WLI

Despite softer wholesale beef values to start the week, signs continue pointing toward higher cash fed cattle prices.

Although there is yet any country trade to speak of, slaughter cattle traded $1-$3 higher at Sioux Falls Regional Livestock in South Dakota on Wednesday.

Sellers passed on bids of $117-$118/cwt. for a couple of lots of heifers in yesterday’s weekly Fed Cattle Exchange Auction; there were 967 head offered and no sales.

Moreover, chatter about greener cattle, regionally snug supplies and recent sturdiness in Cattle futures suggests packers need to remain aggressive buyers heading into the holidays.

Cattle futures edged mostly higher amid mixed trade, continuing the recent, tentative steps toward establishing more upside.

Except for 20¢ lower in the back contract, Live Cattle futures closed an average 49¢ higher (7¢ to 92¢ higher).

Feeder Cattle futures closed an average of 59¢ higher (15¢ to $1.07 higher).

Choice boxed beef cutout value was $2.08 lower Wednesday afternoon at $206.55/cwt. Select was $1.36 lower at $185.84.

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Major U.S. financial indices closed mixed on Wednesday. Domestic economic growth (see below), a strong start to the holiday retail season and expectations for Senate passage of its tax reform proposal all offered support. Tech stocks provided drag.

Real gross domestic product (GDP) increased at an annual rate of 3.3% in the third quarter of 2017 (second estimate), according to the Bureau of Economic Analysis yesterday. That’s more than the trade expected and builds on 3.1% growth in the second quarter.

The Dow Jones Industrial Average closed 103 points higher. The S&P 500 closed fractionally lower. The NASDAQ closed 87 points lower.

Indecision may be the most apt description of Cattle futures trade on Tuesday as traders tried to sort out how much upside there is to the current oversold status, compared to sluggish wholesale beef values and increasing cattle numbers.

Cattle futures closed narrowly mixed—a touch higher for Feeder Cattle and a touch lower for Live Cattle.

Except for 7¢ higher in the back contract, Live Cattle futures closed an average 22¢ lower.

Feeder Cattle futures closed an average of 28¢ higher.

Choice boxed beef cutout value was 94¢ lower Tuesday afternoon at $208.63/cwt. Select was 8¢ lower at $187.20.

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Major U.S. financial indices closed sharply higher on Tuesday, with many analysts crediting the sharp bounce to reports that the Senate is close to passing its tax reform proposal. Other support came from merger and acquisition news, including the deal for Arby’s Restaurant Group to acquire Buffalo Wild Wings (BWW) in a $2.9 billion deal (including BWW debt).

The Dow Jones Industrial Average closed 255 points higher. The S&P 500 closed 25 points higher. The NASDAQ closed 33 points higher.

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“Chicken production this quarter is poised to post the biggest year-over-year increase since the summer of 2015,” say analysts with the Livestock Marketing Information Center (LMIC) in a recent Livestock Monitor. “Hatchery output has been up by as much as 5% in some weeks in recent months as the chicken industry responds to the best profitability since the middle of 2014, based on the metric of wholesale parts prices relative to feed costs.”

That’s worth pondering with increased red meat and poultry production this year, which will grow even more next year.

USDA’s Economic Research Service (ERS) estimates broiler production next year 1.8% higher at 42.3 billion lbs. That total is about 35% more than estimated beef production for next year of 27.6 billion lbs. For the record, pork production next year is projected at 26.9 billion lbs.

Back to those chickens, LMIC estimates heavier average bird weights likely will account for 1% of the estimated 3.4% year-to-year increase in fourth-quarter broiler production.

“Average bird weights in September set a record at 6.25 lbs., up from 6.18 lbs. in the prior month and 6.15 lbs. a year ago,” LMIC analysts say. “Bird weights in September 2016 were lighter than in September 2015 as the chicken industry was trying to find a solution to breast meat quality problems that were believed to be related to rapid bird growth.”

More worrying to animal protein competitors is the lack of international demand for U.S. chicken, relative to production growth.

“The increase in U.S. chicken production is not being matched by larger volumes of product moving into the export market,” LMIC analysts explain. “Consequently, domestic supplies of chicken available are up commensurately… This year’s shipments to Mexico are on course to be the smallest since 2012. Sales to Canada have run below year-earlier levels since April. Cuba had been a growth market, but exports to that destination fell in September. All told, chicken exports in September were down 12% from September 2016, the biggest monthly decline from a year ago for 2017 to-date.”

Cattle futures gained some traction on Monday with short covering and a focus on expected strength for holiday beef buying.

Live Cattle futures closed an average $1.16 higher (95¢ to $1.60 higher).

Feeder Cattle futures closed an average of $1.00 higher.

Choice boxed beef cutout value was $1.42 lower Monday afternoon at $209.57/cwt. Select was 57¢ lower at $187.28.

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Major U.S. financial indices closed narrowly mixed on Monday. Support was apparently tied to a bullish view of holiday retail sales and the Senate vote scheduled later this week on its tax reform proposal.

The Dow Jones Industrial Average closed 22 points higher. The S&P 500 closed 1 point lower. The NASDAQ closed 10 points lower.

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“The price outlook the next several months appear favorable for cow-calf and stocker producers,” says Andrew P. Griffith, agricultural economist at the University of Tennessee.

Griffith notes in his weekly market comments that the Jan Feeder Cattle contract has traded above $148 since the third week of September, suggesting strong support at or above that level. It closed at $154.45 on Monday.

“The current situation may offer highly leveraged producers the opportunity to lock in a profit at a minimal cost,” Griffith says. “For producers who can afford to carry the market risk, it may be beneficial to sit tight and keep a close eye on the market. At the same time producers are eyeing the first-quarter feeder cattle market, many of these same producers are thinking about early spring calf prices. The strong feeder cattle market should lead to a strong calf market in late March and early April.”

Griffith also points out Feeder Cattle contracts through Sep 2018 are trading within $2.50 of each other.

“There are several thoughts concerning the tight trading range, but the thought that is most likely to summarize it is that there is a lot of uncertainty to the number of animals coming to the market,” Griffith says.

Cattle futures settled mixed on Friday with light trade amid holiday-trimmed trading hours for futures and equities.

Cash fed cattle trade for the week was generally steady to a touch higher, with live sales at $120.00 to $120.50/cwt., except for $118 in the Southern Plains. Dressed trade was steady to $2 higher than the previous week at $190.

Live Cattle futures closed an average 50¢ lower through the front five contracts (5¢ to 90¢ lower) and then 2¢ to 10¢ higher.

Feeder Cattle futures closed an average of 68¢ higher.

Choice boxed beef cutout value was $1.98 higher Friday afternoon at $210.99/cwt. Select was 79¢ lower at $187.85.

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Major U.S. financial indices closed higher on Thursday, as investors apparently are betting on strong holiday shopping.

The Dow Jones Industrial Average closed 31 points higher. The S&P 500 closed 5 points higher. The NASDAQ closed 21 points higher.

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“Fed carcass weights continue to inch toward a seasonal peak but remain well below year-ago levels,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “The latest steer carcass weights were 902 lbs. compared to 913 lbs. the same week last year. Heifer carcass weights are currently 833 lbs., which is 9 lbs. lighter”

Although beef production is 4.1% more than last year (year to date), Peel points out the year-to-year increase is declining.

“In the last eight weeks, beef production is up only 1.8% compared to the same period last year,” Peel says. “…Year to date steer and heifer slaughter is up 5.5% year over year with steer slaughter up 2.5% and heifer slaughter up 12.0%. However, in the last eight weeks, steer and heifer slaughter is up just 4.4% year over year. So far this year, cow slaughter is up 7.1% led by a 10.4% year-over-year increase in beef cow slaughter and a 4.2% increase in dairy cow slaughter.”