WLI

Early indications point to higher cash fed cattle once again this week as packers and retailers reload after the holidays.

Slaughter steers traded $2 higher at Sioux Falls Regional Livestock in South Dakota on Wednesday. Slaughter heifers sold $1-$2 higher. There were only 388 head offered in the weekly Fed Cattle Exchange Auction and no sales.

Wholesale beef prices continue to offer support.

Choice boxed beef cutout value was $3.48 higher on Wednesday afternoon at $208.62/cwt. That’s $5.72 higher in the last two days. Select was $2.59 higher at $199.16; up $6.18 in the last two days.

That and sluggish trade helped Cattle futures retain most of the strong gains in the previous session.

Live Cattle futures closed narrowly mixed but mostly higher (40¢ lower to 27¢ higher).

Feeder Cattle futures also closed narrowly mixed but mostly higher (15¢ lower to 45¢ higher).

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Major U.S. financial indices closed higher again on Wednesday amid supportive economic news that included the Fed being more optimistic about the domestic economy.

The Dow Jones Industrial Average closed 98 points higher. The S&P 500 closed 16 points higher and above 2700 for the first time. The NASDAQ closed 58 points higher.

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Fed steer prices climbed the most since September in 11 years, according to the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor.

Based on the 5-market Choice steer price monthly average (USDA AMS), October prices were up $5.35/cwt. from the prior month, according to LMIC. In 2013, analysts there note that the September-to-October increase was $5.13; it was $4.44 in 2014.

“Over the last 10 years, the average September-to-October price change was a decline of 16 cents, in no small part due to drops in 2015 and 2016 of $4.45 and $5.03, respectively,” LMIC analysts say. “The comparisons of fed cattle price increases in 2017 from September to November were even more dramatic. The average change for that two-month span during the prior 11 years was up by $1.42 per cwt. This year the price increase was $14.26.”

For the quarter, LMIC analysts project the average fed steer price at a little more than $117.50/cwt.. which would be 9% more than last year.

Live sales last week ended up mostly $3 higher at $123/cwt.; $2-$3 higher in the Western Corn Belt at $122-$123. Dressed trade was $4-$5 higher at $194-$195.

Higher cash fed cattle trade, along with firming wholesale beef values helped fuel strong buyer support for Cattle futures on Tuesday.

Choice boxed beef cutout value was $2.24 higher on Tuesday afternoon at $205.14/cwt. Select was $3.59 higher at $196.57.

Except for 22¢ higher in recently minted away Jun, Live Cattle futures closed an average of $1.71 higher ($1.42 to $1.92 higher).

Feeder Cattle futures closed an average of $3.35 higher ($2.07 to $4.20 higher).

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Major U.S. financial indices closed sharply higher on Tuesday amid general overall optimism.

The Dow Jones Industrial Average closed 104 points higher. The S&P 500 closed 22 points higher. The NASDAQ closed 103 points higher.

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“Domestic and international beef demand will determine cattle and beef price pressure relative to increasing beef production,” says Derrell Peel, of markets in 2018. “Modest price pressure is expected at this time but any threat to demand would quickly result in additional price weakness. Larger down-side price risk means that risk management takes on an added importance in 2018. While cattle producers cannot have much impact on overall market price levels, they may be able to reduce the risk of lower individual prices with risk management tools.”

Peel, the Extension livestock marketing specialist at Oklahoma State University says decent returns will be possible this year despite the likely squeeze on profits.

“Lower prices increase the likelihood of lower revenue and puts additional emphasis on production and cost management in the coming year,” Peel says. “Overall production costs are expected to remain stable in 2018, though rising interest rates may impact debt management at some point. Maintaining profitability this year in the face of lower prices will require increased production and/or reduced costs.”

Futures traders awaiting direction from the week’s cash fed cattle trade were disappointed on Friday as the standoff between feedlots and packers continued through the afternoon with scant trade and too few transactions to trend.

Front-month Live Cattle drooped as traders squared positions for the end of the year, while firming wholesale beef values helped lift Feeder Cattle.

Choice boxed beef cutout value was 62¢ higher on Friday afternoon at $202.90/cwt. Select was $2.07 higher at $192.98.

Live Cattle futures closed an average of $1.12 lower in the front two contracts, including $1.55 lower in expiring Dec. Contracts across the rest of the board were narrowly mixed but mostly lower (32¢ lower to 30¢ higher).

Except for 25¢ lower in the back contract, Feeder Cattle futures closed an average of 55¢ higher (40¢ to 82¢ higher).

Major U.S. financial indices closed lower on Friday with a late-session selloff, presumably tied to profit-taking, year-end book balancing and positioning ahead of the long holiday weekend. Spot Crude Oil futures (WTI) closed at its highest level in a couple of years.

The Dow Jones Industrial Average closed 118 points lower. The S&P 500 closed 13 points lower. The NASDAQ closed 46 points lower.

Overall, market fundamentals remain firm, with feedlot marketing apparently remaining current, wholesale beef values finding some traction and markets shrugging off the bearish monthly Cattle on Feed report from the previous Friday.

Cattle futures also received an early-week jolt from the severe cold and winter weather making its way across much of the U.S., which will impair feedlot performance.

Feeder Cattle futures closed an average of $3.79 higher week to week on Friday ($2.50 to $4.45 higher).

Live Cattle futures closed an average of $2.71 higher week to week on Friday ($2.17 to $3.17 higher). And that was with cash fed cattle trade stymied through late Friday afternoon.

Though too few to trend, through Saturday morning, AMS reported 1,266 head of fed cattle trading hands. Steers brought $120.27 on a live basis and $193.17 in the beef. Dressed heifer sales were at $196.

Although negotiated cash fed cattle trade remained undeveloped through Thursday afternoon, indications continued pointing to higher prices for the week. Consider, the handful of dressed heifer sales $1 higher at $192/cwt. in the western Corn Belt. Also, Live Cattle jumped $2.52 in expiring Dec to go off the board at $124.55.

Live Cattle futures closed an average of 94¢ higher; an average of $1.61 higher in the front three contracts.

Wholesale beef values provided support. Choice boxed beef cutout value was 68¢ higher on Thursday afternoon at $202.28/cwt. Select was 49¢ higher at $190.91.

Feeder Cattle futures closed an average of 35¢ higher.

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Major U.S. financial indices closed higher on Thursday amid light trade once again.

The Dow Jones Industrial Average closed 63 points higher. The S&P 500 closed 4 points higher. The NASDAQ closed 10 points higher.

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“The number of feeder transactions by region comprising the CME Feeder Cattle Index are not distributed equally through all geographies, a key consideration producers should have when establishing a hedging program,” says Don Close, senior animal protein analyst for Rabobank’s RaboResearch Food & Agribusiness (RRFA). “The question as to how well a geographic area is represented in the composition of the index is an important consideration to incorporate in hedging strategies.”

Close suggests a regional approach to basis, utilizing the same states that currently comprise the CME Feeder Cattle Index. That index serves as a cash reference for feeder cattle nationally and provides the price by which Feeder Cattle contracts are settled.

RRFA analysts suggest five regions: Montana and Wyoming; Nebraska, South Dakota and North Dakota; Iowa and Missouri; Kansas and Colorado; and Texas, Oklahoma and New Mexico. Among other potential benefits, the notion is that such an approach would be more reflective of regional feeder cattle value while providing insight to shifting supplies.

Close’s comments are tied to conclusions drawn from a new Feeder Cattle Basis report from the RRFA, which seeks to answer whether the CME Feeder Cattle contract is still viable, and if so, how its volatility might be managed.

According to the RRFA research, the contract is still viable and worthy of efforts to support trade volume that would increase liquidity. RRFA analysts say the wide and growing gap in open interest between Feeder Cattle and Live Cattle contracts poses the greatest risk to the Feeder Cattle contract.

Odds are increasing for higher cash fed cattle prices this week. Supportive factors include likely slaughter levels, the bounce higher in Cattle futures and early trade signals.

For instance, slaughter steers and heifers traded mostly steady at Sioux Falls Regional Livestock in South Dakota on Wednesday. Choice 2-3 steers brought $119-$121/cwt. at 1401-1487 lbs.

Similarly, there were no sales at the weekly Fed Cattle Exchange Auction on Wednesday with 637 head (five lots) offered.

As for country trade, it remained at a standstill in the Northern Plains and Southern Plains through Wednesday afternoon; very inactive on very light demand in the western Corn Belt.

Although lower day to day, wholesale beef values maintained higher levels week to week.

Choice boxed beef cutout value was $1.00 lower on Wednesday afternoon at $201.60/cwt. Select was 41¢ lower at $190.42.

All of that helped Cattle futures mostly maintain gains from the previous session, although they closed narrowly mixed.

Live Cattle futures closed narrowly mixed, from 47¢ lower to 52¢ higher.

Except for fractionally lower in a couple of mid-board contracts, Feeder Cattle futures closed an average of 47¢ higher.

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Major U.S. financial indices edged higher on Wednesday amid light trade.

The Dow Jones Industrial Average closed 28 points higher. The S&P 500 closed 2 points higher. The NASDAQ closed 3 points higher.

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Total adult cattle (heavier than 500 lbs.) and calf death losses on beef operations was valued at $2.24 billion in 2015, according to a recent report from the National Animal Health Monitoring Service (NAHMS). The same year, total cattle and calf death losses were valued at $3.87 billion. That equates to right at $43 per head for the 89.8 million head inventory (all cattle and calves) on Jan. 1 that year.

Almost 3.9 million cattle and calves were lost to all causes in 2015—1.74 million adult cattle and 2.14 million calves. That was about 2% death loss for adult cattle and 6.2% death loss for calves.

For beef operations, specifically, non-predator causes accounted for $1.52 billion in total lost value for adult cattle. Predators accounted for another $592 million in lost value.

Old age was the leading non-predator cause of death (19.2%) in adult beef cattle, followed by unknown non-predator causes (17.3%), respiratory problems (15.9%), calving-related problems (12.8%) and weather-related (11.8%).

For beef operations, specifically, non-predator causes accounted for $556 million in total lost value for calves. Predators accounted for another $112 million in lost value.

Respiratory problems accounted for 23% of calf death loss due to non-predator causes, followed by calving-related problems (22.7%), and weather-related causes (18.3%).