WLI

Feeder Cattle led the rout in Cattle futures on Wednesday, just a day after significant support. Other than eroding wholesale beef values and the step lower in early cash fed cattle trade, emotion, technicals and algorithms might offer some explanation as fundamentals remain unchanged.

There were only 1,184 head offered in the weekly Fed Cattle Exchange auction—mostly from the Southern Plains—and zero takers.

Though too few to trend, there were some dressed trades reported in Nebraska and Iowa-Minnesota on Wednesday at $175-$177/cwt. That’s sharply lower than the previous week, but steady to $2 higher than earlier-week sales.

Live Cattle futures closed an average of $1.24 lower across a broad range (42¢ to $2.07 lower).

Feeder Cattle futures closed an average of $3.31 lower ($2.80 to $3.62 lower), basically giving back everything gained in the previous session; yet, a little higher week to week.

Choice boxed beef cutout value was $1.44 lower Wednesday afternoon at $197.51/cwt. Select was 83¢ lower at $195.04.

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Major U.S. financial indices closed higher on Wednesday, but far from session highs. Early on, minutes from the Federal Reserve, indicating they were standing pat on interest rates for the time being fueled strong gains. After President Trump disbanded his Strategic and Policy Forum and Manufacturing Council—due to the growing backlash from business leaders to recent remarks from the president—stocks came down. Softer oil prices and fewer housing starts than expected also added pressure.

The Dow Jones Industrial Average closed 25 points higher. The S&P 500 closed 3 points higher. The NASDAQ was up 12 points.

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One wildcard in all of the chatter about increased fed cattle volume is the number of heifers to be retained or fed.

Through June, heifers in feedlots with 1,000-head or greater capacity were up 10.6% more than a year earlier, according to the Economic Research Service (ERS), in the latest monthly Livestock, Dairy and Poultry Outlook (LDPO). Heifer slaughter so far this year is running 4% more than last year.

“Although to some extent this likely reflects the large supply of heifers due to herd expansion, the number of heifers on feed as a percent of total on-feed numbers increased from 33.7% in 2016 to 35.6%,” say ERS analysts. “Although comparisons to 2016 are not possible, the Cattle report estimated that heifers retained for beef cow replacement were 2% below 2015. Replacement heifers represented 14.5% of the cow inventory, lower than 2014-2015 but above the percentages of 2007-2012, a period of relatively strong cow liquidation.”

In the meantime, according to the LDPO, net second-quarter placements, (feedlots with 1,000-head or greater capacity) of 5.5 million head were 10.5% more than the previous year, the second most since 2003.

“The larger than expected number of calves placed in feedlots increases the likelihood of greater steer and heifer marketings late in the third quarter and early in the fourth quarter,” explain ERS analysts. “As a result, the third-quarter price for 5-Area Choice steers is forecast lower to $113-$117/cwt. and to $110-$116 in the fourth quarter. Similarly, with more cattle outside feedlots, and lower fed cattle prices expected to pressure cattle feeders’ returns, the average price for feeder steers weighing 750-800 lbs. is forecast lower in the third and fourth quarters to $146-$150/cwt. and $141-$147, respectively.”

Never mind lower cash fed cattle prices last week—lower yet for scattered sales so far this week—the presumed looming wall of cattle or other various reasons given for the slide in cattle futures and cash prices last week. Cattle futures on Tuesday bounced near-limit higher for many Feeder Cattle and Live Cattle contracts, re-establishing some buffer for key support levels.

There’s little question futures were oversold, but as is so often the case these days, there seemed little definitive to explain the gains. Softer grain prices helped Feeder Cattle. Another apparently large kill last week suggests cattle feeders remain aggressive sellers, maintaining currentness along the way. But still…

Live Cattle futures closed an average of $2.02 higher ($1.00 to $2.70 higher).

Feeder Cattle futures closed an average of $3.56 higher ($3.05 to $3.97 higher).

Choice boxed beef cutout value was 3¢ higher Tuesday afternoon at $198.95/cwt. Select was 57¢ lower at $195.87.

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Major U.S. financial indices closed little changed and narrowly mixed on Tuesday, with many analysts crediting pressure to soggy retail performance.

The Dow Jones Industrial Average closed 5 points higher. The S&P 500 closed 1 point lower. The NASDAQ closed 7 points lower.

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Finally, today, If you happen to be in a part of the world blessed by cooler seasonal temperatures, adequate moisture and ample forage—like Oklahoma—then Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, says cow-calf producers and stocker operators may have added options this fall, given the currently strong value of gain.

“An early start implies the potential for a longer than usual fall-winter grazing period,” Peel explains in his weekly market comments. “This may impact several stocker considerations including purchase weight, quality of animal, gender and the potential for two sets of stockers between now and next March or May.”

For cow-calf producers, Peel adds, “Good forage may allow the possibility of pushing weaning a bit later than usual or retaining calves post-weaning to add weight. At the current time, the value of additional weight tends to be about $1/lb. of gain or higher.”

Of course, value of gain depends on the beginning weight and the amount of weight added.

“For example, average Oklahoma prices for the last three weeks result in a value of gain for 475 lb. steers of $0.91/lb. for 100 lbs. of gain based on beginning price of $175.18/cwt. and a price of $160.45/cwt. for 575 lb. steers,” Peel explains. “However, starting with the 575 lb. steers and adding 100 lbs. results in a value of gain of $1.33/lb. based on a price of $156.29 for 675 lb. steers. Calf prices will likely decline seasonally into the fall and prices by weight may adjust so producers should reevaluate the value of adding weight to calves closer to weaning time.”

Feeder Cattle futures managed to build on the previous session’s gains. Although Live Cattle recovered some during the session, they closed mostly lower, taking away most of the gains from the last session.

Except for 10¢ and 20¢ higher in Apr and Jun, Live Cattle futures closed an average of 43¢ lower (22¢ to 80¢ lower).

Except for 2¢ and 10¢ lower at the back of the board, Feeder Cattle futures closed an average of 58¢ higher (40¢ to 72¢ higher).

Choice boxed beef cutout value was 68¢ lower Monday afternoon at $198.92/cwt. Select was 32¢ higher at $196.44. AMS analysts note that beef trimmings were sharply lower on light demand and heavy offerings.

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Major U.S. financial indices closed sharply higher on Monday, despite lower crude oil prices. More than anything, analysts seemed to credit easing tensions between the U.S. and North Korea, at least for the day, as well as economic growth in Japan.

The Dow Jones Industrial Average closed 135 points higher. The S&P 500 closed 24 points higher. The NASDAQ closed 83 points higher.

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Andrew P. Griffith, agricultural economist at the University of Tennessee points out in his weekly market comments that Choice boxed beef cutout value remained above $200/cwt. until Aug. 26; it breeched that mark this year on Friday.

“The concern comes in when considering the Choice cutout dropped below $180 during the back half of October 2016,” Griffith explains. “Could that be in store for the fall of 2017? Beef prices could continue to spiral downward over the next couple of months before holiday purchasing begins. Such a downward movement would put pressure on finished cattle prices as well as feeder cattle prices. If beef production remains elevated and exports falter the next few months then downside risk will remain and prices could fall below year-ago levels later in the year.”

On the other side of the coin, Griffith also notes the additional pressure on grain prices exerted by last week’s World Agricultural Supply and Demand Estimates.

“With a lower cost of gain on the table, there remains an opportunity to add weight to calves,” Griffith explains. “The lower cost of gain in feedlots could result in cattle feeders being more aggressive while purchasing cattle, but the likelihood of this is small given they have been aggressive throughout 2017.”

Futures edged higher on Friday, supported by short covering to end a lousy, bearish week.

Live Cattle futures closed an average of 77¢ higher (37¢ to $1.00 higher).

Feeder Cattle futures closed an average of 85¢ higher (52¢ to $1.37 higher).

Choice boxed beef cutout value was $1.03 lower Friday afternoon at $199.60/cwt. That’s the first time Choice cutout was below $200 since February. Select was 7¢ lower at $196.12. The Choice-Select spread was $3.48, the lowest since February.

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Major U.S. financial indices closed higher on Friday, following the steepest decline since May in the previous session. While fretting continues over North Korea, investors were reportedly encouraged by the Consumer Price Index of 0.1% in July being less than expected; as a gauge on inflation, some believe it’s too little to enable the Fed to hike interest rates in September.

The Dow Jones Industrial Average closed 14 points higher. The S&P 500 closed 3 points higher. The NASDAQ closed 39 points higher.

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“Despite the lower market, analysts with the Agricultural Marketing Service said on Friday that low feed costs and the surplus of corn in farmer feeder country continues to spur demand for steers. They explain that Prices in the Northern Plains and upper Midwest continue to be the highest in the nation, adding that Cattle producers in that area are taking advantage of the market before demand decreases when farmers get busy with corn and soybean harvest.”

Feeder cattle opened the week steady to $4/cwt. higher in the cash market, before the rout began in Cattle futures. By the end of the week, they were trading $3-$10 lower. That was for the North Central and South Central Plains. Prices were mixed in the Southeast, from $8 lower to $6 higher, according to AMS.

Reflecting on the week’s prices, AMS analysts note, “The last time cash fed cattle prices and spot live cattle futures were this low was in December 2016.”