WLI

Cash fed cattle prices on Thursday continued mainly steady to $1 higher than last week at $117-$118/cwt.

Choice boxed beef cutout value was 10¢ higher Thursday afternoon at $205.16/cwt. Select was 36¢ higher at $197.78.

Cattle futures edged higher on Thursday as traders digested the notion of steady to higher cash trade and continued stabilization in wholesale beef values.

Live Cattle futures closed an average of 38¢ higher (2¢ to 75¢ higher).

Feeder Cattle futures closed an average of 38¢ higher (7¢ to 60¢ higher).

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Major U.S. financial indices closed narrowly mixed on Thursday as investors awaited Friday’s monthly employment numbers.

The Dow Jones Industrial Average closed up 9 points. The S&P 500 closed 5 points lower. The NASDAQ closed 22 points lower.

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“Lower corn prices could help to boost feedlot demand for lighter weight cattle at a time when we will likely see larger supplies of those same cattle. That could help to add some support for feeder cattle prices just as many producers are looking to unload,” says Brian Williams, a livestock economist with Mississippi State University, in the most recent issue of In the Cattle Markets.

Although corn yield looks to be lower than last year’s record pace, barring major weather catastrophe over the next month or so, Williams expects corn prices to continue trending lower through harvest.

Moreover, Williams expects more calves to trade hands earlier than usual, due to drought in the Northern Plains. Other than finding pasture south beyond the Corn Belt, he notes the most likely destination is straight to the feedlot.

“Profitability has allowed cattle feeders to aggressively buy animals (feeder cattle). The result has been more steers and heifers placed on-feed than a year ago and higher feeder cattle prices,” say analyst with the Livestock Marketing Information Center, in the most recent Livestock Monitor. “Monthly Cattle on Feed reports from NASS show the number of cattle placed into feedlots with 1,000 head or more capacity during the first six months of 2017 was 11.17 million head. That was a year-over-year jump of 1.10 million head or 11%. Further, the number of head placed during January through June was the largest for that timeframe since 2003.”

Cash fed cattle trade started out $1 lower yesterday, beginning with the weekly Fed Cattle Exchange auction. Only one lot (54 head) sold out of the 1,063 head offered, at a weighted average price of $116/cwt. for delivery at 1-9 days. The weighted average there last week was $117.68.

Country trade started out mostly $1 less than last week too, at $116, but by the end of the day, sales were reported up to $118.

Cattle futures followed a similar path, except they started the session with support that faded by mid-day before bouncing to close with mostly triple-digit gains.

Except for 60¢ and 55¢ higher in the back two contracts, Live Cattle futures closed an average of $1.45 higher ($1.07 to $1.80 higher).

Feeder Cattle futures closed an average of $1.13 higher (85¢ to $1.45 higher).

Choice boxed beef cutout value was 35¢ lower Wednesday afternoon at $205.06/cwt. Select was 87¢ lower at $197.42.

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Major U.S. financial indices closed mostly higher on Wednesday as a bump higher in Apple (quarterly earnings blowing past expectations) helped lift the Dow to a record-high close over 22000 for the first time.

The Dow Jones Industrial Average closed up 52 points. The S&P 500 closed 1 point higher. The NASDAQ closed fractionally lower.

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Keeping in mind how depressed prices were last fall, the Livestock Marketing Information Center (LMIC) forecasts yearling prices at or above a year ago for the balance of 2017.

As for calf prices, LMIC analysts say, “Current quarter (July-September) calf prices are likely to be unchanged to higher, compared to 2016’s. In 2017’s fourth quarter, Southern Plains calf prices (500-600 lbs. steers) are currently forecast to be $8-$12/cwt. above 2016’s.”

Heading into next year, LMIC notes increasing cattle numbers will likely pressure fed cattle prices. The degree of pressure will have plenty to do with domestic and international demand.

“For planning purposes, look for some erosion in calf and yearling prices in 2018 compared to 2017’s,” LMIC analysts say, in the most recent Livestock Monitor. “Currently, LMIC is forecasting the annual average fed steer price in 2018 will be 2% to 6% below 2017’s. The 2017, U.S. calf crop was bigger than 2016’s, and 2018’s will increase, again. Feedlots and backgrounders could face higher feedstuff costs in 2018, which may provide some additional headwind to prices.”

Feeder Cattle futures rallied sharply higher on Tuesday, fueled by oversold conditions, declining corn prices and apparent short covering. Live Cattle followed along with less conviction.

Choice boxed beef cutout value was 34¢ lower Tuesday afternoon at $205.41/cwt. Select was 45¢ higher at $198.29.

Except for 45¢ higher at the back, Live Cattle futures closed an average of 99¢ higher (75¢ to $1.22 higher).

Feeder Cattle futures closed an average of $2.72 higher ($2.27 to $3.00 higher).

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Major U.S. financial indices closed decisively higher on Tuesday, supported by continued strong quarterly earnings reports.

The Dow Jones Industrial Average closed up 72 points. The S&P 500 closed 6 points higher. The NASDAQ closed 14 points higher.

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“…the question being asked by most in the industry is if the increased placements (Cattle on Feed report, Jul. 21) are from pulling cattle out of the country early or if there were that many additional cattle out there,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. The recent Cattle on Feed report indicated that June feedlot placements were 16% more than the previous year, which was 10% more than analysts expected.

“The most likely scenario is that there are a few more cattle and some cattle were pulled forward,” Griffith says. “The feeder cattle market will likely bounce back from the bearish news and continue to trade in a steady range that the market has been in for the past three months or so. Producers are still encouraged to use price risk management strategies if deemed necessary.”

On the other end of the scale, Griffith says cattle feeders continue to be profitable on a cash to cash basis, although fed cattle prices last week were 19% less than the spring top.

“The higher feeder cattle prices paid in the spring will put pressure on cattle feeders if the fed market does not turn in the coming weeks,” Griffith says. “If $117/cwt. (last week’s price) is the low, then the seasonal would push live cattle over $130 during the holidays, but this may be a tough target to hit.”

Cattle futures tottered mostly lower on Monday, pressured by last week’s lower cash fed cattle trade, follow-through selling and month-end position squaring.

Wholesale beef values continued to firm. Choice boxed beef cutout value was 47¢ lower Monday afternoon at $205.75/cwt. Select was $1.02 higher at $197.84.

Live Cattle futures closed an average of 52¢ lower (25¢ to 90¢ lower).

Except for 12¢ higher in spot Aug and 27¢ and $1.02 higher at the back, Feeder Cattle futures closed an average of 53¢ lower (37¢ to 80¢ lower).

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Major U.S. financial indices closed mostly narrowly mixed on Monday, while strong quarterly earnings reports and stable oil prices helped lift the Dow.

The Dow Jones Industrial Average closed up 60 points. The S&P 500 closed 1 point lower. The NASDAQ closed 26 points lower.

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Even though packing capacity today is less than a few years ago, it should be enough to keep up with expanding cattle numbers, at least for the time being, according to Derrell Peel, Extension livestock marketing specialist at Oklahoma State University.

Peel explains that U.S. packing capacity declined from 2012 to 2106 with the close of one major packing facility along with some smaller ones.

“Published estimates of slaughter capacity suggest that capacity utilization (average daily slaughter as a percent of slaughter capacity) increased from 79% in 2012 to 83% in 2016 for the top 20 beef packing plants,” Peel says, in his weekly market comments. “The average daily federally inspected slaughter level in 2016 was 95,913 head with a maximum daily level of 117,978 head on November 10, 2016. That was the only day in 2016 with slaughter above 117,000 head. This compares to five years earlier in 2012 when the average daily slaughter was 103,580 head and there were 225 days with slaughter above 117,000 head, including 205 days with slaughter exceeding 120,000 head.”

So, Peel says, “Slaughter capacity could become a factor at some point with continued herd growth, but it is unlikely to be a significant issue for the foreseeable future.”

In the meantime, labor constraints could prove more challenging. In other words, the raw capacity is there, but there has to be enough labor to run added daily and weekend shifts as necessary.

CattleFax analysts noted in their 2017 Industry Outlook in February, “Adequate processing capacity has been a major issue in the pork and beef industries in 2016. The available supply continues to outpace facility growth, and this will remain a challenge for market participants during peak market cattle and hog supplies the next few years.”

Cattle futures started Friday on soft footing and lost ground from there, with some attributing pressure to Japan’s announced tariff increase on U.S. beef imports through next March (see below).

Live Cattle futures closed an average of $1.10 lower through the front five contracts (87¢ to $1.40 lower) and then 32¢ to 62¢ lower.

Feeder Cattle futures closed an average of $1.52 lower across the front half of the board ($1.05 to $1.85 lower) and then 22¢ to 52¢ lower except for 2¢ higher in March.

Choice boxed beef cutout value was 21¢ lower Friday afternoon at $206.22/cwt. Select was 16¢ higher at $196.82.

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Major U.S. financial indices closed narrowly mixed on Friday amid apparent profit taking and news that included softer quarterly earnings at Amazon, as well as estimated second-quarter GDP of 2.6%, which was in line with expectations.

The Dow Jones Industrial Average closed up 33 points. The S&P 500 closed 3 points lower. The NASDAQ closed 7 points lower.

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The tariff rate for U.S. frozen beef exports to Japan will increase 11.5% (from 38.5% to 50.0%) Aug. 1, due to implementation of Japan’s quarterly beef safeguard mechanism. The increased tariff will be in place through March of 2018.

As agreed to in the 1994 World Trade Organization Uruguay Round, Japan maintains separate quarterly import safeguards on chilled and frozen beef, allowing imports to increase by 17% compared to the corresponding quarter of the previous year, according to the U.S. Meat Export Federation (USMEF). The duty increases from 38.5% to 50.0% when imports exceed the safeguard volume. Japan’s frozen beef imports in the 2016 Japanese fiscal year were lower than in previous years, thus the growth in imports during this first quarter of the current fiscal year exceeded 17%, driven in part by rebuilding of frozen inventories and strong demand for beef in Japan’s foodservice sector. The most recent quarter saw strong growth in imports from all of Japan’s main beef suppliers.

Japan was the top export market for U.S. beef, valued at $1.5 billion in 2016. According to data compiled by the USMEF, first quarter U.S. beef sales to Japan increased 42% over 2016. In addition to the United States, the 50% percent safeguard tariff also applies to imports from Canada, New Zealand, and other countries that do not have a free trade agreement with Japan.

“I am concerned that an increase in Japan’s tariff on frozen beef imports will impede U.S. beef sales and is likely to increase the United States’ overall trade deficit with Japan,” said U.S. Agriculture Secretary Sonny Perdue, in a statement on Friday. “This would harm our important bilateral trade relationship with Japan on agricultural products. It would also negatively affect Japanese consumers by raising prices and limiting their access to high-quality U.S. frozen beef. I have asked representatives of the Japanese government directly and clearly to make every effort to address these strong concerns, and the harm that could result to both American producers and Japanese consumers.”

The implications for U.S. beef exports are significant because U.S. frozen beef now faces an even wider tariff disadvantage compared to Australian beef, according to USMEF:

“The duty on U.S. frozen beef imports (effective Aug. 1, 2017 through March 31, 2018) will be 50% while the duty on Australian beef will remain at the current rate of 27.2%, as established in the Japan-Australia Economic Partnership Agreement (JAEPA).

“Through the JAEPA, Japan transitioned from quarterly safeguards to annual safeguards, which are much less likely to be triggered. The snapback duties on Australian beef have also been reduced, minimizing any potential impact on trade. Japan also agreed to similar terms in its economic partnership agreement with Mexico and in the Trans-Pacific Partnership (TPP).

Moreover, the folks at USMEF point out that conditions have changed since the quarterly safeguards were established in 1994, and the growth in Japan’s imports this year has not adversely impacted Japan’s domestic beef producers. Prices for wagyu carcasses and wagyu feeder cattle are down from the record highs of last year, but are otherwise the highest in recent history.