WLI

Although too few to trend, except in Colorado, early negotiated cash fed cattle trade on Wednesday was mainly $3 lower at mostly $107 on a live basis.

For the second consecutive week no cattle traded hands in the weekly Fed Cattle Exchange auction on Wednesday. There were 1,067 head offered.

Choice boxed beef cutout value was 70¢ lower Wednesday afternoon at $192.33/cwt. Select was $1.42 lower at $189.47.

With traders apparently squaring positions in the previous day’s positive session, and perhaps in some defensive positioning ahead of this Friday’s monthly Cattle on Feed report, Cattle futures moved lower again on Wednesday. Prospects of ample near-term supplies and eroding wholesale beef values continue to apply pressure.

Live Cattle futures closed an average of 94¢ lower (65¢ to $1.55 lower).

Feeder Cattle futures closed an average of 77¢ lower across a broad range (15¢ to $1.20 lower).

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Major U.S. financial indices closed lower on Wednesday. Lots of attention was paid to President Trump’s comments about his willingness to see the government shut down in order to get the border wall, and his doubts about the North American Free Trade Agreement. But there was also fundamental news digested by traders, including declining new home sales in July (see below).

The Dow Jones Industrial Average closed 87 points lower. The S&P 500 closed 8 points lower. The NASDAQ closed 19 points lower.

New home sales in July were 9.4% less than in June, according to the U.S. Commerce Department yesterday. Sales were 8.9% less than the previous July. The median sales price was $313,700.

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“It is likely that feedlots will be forced to continue to bid less aggressively on feeder cattle than during the past few months as they closely monitor the profitability of their operations,” explains Josh Maples, a livestock economist at Mississippi State University.”

Maples refers to increasing breakevens and dwindling profit potential as illustrated in the latest Historical and Projected Kansas Feedlot Net Returns (KFNR) from Kansas State University.

“Current and expected fed cattle prices have declined by approximately $10/cwt. over the past five weeks,” Maples explains in the latest issue of In the Cattle Markets. “This decline has eroded the projected profitability for feedlots through the rest of 2017. According to K-State’s Kansas Feedlot Net Return series, the projected net return for steers in Kansas feedyards was $136 per head for July closeouts. In fact, each month in 2017 saw positive returns with some months in the late spring showing more than $300 per head returns. The projections for the next nine months, however, are negative. August closeouts show projected losses of $31 per head while the projected loss for November is $169 per head.”

Maples emphasizes the KFNR reflects a cash market situation without price risk management strategies being implemented.

“Many feedlots do engage in some type of price risk management. However, few can fully offset price risks and most feedlots at least partially exposed to price risks at placement,” Maples says.

Short covering and position squaring seemed to be key drivers behind the surge in Cattle Futures on Tuesday. At least it offers a modicum of hope for cash fed cattle trade this week.

Choice boxed beef cutout value was 6¢ lower Tuesday afternoon at $193.03/cwt. Select was 73¢ lower at $190.89.

After 72¢ higher in spot Aug, Live Cattle futures closed an average of $1.59 higher ($1.20 to $2.02 higher).

Feeder Cattle futures closed an average of $2.47 higher ($2.15 to $2.90 higher).

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Major U.S. financial indices blasted higher on Tuesday, with many analysts attributing the surge to renewed hopes for tax reform. Presumably, the optimism is based on reports that the Trump administration and pivotal legislators agree on a path forward.

The Dow Jones Industrial Average closed 196 points higher. The S&P 500 closed 24 points higher. The NASDAQ closed 84 points higher.

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If the monthly Cold Storage report released by USDA is any indication of market clearing, then beef supplies continue to be in relatively strong fundamental shape.

Total pounds of beef in freezers Jul. 31 were 4% more than the previous month but 8% less than a year earlier. At the same time last year, beef in cold storage was 3% higher than the previous month but 2% less than the previous year,

Frozen pork supplies were down 1% from the previous month and down 7% from last year.

Total red meat supplies in freezers were up 1% from the previous month but down 8% from last year.

Total frozen poultry supplies were up 1% from the previous month and up 2% from a year ago.

Cattle futures closed mostly lower on Monday…early-week auction prices were mostly steady to higher for calves and feeder cattle…coming up on your Cattle Current Market Update with Wes Ishmael.

Cattle futures struggled to maintain some of the stability established in deferred contracts on Friday, losing the battle for the most part as traders continue fretting over sagging wholesale beef values and near-term supply abundance. Sliding nearby Lean Hog futures added spillover pressure.

Choice boxed beef cutout value was $1.20 lower Monday afternoon at $193.09/cwt. Select was 88¢ lower at $191.62.

Live Cattle futures closed 5¢ to 45¢ lower, except for 20¢ higher in Dec, 25¢ higher in away Oct and unchanged at the back.

Feeder Cattle futures closed an average of 66¢ lower across the front half of the board and then 5¢ lower to 55¢ higher.

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Major U.S. financial indices closed narrowly mixed but mostly marginally higher on Monday, amid little economic news and lingering unease over geopolitical events.

The Dow Jones Industrial Average closed 29 points higher. The S&P 500 closed 2 points higher. The NASDAQ was down 3 points.

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Along with the vagaries of seasonal beef demand, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University explains that comparatively high beef prices, as well as continued adjustment following record high prices from late 2014 to early 2016 are affecting current wholesale beef values.

“The current ratio of retail beef to broiler prices is equal to the record level set in July, 2015,” Peel says, in his weekly market comments. “The retail beef to pork price ratio is also holding steady at levels near the record during the high prices of 2014 into 2016 and, like the beef to broiler retail price ratio, are at levels well above historical ratios prior to 2014.”

For perspective, Peel explains all-fresh retail beef prices in July ($5.83) were 1% higher year over year, increasing each month of this year. Choice retail beef prices ($6.10) in July were slightly less than a month earlier, but fractionally higher year over year.

At same time, Peel points out that beef wholesale cutout values dropped sharply in the past two months after climbing to a stronger than expected seasonal peak of $250.86/cwt. in mid-June.

“Choice beef prices have struggled to find a summer bottom with ample supplies and summer heat weighing on beef markets,” Peel says. “Weekly Choice cutout values averaged higher year over year from late April until last week. Select cutout values also increased from January to a weekly seasonal peak of $224.54/cwt. in mid-May before dropping to last week’s $194.81/cwt.”

Most recently, Peel explains wholesale values for middle meets weakened more, relative to the chuck and round. He adds the ground beef market this year continues to be volatile.

“Longer term, wholesale beef product markets continue to adjust following unusual price relationships that emerged during the record high prices from late 2014 through early 2016,” Peel says. “Many lower value products increased relative to middle meats during this period but are returning to more typical price relationships in 2017. Products from the chuck, round and sirloin increased relative to loin and rib prices during this period. The Choice-Select spread narrowed during the record price period and has widened back out to near record levels at times in 2017.”

Cattle futures ended a dismal week on Friday, finding some stability across the back half of the board, from profit taking if nothing else.

Choice boxed beef cutout value was $1.34 lower Friday afternoon at $194.29/cwt. Select was $1.70 lower at $192.50.

Live Cattle futures closed 32¢ to 75¢ lower through the front three contracts and then an average of 24¢ higher except for unchanged in Apr.

After 2¢ higher in spot Aug, Feeder Cattle futures closed an average of 42¢ lower in the next three contracts (2¢ to 70¢ lower), and then an average of 99¢ higher across the back half of the board (17¢ to $1.67 higher).

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Major U.S. financial indices closed lower on Friday, but off of session lows, something of a rebound from the steep selloff a day earlier. More than anything, domestic politics seem to be the main driver—the revolving door in Trump’s White House, etc.

The Dow Jones Industrial Average closed 76 points lower. The S&P 500 closed 4 points lower. The NASDAQ was down 5 points.

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“After weeks of holding the line, finished cattle prices are being driven down by seasonal supply and demand factors,” said Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments on Friday. “The price decline this week was larger than most analysts in the industry were expecting over a seven-day period. Additionally, cattle feeders recognize prices are deteriorating to levels below a year ago, which is cause for concern. There continues to be downside risk now that the market broke through the support level. The question now is if finished cattle prices will fall below the $1 level on a live basis, which happened last year. Not to bring optimism to a dismal situation, but deferred futures are holding well above the $1 price point and fed cattle basis remains strongly positive, which would support cash prices remaining above the $1 mark.”

If this isn’t the seasonal bottom or near it, hopefully you can see it from here.

Cash fed cattle trade broke loose with moderate trade on light to moderate demand in all major cattle feeding regions on Thursday. Live prices were mainly $3-$7 less than last week at mostly $110/cwt. Dressed trade was $8-$10 less at mostly $175.

Choice boxed beef cutout value was $1.88 lower Thursday afternoon at $195.63/cwt. Select was 84¢ lower at $194.20.

Continued deterioration in fed cattle prices and wholesale beef values, along with sharply lower outside markets, supported bears’ doubts about the near term and fueled further liquidation in Cattle futures.

Live Cattle futures closed an average of $2.16 lower through the front three contracts and then an average of $1.19 lower (87¢ to $1.67 lower); an average of about $2.75 lower across the board in the last two sessions.

Feeder Cattle futures closed an average of $1.87 lower ($1.37 to $2.40 lower), a little more than an average of $5 lower in the past two sessions.

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Major U.S. financial indices closed sharply lower on Thursday. Besides profit taking, pressure was ascribed to the business backlash against President Trump—fears that it will make it more difficult to garner their cooperation—as well as increased geopolitical unrest.

The Dow Jones Industrial Average closed 274 points lower. The S&P 500 closed 38 points lower. The NASDAQ was down 123 points.

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Increasing ethanol production is likely to exceed domestic and export demand, according to a new report from CoBank’s Knowledge Exchange Division.

The report, Ethanol’s Growth Path: Output and Export Uncertainties Both Rising, outlines how an ethanol market fueled by corn prices at multi-year lows, coupled with reinvestment into production capacity, will push supply past demand growth. As U.S. ethanol producers reinvest last year’s strong profits in increased production and capacity, the report suggests profit margins could turn negative, prompting consolidation.

“Forecasts indicate that total ethanol production by 2020 will have increased by approximately 850-900 million gallons, compared to 2017 levels,” says Tanner Ehmke, CoBank senior economist. “Without a substantial increase in domestic demand or exports to clear excess supplies, ethanol producers are facing a downturn over the medium term. Those who have access to multiple transportation markets and have invested in new technology will be leaner and more cost efficient, enabling greater flexibility to endure prolonged periods of low prices.”

Domestic demand for gasoline blended with ethanol was strong over the last 18 months, as low fuel prices resulted in consumers driving more. Consumers are increasingly buying higher ethanol-gasoline blends like E-15 (15% ethanol), too.

There are a number of challenges ahead, however, according to CoBank. Among them:

• Exports of ethanol, particularly to Brazil and China, were during the past year, but that picture has changed significantly and the outlook for future ethanol exports suggests a continued decrease over the foreseeable future.
• China effectively ceased ethanol imports from the U.S. following its implementation of a 30% tariff on U.S ethanol. Exports to Brazil are also expected to erode as Brazilian sugar refiners come back online following a sugar crop failure in 2016, which led to the country’s heavy reliance on ethanol imported from the U.S.
• Growth of U.S. exports to new markets such as India, Mexico and Indonesia, where governments are seeking to improve air quality, is possible, but will likely take time to fully materialize.

Tight margins, limited profitability and consolidations are anticipated for the ethanol industry in the near future, according to CoBank. But, analysts there expect the correction to be less severe than previous ones.