most part, Cattle futures remain higher week to week.

Live Cattle futures closed an average of 71¢ lower (22¢ to $1.12 lower).

Feeder Cattle futures closed an average of 97¢ lower (62¢ to $1.20 lower).

Choice boxed beef cutout value was $1.00 lower on Tuesday afternoon at $208.43/cwt. Select was $1.43 lower at $202.73.

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On Wall Street Tuesday, major U.S. financial indices gained back about half of what was lost in the previous say’s selloff. Getting there was a wild ride, though with wide swings. Rather than hinting at the beginning of a bear market, some analysts suggested the steep purge stemmed in part from investor concerns about rising interest rates and inflation being magnified by computer-driven algorithmic trading.

The Dow Jones Industrial Average closed 567 points higher. The S&P 500 closed 46 points higher. The NASDAQ closed 148 points higher.

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Producer optimism grew in January, according to the most recent Purdue University-CME Group Ag Economy Barometer (AEB).

At 135, the January barometer was 9 points higher than a month earlier. Both of the sub-indices that comprise the overall AEB were higher, too. The Index of Current Conditions was 5 points higher at 144. The Index of Future Expectations was up 11 points to 131. That’s the largest one-month improvement in future expectations since January 2017.

“To help put January’s responses in perspective, the percentage of farmers who felt their operations were financially worse off reached a high of 81 in August 2016,” says James Mintert, director of Purdue University’s Center for Commercial Agriculture and the barometer’s principal investigator. “Since April 2017, the share reporting that their farms were financially worse off has consistently fallen below 50%. The reduction has been an important driver of the ongoing improvement in the Index of Current Conditions.”

According to Mintert, recent tax reform may be part of the reason behind improving producer optimism.

Surveyed producers were asked to rate the likely impact on their farming operations, as well as their families’ tax burdens. Nearly half of all producers said they expect the tax bill to be beneficial to their operations. Conversely, 19% said they expect the tax bill to have a negative impact on their farming operations. The remaining 35% gave a neutral response.

“It’s possible the 40% of respondents expecting no changes in their taxes and the 35% who provided a neutral rating could reflect uncertainty regarding the specific content of the tax bill and the fact that IRS regulations implementing the tax bill have yet to be issued,” Mintert says.

Cattle futures basically gave back gains from the previous session on Monday with position squaring and spillover pressure from the plunge in equity markets.

Live Cattle futures closed an average of 75¢ lower (37¢ to $1.15 lower).

Feeder Cattle futures closed an average of $1.12 lower (75¢ to $1.45 lower).

Choice boxed beef cutout value was 33¢ higher on Monday afternoon at $209.43/cwt. Select was 71¢ higher at $204.16.

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On Wall Street Monday, investors continued the massive selloff that began on Friday, but to an even larger degree. Many analysts credited the purge to ongoing concerns about rising interest rates and inflation. Even so, fundamentals remain the same; the stunning degree and speed of the reversal certainly comes with more than a whiff of computerized algorithmic trading.

The Dow Jones Industrial Average closed 1,175 points lower. The S&P 500 closed 113 points lower. The NASDAQ closed 273 points lower.

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“The decrease in beef replacement heifers (Cattle report) is generally taken as a sign that herd expansion is over. That may well be, but a look at the absolute numbers suggests that a limited amount of additional beef herd expansion is possible in 2018,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “The Jan. 1 beef replacement heifer inventory was 19.3% of the herd inventory. This is down from record levels the past three years but it is still higher than the average level of 17.3% for the 25 years prior to the beginning of herd expansion in 2014. You have to recognize just how unusual the current herd expansion has been.”

Peel explains beef heifers, as a percentage of herd size, jumped above 20% in 2015-17 for the first time in history. It peaked at 21.0% in 2016.

“Thus, the current level of 19.3%, while down from recent years, is still above the levels seen in the previous full herd expansion in 1990-1996, with an average of 18.3% in the years 1993-1995,” Peel says. “Any beef herd expansion in 2018 would likely be limited to less than 1%, but a rate of 0.5% for the year is quite consistent with all the numbers in my analysis. I expect market conditions that play out in 2018 will determine whether any additional herd expansion is forthcoming.”

Moreover, Peel says the recent Cattle report indicates there is 2.3% less cattle supply outside of feedlots year over year.

“Large feedlot placements in 2017 pulled the feedlot inventory up 7.3% year over year, meaning that more of those feeder cattle were already in feedlots Jan. 1,” Peel explains. Aggressive feedlot placements and marketings were key factors in the strong 2017 market performance and will be again in 2018. The deceased feeder supply also reflects drought conditions at the end of 2017 that forced many lightweight cattle into feedlots early at the end of 2017. The point is that this tighter feeder supply will help support feeder cattle markets in the coming weeks and sets us up to deal with the still growing cattle numbers in 2018 in the best possible shape.”