WLI

Cash fed cattle sales ended the week steady to $2 higher at mostly $120/cwt. Dressed trade was steady to $1 lower at $189-$190.

Cattle futures tottered to minimal gains on Friday, gaining back some of the previous day’s losses. 

Live Cattle futures closed an average of 27¢ higher (7¢ to 55¢ higher).

Feeder Cattle futures closed an average of 81¢ higher (50¢ to $1.10 higher).

Choice boxed beef cutout value was 74¢ lower Friday afternoon at $206.91/cwt. Select was 78¢ lower at $194.80.

Monday’s open may feel a little like crawling on a new horse in a dust storm. On one hand, cash fed cattle trade was steady to stronger at the end of the week. On the other, July feedlot placements were 16% higher (see below), well outside the bounds of what analysts expected.

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 Major U.S. financial indices closed slightly lower on Friday with pressures that included lower oil prices and sagging sales at General Electric.

The Dow Jones Industrial Average closed 31 points lower. The S&P 500 closed fractionally lower. The NASDAQ closed 2 points lower.

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Despite marketing more fed cattle in June than the number of cattle placed, it’s going to be hard to bet against Friday’s monthly Cattle on Feed pressuring Cattle futures prices, at least early on. Placements were significantly more than many anticipated, supported by the mid-year Cattle report that suggests continuing expansion, albeit at a slowing pace.

• Cattle on feed July 1 of 10.8 million head was 4.5% (465,000 head) more than a year earlier, which is 1%-2% more than estimates ahead of the report. The mix includes 11% more heifers and 1% more steers.

• Placements in June of 1.77 million head were 16.1% more (245,000 head) than the previous year. That’s substantially more than most analysts were expecting ahead of the report. Of that, 46% were placed on feed weighing 700-899 lbs.; another 15% weighing 900 lbs. or more. There were 21% placed at weights less than 600 lbs.

• Marketings in June of 1.99 million head were 4.0% (77,000 head) more than at the same time a year earlier, which was in line with pre-report estimates.

The July Cattle report from USDA offers a foundation to the increased numbers, courtesy of an expanding cowherd. Arguably, that’s about all it does. Though eagerly anticipated by many for clues about continued herd expansion, it’s difficult to draw conclusions since USDA failed to provide a similar report a year earlier—all that stumbling around with the budget. So, they provide comparisons to the last mid-year report in 2015.

Those comparisons are shared here, but again, it’s hard to take away anything concrete. At most, and it’s still speculative you could make the case that herd expansion continues, but not as aggressively as that past couple of years. That conjecture is based on the number of beef replacement heifers at the beginning of the year compared to the prior year, the number of beef replacements in July, along with increased heifer slaughter and the increased percentage of heifers placed on feed.

July 1 Cattle

• Cattle inventory of 102.6 million total cattle and calves is 4.5% (4.4 million head) more than July of 2015.

• 32.5 million beef cows are 6.6% (2 million head) more than in 2015. The 31.2 million cows on Jan. 1 were 3% more than a year earlier.

• Beef replacement heifers of 4.2 million head are 2.1% less than two years earlier. The 6.4 million beef replacements at the start if the year were 1% more than at the beginning of 2016.

• Estimated calf crop for this year of 36.3 million head is 6.5% (2.2 million head) more than in 2015. Cattle on feed for all feedlots July 1 are 5.9% (700,000 head) more than at the same time in 2015.

For further perspective, consider the 37 million head of cattle estimated to be outside of feedlots July 1. The last most similar number in recent years was the 36.7 million head outside of feedlots in July of 2011.

Comparing the mot recent midyear Cattle report to that of 2011:

• 1.6 million head (+2.6%) more total inventory.

• 1.1 million head (+3.5%) more beef cows.

• 500,000 head more (+ 11.9%) beef replacement heifers.

• Calf crop estimated 800,000 head (+2.3%) larger.

• Cattle on feed July 1 (all feedlots) 600,000 more head (+4.9%).

Cattle futures closed sharply lower on Thursday, pressured by position squaring following the previous session’s rally, surging grain futures prices and the ongoing lack of commercial interest.

Live Cattle futures closed an average of $1.26 lower (80¢ to $1.80 lower), except for unchanged at the back.

Feeder Cattle futures closed an average of $2.19 lower ($2.05 to $2.37 lower).

Choice boxed beef cutout value was 8¢ lower Thursday afternoon at $207.65/cwt. Select was 9¢ higher at $195.58.

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Analysts seemed to attribute Thursday’s narrowly mixed performance on Wall Street to a combination of profit taking and ongoing political worries.

The Dow Jones Industrial Average closed 28 points lower. The S&P 500 closed fractionally lower. The NASDAQ closed 4 points higher.

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“USDA forecasts feeder calf prices to peak in the third quarter of this year at $152-$158/cwt. and to decline slightly in the fourth quarter,” say analysts with USDA’s Economic Research Service (ERS), in the latest monthly Livestock, Dairy and Poultry Outlook (LDPO). “However, relatively large feedlot placements should provide an abundant supply of fed cattle from which meatpackers can purchase as needed.”

USDA will issue the monthly Cattle on Feed report on Friday.

Respondents to the Urner Barry Survey, shared in Wednesday’s Daily Livestock Report expect, on average, the cattle on feed inventory July 1 to be 2.8% more than a year earlier, June placements to be up 5.9% and June marketing to be 4.6% more than last year.

On Friday, USDA will also release the mid-year Cattle report, which should provide insight to the current pace of herd expansion.

On the other side of the ledger, ERS analysts note that estimates for commercial beef production for this year inched higher recently to 26.5 billion lbs., due to greater than expected commercial slaughter in the second quarter and higher anticipated commercial slaughter in the third and fourth quarters.

That has plenty to do with the economic incentive encouraging feeders to market cattle aggressively.

“As packers bid higher for fed cattle for slaughter in the first and second quarters of 2017, feedlots experienced positive returns from marketing calves bought at relatively low prices during the second half of 2016,” ERS analysts explain. “The price for feeder steers weighing 750-800 lbs. sold at the Oklahoma City National Stockyards averaged $128.30/cwt. in the fourth quarter of 2016, while the 5-Area price for fed cattle marketed at an average of $132.76/cwt. in the second quarter of 2017.”

Based on estimates from the Livestock Marketing Information Center (LMIC), Katelyn McCullock, an economist with the American Farm Bureau Federation says cattle feeding returns in the Southern Plains are the most in more than 10 years.

“Through the first six months of the year, average feeding returns (LMIC estimates) were $177 per head,” McCullock explains, in the most recent issue of In the Cattle Markets. “May was the highest month so far this year showing a profit of $260 per head, and June followed at $208 per head. This is in stark contrast to the last two years of negative returns, which were estimated as deep as $500 per head in late 2015.”

Keep in mind, LMIC estimates are based on fixed assumptions and don’t account for risk management. In other words, the figures mentioned above portray trends, not necessarily specific levels of profit or loss.

With softer fed cattle prices expected in the second half of 2017, though not as low as last year, McCullock says feedlot returns will likely shrink in the second half of the year and may turn red by the end of the 2017.

After early follow-through pressure, Cattle futures bounced higher on Wednesday, supported by light trade volume, clarity regarding the recently confirmed case of atypical bovine spongiform encephalopathy, as well as some steady money paid for fed cattle.

Although only 708 head sold out of the 2,912 head offered in the weekly Fed Cattle Exchange Auction, those that did brought steady money with the prior week’s sale, and steady money to $2 lower compared to the bulk of last week’s negotiated sales.

Most of the cattle selling were for delivery at 1-9 days; they brought a weighted average of $118.27. Another handful for delivery at 1-17 days brought a weighted average price of $118.00

Country trade got underway in Nebraska with light demand on light to moderate trade. Live sales were steady to $2 lower at $118/cwt.

Live Cattle futures closed an average of $1.78 higher ($1.17-$2.20 higher).

Feeder Cattle futures closed an average of $2.52 higher ($2.17 to $2.90 higher).

Choice boxed beef cutout value was 32¢ lower Wednesday afternoon at $207.73/cwt. Select was 24¢ higher at $195.49

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Mostly positive quarterly earnings reports boosted major U.S. financial indices to a higher close on Wednesday.

The Dow Jones Industrial Average closed 66 points higher. The S&P 500 closed 13 points higher. The NASDAQ closed 40 point higher.

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“As carcass weights increase seasonally and slaughter is expected to be above year-earlier, Choice beef supplies are expected to increase. Anticipated lower seasonal demand for middle meats will likely put additional pressure on the wholesale price of Choice beef in the coming weeks,” say analysts with USDA’s Economic Research Service (ERS), in the latest monthly Livestock, Dairy and Poultry Outlook.

ERS analysts note that commercial cattle slaughter in May (reported in June) was 237,300 more than the same time a year earlier, while carcass weights for steers and heifers were 25 lbs. less. At the same time, the percentage of Choice-grading carcasses was higher year over year.

“It would appear that strong demand for Choice beef helped pull the spread between wholesale prices of Choice and Select beef to historic levels,” ERS analysts say. “The spread has narrowed considerably in the last week, and demand for grilling-type cuts will likely diminish post-July 4th. The USDA-AMS report on beef production under Federal Inspection for the week ending June 24 indicates that average dressed weights for cattle have rebounded above 800 lbs. for the first time since early April.”

Aggressive increases in grain futures pushed Feeder Cattle futures sharply lower on Tuesday, which squeezed Live Cattle. Although pressure moderated as the session wore on, Cattle futures closed sharply lower.

Live Cattle futures closed an average of $1.44 lower ($1.00-$1.87 lower).

Feeder Cattle futures closed an average of $2.31 lower ($1.50 to $2.82 lower).

Choice boxed beef cutout value was $1 lower Tuesday afternoon at $208.05/cwt. Select was 56¢ lower at $195.25.

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Mixed quarterly earnings report, led major U.S. financial indices to a narrowly mixed close on Tuesday. Policy makers’ inability to make headway with new health care legislation added pressure.

The Dow Jones Industrial Average closed 54 points lower. The S&P 500 closed 1 point higher. The NASDAQ closed 29 point higher.

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“Steer and heifer slaughter levels have been larger than expected so far this year, while carcass (dressed) weights have been much lower than anticipated,” say analysts with the Daily National Grain Market Summary, in the most recent Livestock Monitor, where they offer a mid-year review of the fed cattle market.

Specifically, U.S. commercial cattle slaughter in the first quarter was 7.3% more than last year, according to LMIC. Average dressed weights declined 1.1% year-over-year, holding beef production to an increase of 6.1% year over year. These trends continued in the second quarter with 3.4% more beef production on 5.8% more cattle slaughter, combined with carcass weights that were 2.2% lighter.

“Due to strong beef exports and declining imported beef tonnage, U.S. per capita beef disappearance in the first two quarters of this year, in percentage terms, grew much less than production,” LMIC analysts explain. “Year over year, disappearance per person was up 3.3% in the first quarter and the LMIC projects the second quarter will be up only 0.7%.”

LMIC expects U.S. commercial beef production to increase 2%-3% in the second half of 2017. They expect year-over-year quarterly production increases of 3%-5% next year.

“If strong beef exports continue to absorb most or all of the increase in per capita domestic supply, look for fed cattle prices to remain above a year ago for the balance of 2017,” LMIC analysts say. “In 2018, larger domestic supplies will likely pressure prices lower compared to this year.”

Although Cattle futures gained and then lost some steam to start the week, they closed mostly higher, helped along by firming wholesale beef values.

Except for 85¢ lower in spot Aug, Live Cattle futures closed an average of 26¢ higher.

Except for 15¢ lower in April, Feeder Cattle futures closed an average of 33¢ higher.

Choice boxed beef cutout value was 30¢ lower Monday afternoon at $209.05/cwt. Select was 39¢ higher at $195.81.

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Major financial indices closed narrowly mixed on Monday, with investors apparently biding their time for the quarterly earnings reports due to be released this week.

The Dow Jones Industrial Average closed 8 points lower. The S&P 500 closed fractionally lower. The NASDAQ closed 1 point higher.

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Live cattle prices could soften further with seasonal pressure, but downside risk is minimal, says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments.

“The dog days of summer generally result in fed cattle prices softening during late summer, but the market may be indicating the rapid decline in prices the past few weeks was a little overzealous,” Griffith says. “Traders in the futures market have no clue where prices are going as most contracts from August through April have been trading within a dollar of each other.”

As for calf and feeder markets, Griffith says the market appears to be readying for seasonal strength through the rest of this month and the early part of August.

“The market is offering producers a favorable opportunity to market animals in the near term,” Griffith says. “Even if cattle are not ready to leave the farm, producers should consider selling them for a future delivery date as the upside potential may be small for cattle that will be marketed between now and the end of November.”