WLI

Cattle futures closed sharply lower on Monday, unable to maintain the foothold established at the end of last week. Pressure likely came from a variety of directions, including expectations for larger show lists of fed cattle this week and an anticipated break in wholesale beef values.

Live Cattle futures closed an average of $1.62 lower ($1.30 to $2.07 lower).

Feeder Cattle futures closed an average of $2.28 lower ($1.12 to $2.92 lower).

Choice boxed beef cutout value was 38¢ lower Monday afternoon at $249.46/cwt. Select was $1.56 higher at $221.36.

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Major U.S. financial indices closed sharply higher on Monday, with tech stocks helping fuel a record-high close for both the Dow Industrial Average and the S&P 500. Surging tech stocks included a record-high price for Amazon during the session, following Friday’s announcement that it intends to buy Whole Foods Market.

The Dow Jones Industrial Average closed 144 points higher. The S&P 500 closed 20 points higher. The NASDAQ closed 87 points higher.

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“Beef exports to China could be a very big deal in the future but will likely start fairly slowly,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

For one thing, in general terms, little is known about the composition of Chinese demand for U.S. beef. For example, it’s unclear how much preference the Chinese will have for middle meats versus end meats, let alone specific cuts, or what mix of USDA Quality Grades.

“It will likely be a moving target for many months,” Peel says. “However, given that unofficial flows of U.S. beef have been entering China in recent years, some beef packers may have insight, at least initially, into beef product demand in China.”

According to Peel, other likely challenges that could hamper beef exports to China at the outset include: understanding how official exports will affect the flow of unofficial U.S. beef exports that filtered into China during the ban, or vice versa; building U.S. supplies eligible for export to China.

“It is possible that unofficial flows will convert quickly into official exports, in which case, apparent initial volumes of exports to China may simply displace export volume currently being transshipped through other countries,” Peel explains. “It is possible that the unofficial flows will continue and be augmented by new official exports. It will be important to look comprehensively at export volumes across countries to understand the net effect. It is even possible that China will move quickly and aggressively to stop unofficial flows, which could happen before official flows have developed and could actually result in a temporary reduction in net beef exports. The next few weeks/months will no doubt be very dynamic.”

Peel expects exporters to move cautiously until market values and export procedures become more certain. He points out that typically the added costs of qualifying beef for export encompass the entire carcass, rather than the specific cuts that are shipped. That means the value of exporting what the Chinese ultimately demand will have to cover the cost of qualifying the entire carcass.

“There are many unknowns but it seems unlikely that beef exports to China will have a large noticeable effect on cattle and beef prices and beef production in the U.S. initially,” Peel concludes. “Over time, with growing market share, prices for particular products might be affected depending on the quantity, quality and specific products demanded in China. More general price effects on beef and perhaps cattle will depend on the dynamics of demand relative to supply for U.S. beef products in the Chinese market. The U.S. industry will benefit over time from some combination of higher prices and/or increased export volumes as the Chinese market grows.”

Cattle futures mostly edged higher on Friday, attributed by many analysts to position squaring and short covering. Stabilizing prices were welcome news, whatever combination of reasons.

After 80¢ lower in spot Jun, Live Cattle futures closed an average of 43¢ higher (2o¢ to 67¢ higher).

Feeder Cattle futures closed an average of 74¢ higher (42¢ to 95¢ higher).

Choice boxed beef cutout value was 10¢ higher Friday afternoon at $249.84/cwt. Select was 73¢ lower at $219.80.

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Major U.S. financial indices closed mixed on Friday. Amazon’s announced purchase of Whole Foods for $13.7 billion (see below) seemed to be the major news investors responded to, as the stocks of major grocers like Wal-Mart and Kroger declined on the news. Slower housing starts in May—5.5% fewer than in April and 2.2% less than a year earlier—also provided pressure.

The Dow Jones Industrial Average closed 24 points higher. The S&P 500 closed fractionally higher. The NASDAQ closed 13 points lower.

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Amazon and Whole Foods Market, Inc. announced on Friday that they have entered into a definitive merger agreement under which Amazon will acquire Whole Foods Market for $42 per share in an all-cash transaction valued at approximately $13.7 billion, including Whole Foods Market’s net debt.

Whole Foods Market will continue to operate stores under the Whole Foods Market brand. John Mackey will remain as CEO of Whole Foods Market and Whole Foods Market’s headquarters will stay in Austin, Texas.

Completion of the transaction is subject to approval by Whole Foods Market’s shareholders, regulatory approvals and other customary closing conditions. The parties expect to close the transaction during the second half of 2017.

Negotiated cash fed cattle trade and demand were light in Nebraska through Thursday afternoon. There were a few live purchases at mostly $124.00-126.50/cwt.; $6.00-$6.50 less than trades in the region earlier in the week. The few dressed sales there at $205-$208 were $5-$7 less than earlier-week sales, but too few transactions to trend in both cases. The bulk of live purchases in Nebraska for the week were on Monday at $132, while dressed purchases on Tuesday traded at $210-$215.

Following early support, front-month Live Cattle futures lost ground with bearish sentiment and a decline in wholesale beef values. Feeder Cattle futures, on the other hand, closed mixed with the strongest gains at the front of the board.

Live Cattle futures closed $2.00 lower in spot Jun, 37¢ and 10¢ lower in Aug and Oct, respectively, and then an average of 23¢ higher.

Feeder Cattle futures closed an average of 80¢ higher through the front three contracts, an average of 22¢ higher in the next three and then 25¢ lower and unchanged at the back.

Choice boxed beef cutout value was $1.29 lower Thursday afternoon at $249.74/cwt. Select was 13¢ lower at $220.53.

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Major U.S. financial indices closed lower on Thursday, pressured by renewed liquidation in tech stocks.

The Dow Jones Industrial Average closed 14 points lower. The S&P 500 closed 5 points lower. The NASDAQ closed 29 points lower.

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Dressed weights for steers and heifers slaughtered under Federal inspection declined 25 and 22 lbs., respectively, year over year (May NASS Livestock Slaughter report), according to the latest monthly Livestock, Dairy and Poultry Outlook from USDA’s Economic Research Service (ERS).

“The decrease in the average carcass weight more than offset the increase in the number of cattle slaughtered and kept production from increasing,” ERS analysts say. “The USDA report on beef production under Federal inspection for the week ending May 27 indicates that average dressed weights for steers and heifers continued to decline, falling another 9 and 13 lbs., respectively, from the week ending April 29. Weights are expected to move higher seasonally, but gains will likely be limited while there are incentives to market cattle as rapidly as possible.”

Third-quarter beef production is forecast at 6.8 billion lbs. after USDA revised projected commercial beef production down slightly for this year to 26.2 billion lbs.

“Relative price strength is likely to persist as demand for beef remains strong,” ERS analysts say. “However, as summer demand winds down, packer margins will likely decline and cattle prices will be pressured. Third-quarter fed cattle prices are expected to decline seasonally, averaging $118-$124 per cwt., up from $113.26 in third-quarter 2016.

So far this week, negotiated cash fed cattle trade is running $1-$7 lower than last week at $130-$133/cwt., except for $135 in the western Corn Belt. Dressed trade so far is reported at $208-$215, which is $5-$8 less than last week. There were some trades reported in Kansas and Nebraska yesterday—as low as $128 live and as low as $205 in the beef—but too few transactions to trend.

Although wholesale beef values have yet to make a major break to the downside, the lower cash fed cattle prices and fretting over demand as summer heat intensifies weighed heavy on Cattle futures.

Live Cattle futures closed an average of $2.45 lower ($1.87 lower to limit-down $3.00).

Feeder Cattle futures closed an average of $3.77 lower ($3.00 to $4.40 lower).

Choice boxed beef cutout value was 16¢ lower Wednesday afternoon at $251.03/cwt. Select was 79¢ lower at $220.66.

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Major U.S. financial indices closed mixed on Wednesday, amid lower oil prices and the expected increase in federal interest rates. The Federal Open Market Committee raised the target range for the federal funds rate by 0.25% to 1.00% to 1.25%.

The Dow Jones Industrial Average closed 46 points higher for a new record high. The S&P 500 closed 2 points lower. The NASDAQ closed 25 points lower.

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“Food sector sales growth has run below trends for the economy since last October, mostly due to a plateau in foodservice and restaurant sales,” say analysts with the Livestock Marketing Information Center (LMIC) in the most recent Livestock Monitor. “In April, food service, restaurant and drinking place sales were up 2.2% from the prior April. Grocery store sales were up 3.3%. This was the first time that grocery store sales growth outpaced that of foodservice, restaurant, and drinking places since April 2014.”

Overall, U.S. food sector retail sales were up 2.7% in April, compared to a year earlier, according to LMIC. Retail sales across the entire economy for April were up 3.1%.