WLI

The sell-off continued in Cattle futures on Thursday, less dramatically than the day before, with sharply lower grain prices tempering the pullback in Feeder Cattle.

Live Cattle futures closed an average of $1.16 lower (75¢ to $1.45 lower).

Feeder Cattle futures closed an average of 44¢ lower across a broad range (7¢ to $1.10 lower).

There weren’t enough cash fed cattle trades to trend on Thursday, but those reported at $116/cwt. on a live basis were steady with the highs established earlier in the week.

Choice boxed beef cutout value was $1.03 lower Thursday afternoon at $200.63/cwt. Select was 42¢ lower at $196.19. The Choice-Select spread was $4.44, the narrowest since March.

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Major U.S. financial indices closed sharply lower on Thursday—the steepest decline since May, according to analysts—pressured by mounting tensions with North Korea on the one hand and a rare disappointment, in recent terms, in tech stocks.

The Dow Jones Industrial Average closed 204 points lower. The S&P 500 closed 35 points lower. The NASDAQ closed 135 points lower.

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World Agricultural Supply and Demand Estimates (WASDE) increased forecast total meat production in 2017 on increased commercial beef (+0.8%) and broiler production.

“The increase in beef production reflects relatively large cattle placements in the second quarter, which will likely impact fourth quarter cattle slaughter,” say WASDE analysts. “For 2018, the beef production forecast is raised from the previous month, as expected higher placements in late 2017 and early 2018 result in higher steer and heifer slaughter.”

WASDE reduced estimated fed cattle prices for the remainder of this year and for 2018, based on weakened current prices and larger expected supplies. Fed cattle prices are estimated $1-$3 lower than the previous month at $120-$122/cwt. for the year; third quarter projected at $113-$117 and fourth quarter projected at $110-$116. Prices for next year were estimated $1-$2 lower than the previous month at $112-$121.

The handful of cattle selling in the weekly Fed Cattle Exchange auction on Wednesday traded at the lower level that trickled into the country a day earlier. Only 518 head sold out of 1,659 offered, at a weighted average price of $115.04/cwt., which was 96¢ lower than the previous week. Specifically, cattle selling for delivery at 1-9 days brought $115.28; $114.50 for delivery at 1-17 days; $114 for delivery at 17-30 days.

Country trade followed even lower.

Negotiated cash fed cattle prices were $1-$4 less than the previous week at $114-$116/cwt. ($115 in the Southern Plains and Colorado). Dressed trade was $2-$5 less at $183 (Iowa-Minnesota) to $185 (Nebraska).

So, bears found all the reasons they were looking for to take Feeder Cattle futures down the limit and Live Cattle sharply lower: lower cash fed cattle prices, softer wholesale beef values, less open and non-commercial interest and lower outside markets pressured by mounting tensions with North Korea.

Live Cattle futures closed an average of $2.39 lower ($1.85 to $2.85 lower).

Feeder Cattle futures closed mostly limit-down $4.50.

Choice boxed beef cutout value was 59¢ lower Wednesday afternoon at $201.66/cwt. Select was 25¢ lower at $196.61. Drop value was 47¢ lower week to week at $10.88, which was the lowest since March of last year.

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Although major U.S. financial indices bounced back from session lows on Wednesday, rising tensions with North Korea helped push them to a lower close.

The Dow Jones Industrial Average closed down 36 points. The S&P 500 closed fractionally lower. The NASDAQ closed 18 points lower.

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The pace of fed cattle marketing through August and September will determine market price dynamics from October through the remainder of the year, says Stephen Koontz, agricultural economist at Colorado State University.

“Calculations of the inventory of cattle on feed more than 90 days and more than 120 days show the volume coming and what the market will have to address this late summer and early fall,” Koontz explains in the most recent issue of In the Cattle Markets. “Both of these calculated inventories are well below last year, communicating that marketings have been timely to aggressive through summer. This will continue to hold some strength in fed cattle prices. However, the inventory of animals on feed more than 120 days dropped sharply while the inventory on feed more than 90 days increased sharply. Show lists are clean but very big numbers are coming.”

Those looming numbers explain much of the bearish sentiment driving cattle futures prices in recent days.

With continued strong fed cattle marketings, Koontz says prices will soften through the fall. Otherwise, if marketings slow and show lists get heavy, he expects prices to decline sharply.

On the plus side, Koontz explains, “The seasonal increase in slaughter weights is underway, albeit starting, luckily, 20-30 lbs. behind last year. Current carcass weights are 12-13 lbs., or about 1.5%, behind last year.

For the more technically inclined, Koontz says, “Resistance was established in early May for all summer and fall contracts. This resistance was tested and held in early June and then again in mid-July. Any up trend that you can identify from the spring moves is broken. Thus, seasonal weakness into the fall is in the cards on the charts.”

Although there were too few transactions to trend, cash live fed cattle sales were reported in Kansas and Iowa-Minnesota on Tuesday at $115-$116, which is steady to $2 shy of last week’s pace in those regions. There were a few dressed trades in Nebraska at $184-$186, compared to $187-$188 last week.

Cattle futures drifted to a mostly lower close on Tuesday, unable to sustain the hint of early support.

Choice boxed beef cutout value was 47¢ lower Tuesday afternoon at $202.25/cwt. Select was 14¢ lower at $196.86.

Except for 15¢ and 2¢ higher at the back, Live Cattle futures closed an average of 37¢ lower (25¢ to 52¢ lower).

Except for 15¢ higher in April, Feeder Cattle futures closed an average of 36¢ lower (10¢ to 72¢ lower).

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Major U.S. financial indices closed lower on Tuesday, amid rally fatigue and U.S. sabre rattling with North Korea.

The Dow Jones Industrial Average closed down 33 points. The S&P 500 closed 5 points lower. The NASDAQ closed 13 points lower.

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“So far in 2017, beef cow slaughter is running 10.4% above 2016 levels,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “This follows a 13.7% year-over-year increase in 2016. Although increased beef cow slaughter is consistent with slower herd growth, it does not indicate herd liquidation or even zero herd growth. If beef cow slaughter continues at the current pace (as projected) through the end of the year, net culling for the beef herd will still be under 9% and less than the long term average culling rate.”

The sharp increase in beef cow slaughter in 2016 and 2017 is mostly the result of low culling during herd expansion since 2014, Peel explains.

“More cows in the herd, plus previously delayed culling, means that a substantial increase in beef cow slaughter is inevitable,” Peel says. “By 2018, herd culling rates may return to typical levels. Beef cow slaughter typically increases sharply in the fourth quarter to a seasonal peak but is projected to maintain the current year-over-year levels for the remainder of the year. Dairy cow slaughter has increased recently bringing the current year-to-date level to 3.0% above last year. This follows a 1.0% year-over-year decrease in 2016.”

Overall, Peel says total cattle slaughter this year is projected to increase 4.5-5.0% compared to last year. It will likely increase another 3.5-4.0% next year.

Owners of long positions in cattle futures ran for the exits to start the week, taking Feeder Cattle sharply lower, while hammering nearby Live Cattle. There’s not much concrete to explain the level of bearishness. A case can be made for increased fund liquidation based on last week’s CFTC report, as well as technical selling. More than anything, at least for the day, traders seem to be betting on cattle futures breeching support levels, thinking increased beef production will overwhelm positive fundamentals. The more bullish set points to less production relative to cattle numbers than previously expected (lower carcass weights year to year for a sustained period) and apparent currentness, from the feedlot, to the packinghouse, to freezers and even the pace of calf and feeder cattle marketing.

Choice boxed beef cutout value was 89¢ lower Monday afternoon at $202.72/cwt. Select was 31¢ lower at $197.00.

Live Cattle futures closed an average of $1.89 lower ($1.10 to $2.97 lower).

Feeder Cattle futures closed an average of $3.14 lower ($2.32 to $3.75 lower).

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Major U.S. financial indices opened the week higher on Monday.

The Dow Jones Industrial Average closed up 25 points. The S&P 500 closed 4 points higher. The NASDAQ closed 32 points higher.

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June beef exports were the largest of 2017, reaching 109,554 metric tons (mt) – up 11% year-over-year and the largest June total since 2011, according to statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF). Export value increased 10% percent to $602.5 million. For January through June, beef exports were up 12% in volume (606,876 mt) and 15% in value ($3.35 billion) compared to the first half of last year.

Export value per head of fed slaughter averaged $264.51 in June, up 6% from a year ago. Through June, per-head export value was up 8% to $269.21.

“In this time of large red meat production, the upward trend in per-head export value and in the percentage of production exported is especially critical to the industry,” says USMEF President and CEO Philip Seng. “These metrics confirm that we’re not simply exporting more red meat because more is available – those exports are also generating excellent returns. It was also gratifying to see that the U.S. trade deficit narrowed in June due to an expansion of exports, knowing that the red meat industry made another solid contribution toward that effort.”

Beef exports to leading market Japan continued to gain momentum in June, with volume up 7% percent to 27,521 mt and value up 13% to $174.4 million (the highest since 2000). First-half exports to Japan exceeded last year’s pace by 23% in volume (150,812 mt) and 28% in value ($905.8 million). This included a 40% increase in chilled beef exports to 70,807 mt, valued at $511 million (up 38% percent), as the U.S. captured more than 50% of the chilled beef market. While demand for U.S. beef is very strong in Japan’s retail and foodservice sectors, as mentioned in Cattle Current last week, frozen exports to Japan face a higher tariff rate through March 2018.

Negotiated cash fed cattle trade in the Texas Panhandle was 50¢ to $1 higher than the previous week on Friday at $117.50-$118.00/cwt.

Nationwide, live trade for the week was mostly $1 more than the previous week at mostly $118/cwt. Dressed trade was steady to unevenly steady at $187-$188.

Cattle futures closed lower on Friday as scattered cash fed cattle trade continued at the week’s higher mark, while wholesale beef values drifted lower.

Choice boxed beef cutout value was $1.55 lower Friday afternoon at $203.61/cwt. Select was 47¢ lower at $197.31.

Except for 22¢ and 17¢ higher at either end of the board, Live Cattle futures closed an average of 48¢ lower (27¢ to 72¢ lower).

Feeder Cattle futures closed an average of 72¢ lower (35¢ to $1.17 lower).

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Stronger than expected employment numbers boosted Major U.S. financial indices on Friday.

Non-farm payroll employment increased by 209,000 in July, according to Friday’s summary from the Bureau of Labor Statistics. The nation’s unemployment rate was little changed at 4.3%.

The Dow Jones Industrial Average closed up 66 points. The S&P 500 closed 4 points higher. The NASDAQ closed 11 points higher.

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“Following a week of price declines in the futures market, the market began to slowly improve last week and was able to recapture about $4 of the previous week’s loss. Thus, cash prices tended to improve as the market progressed from Monday through Friday,” says Andrew P. Griffith, agricultural economist with the University of Tennessee, in his weekly market comments. “What may be of even more interest to producers looking to market feeder cattle in the near term is the fact that September and October feeder cattle futures contract prices are outperforming the August contract. This would indicate prices improving through late summer and early fall, but the market is not expecting prices to make a hasty move to the upside for cattle ready to enter the feedlot. Diligence in watching the market is warranted at this time as favorable pricing opportunities may present them-selves.”

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There are always challenges to building and maintaining international market share for U.S. beef, but one of the most essential—the ability to deliver the product—became more certain with the recent three-year extension of the labor contract covering 29 West Coast ports.

Specifically, according to the U.S. Meat Export Federation (USMEF), the International Longshore and Warehouse Union (ILWU) announced the agreement on Friday. The contract between ILWU and the Pacific Maritime Association (PMA) now runs through June 30, 2022.

“USMEF is pleased that ILWU and PMA pursued this early contract extension, which is a positive development for U.S. exporters and for the entire U.S. economy,” says Philip Seng, USMEF president and CEO. “The severe congestion we saw in the West Coast ports in 2014 and 2015 created major logistical problems for U.S. red meat exporters and prompted some international customers to seek alternative suppliers. The contract extension helps ensure that the United States will continue to live up to its reputation as a reliable red meat supplier. It is very good news for everyone in the supply chain – from farmers and ranchers to processors and traders – and for our customers in key Asian and Latin American markets.”