WLI

Cash fed cattle traded sharply lower on Wednesday…Cattle feeding returns are projected to be positive for the next several months…coming up on your Cattle Current Market Update with Wes Ishmael.

Cash fed cattle trade got underway Wednesday with prices a solid step behind last week.

Negotiated cash fed cattle trade in the country was $1-$4 lower on a live basis at $119-$120/cwt. Dressed trade was $2-$4 lower at $188-$190.

Similarly, prices were about $119 for cattle selling in the weekly Fed Cattle Exchange auction—$119.21/cwt. for delivery at 1-9 days; $119.25 at 1-17 days. Most of the cattle offered in the sale changed hands—617 out of 969 head.

Reasons that cattle feeders were willing to take lower money early in the week likely include: a chance to sell at a profitable level, wholesale beef values running out of steam and the lack of support from Cattle futures. There was also chatter that packers have adequate inventory heading into Thanksgiving week.

Choice boxed beef cutout value was 54¢ lower Wednesday afternoon at $210.13/cwt. Select was $2.88 lower at $190.61. Week to week, that’s about $3 lower for Choice and $8 lower for Select.

Despite all of that, Cattle futures found a foothold on Wednesday amid lighter trade.

Live Cattle futures closed an average 41¢ higher in the front five contracts and then unchanged to an average of 20¢ lower.

Feeder Cattle futures closed an average of 38¢ higher except for 50¢ lower in the back contract.

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Major U.S. financial indices closed lower on Wednesday. Softer oil prices and unrest over tax reform proposals contributed pressure.

The Dow Jones Industrial Average closed 131 points lower. The S&P 500 closed 14 points lower. The NASDAQ closed 31 points lower.

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“Returns (feedlot) over upcoming months have improved notably reflecting expected fed cattle price increases, especially for early 2018 closeouts,” says Glynn Tonsor, agricultural economist at Kansas State University, in the latest Historical and Projected Kansas Feedlot Net Returns (KFNR).

In fact, the KFNR estimates positive closeouts for steer and heifers for the next five months—November through March.

For steers during that time period, net returns are projected at $21.39 to $114.16 per head with breakeven cost of gain at $83.04 to $98.97/cwt.

For heifers, net returns are estimated at $33.61 to $123.41 per head, with breakeven cost of gain at $89.31 to $109.49/cwt.

Tonsor emphasizes, the calculations reflect a cash market situation without price risk management.

Feeder Cattle futures closed sharply lower on Tuesday, leading Live Cattle along, but to a lesser degree. There continues to be plenty of uncertainty surrounding the top in fed cattle prices, as well as consumer beef demand, relative to forward-contracted beef, coming out Thanksgiving. Lower wholesale beef values also contributed pressure.

Live Cattle futures closed an average of $1.43 lower (95¢ to $1.90 lower).

Feeder Cattle futures closed an average of $2.40 lower ($1.07 to $3.07 lower).

Choice boxed beef cutout value was $2.14 lower Tuesday afternoon at $210.67/cwt. Select was 34¢ lower at $193.49.

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Major U.S. financial indices closed lower on Tuesday. Among pressures cited by analysts: slower than expected economic growth in China and uncertainty surrounding tax reform.

The Dow Jones Industrial Average closed 30 points lower. The S&P 500 closed 5 points lower. The NASDAQ closed 19 points lower.

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Stronger cattle prices than expected this year are boosting estimated cow-calf returns higher to about on par with 2011, say analysts with the Livestock marketing Information Center (LIMC).

LMIC estimates a return of about $69 per cow this year compared to -$21 last year, even though cash production costs per cow are estimated to be slightly higher. That’s based on a typical commercial full-time spring calving and fall weaning operation.

“Those estimates are not survey-based and are developed for market analysis purposes,” LMIC analysts say in the latest Livestock Monitor. “They do not represent an individual ranch/farm resource base. LMIC calculations only include cash costs of production and pasture rent. That is, return to owner management, labor, etc., are not included. The returns are useful only in a general context. For example, the LMIC uses those estimates because producer return is a key factor influencing national herd growth or contraction.”

For perspective compared to last year, LMIC projects steer calf prices (500-600 lbs.) in the Southern Plains to be in the upper $160s for the fourth quarter. That would be about 21% ($28-$29 per head) more than last year.

Although returns look to be more than anticipated this year, LMIC analysts caution that they’re likely to erode over the next couple of years.

“Cyclically, U.S. calf crops are forecast to continue increasing throughout 2019,” LMIC analysts say. “U.S. beef tonnage produced in 2018 is expected to be record-large and should rise again in 2019. Unless demand (domestic and foreign) for beef comes in much better than anticipated, calf prices are forecast to slip for the next two years. Still, calf prices in the fourth quarters of both 2018 and 2019 could remain above 2016’s depressed level. However, any faltering in demand relative to 2017’s could quickly send cattle prices back down to 2016 levels.”

Between wonderments about the top in cash fed cattle prices, how much room is left for wholesale beef values to run, and the prospects of another massive placement number in the monthly Cattle on Feed report due out Friday, Cattle futures began the week with plenty of uncertainty. That feeling was underscored by strong early support that faded by session’s end.

Live Cattle futures closed unchanged to an average of 12¢ lower.

Other than 22¢ higher in spot Nov, Feeder Cattle futures closed an average of 38¢ lower.

Choice boxed beef cutout value was $1.04 lower Monday afternoon at $212.81/cwt. Select was 68¢ lower at $193.83.

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Major U.S. financial indices closed slightly higher on Monday.

The Dow Jones Industrial Average closed 17 points higher. The S&P 500 closed 2 points higher. The NASDAQ closed 6 points higher.

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Although cash fed cattle prices were a touch softer last week, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University points out that that prices remain higher than most expectations.

Likewise, even with the lower futures prices last week, Peel notes in his weekly market comments, “Live futures are still offering attractive levels to lock in fed cattle for the spring. It’s not clear if cattle futures are simply making a technical correction and some profit taking, but the long speculative position in the markets makes it vulnerable to move lower. The opportunities currently offered may be fleeting.”

The same goes for feeder cattle cash and futures prices.

“The good news is that moves lower have thus far been quite orderly and spring contracts remain at levels that offer unusual opportunities for feeder cattle producers to lock in attractive margins,” Peel explains. “As with Live Cattle futures, current Feeder futures are built on long speculative positions that could turn and allow an abrupt and sharp drop. The opportunity is there but may be passing.”

Moreover, even with sharply lower year-to-year carcass weights this year that diluted the impact of increasing cattle numbers, Peel says beef production next year is projected 4% higher, on top of an estimated 4% increase this year. Pork and broiler production are also projected higher next year.

“Strong beef demand, both domestically and internationally, has supported cattle and beef prices in 2017,” Peel says. “At the current time, retail beef prices are holding close to year-ago levels with boxed beef and cattle prices at all levels higher than this time last year.”

Negotiated cash fed cattle trade ended the week generally steady to $2 lower in the beef at $190-$192/cwt. Live sales were was $1 lower in the Southern Plains and Colorado at $124/cwt. Elsewhere, live sales were steady to $3 lower at $120-$122.

Cattle futures faded some of the heaviest selling pressure on Friday, but still closed mostly solidly lower as traders ponder the odds of whether or not the top in fed cattle is still coming or just behind.

Live Cattle futures closed an average of $1.78 lower through the front three contracts. After 77¢ lower in June, contracts were 12¢ lower to 10¢ higher.

Other than unchanged in spot Nov and 20¢ and 25¢ higher in the back two contracts, Feeder Cattle futures closed an average of 49¢ lower (32¢ to 67¢ lower).

Choice boxed beef cutout value was $1.11 higher Friday afternoon at $213.85/cwt. Select was $3.79 lower at $194.51.

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Major U.S. financial indices paddled sideways to lower on Friday, with traders taking stock of tax reform scenarios and timing of an ultimate market correction to generally over-bought conditions in equities.

The Dow Jones Industrial Average closed 39 points lower. The S&P 500 closed 2 points lower. The NASDAQ closed fractionally higher.

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“Margins remain favorable for cattle feeders with a steady price this week, but packers were looking for any way to slow the ratcheting up of finished cattle prices that have outpaced price movements in the boxed beef market,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “It is hard to tell if the early cattle trade was the reasoning for softening of December Live Cattle futures or if packers would have benefited from waiting until December futures declined about $5 from last week’s close. Regardless of what is leading the market, it would appear finished cattle prices will remain strong the next few weeks.”