WLI

Bullish traders won the light-traded standoff in Cattle futures on Tuesday, as wholesale beef values continued to drift lower. Cash fed cattle trade was at a standstill.

Live Cattle futures closed $1.14 higher through the front five contracts and then 15¢-62¢ higher.

Except for 47¢ and 55¢ higher in the back two contracts, Feeder Cattle futures closed an average of $1.99 higher ($1.47 to $2.57 higher).

Choice boxed beef cutout value was $2.30 lower Tuesday afternoon at $215.24/cwt. Select was $2.16 lower at $200.51.

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Major financial indices treaded water again on Tuesday, with investors apparently content to wait for more economic news later in the week, which will include the start of quarterly earnings reports.

The Dow Jones Industrial Average closed fractionally higher. The S&P 500 closed 1 point lower. The NASDAQ closed 16 points higher.

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“Regional feeder steer prices are showing some effects of the declining forage conditions,” say analysts with the Livestock Marketing Information Center, in the latest Livestock Monitor. “South Dakota feeder steer prices reported by USDA’s Agriculture Marketing Service were much weaker for lighter weight cattle than in Nebraska markets. Steers weighing 600 lbs. in South Dakota in mid-June were priced $9/cwt. lower than a month earlier. Over the same time span in Nebraska, the price comparison for similar steers was up $10, Oklahoma City prices were $3 higher and Montana’s were down $4.”

According to the most recent USDA Crop Progress report, 54% of pasture and range is rated as Good (45%) or Excellent (9%) compared to 57% at the same time a year ago. 17% is rated as Poor (11%) or Very Poor (6%), which is 4% more than last year.

North Dakota and South Dakota are struggling the most with 69% and 59%, respectively, of the pasture and range in those states reported in Poor or Very Poor condition. Conditions continue to deteriorate in Montana with 51% in Poor or Very Poor condition.

The AMS reporter at Ft. Pierre Livestock Auction in South Dakota last week noted, “Short pasture conditions have pushed some producers into marketing cattle earlier than normal. A large offering of cow-calf pairs and fall-bred cows followed the feeder cattle sale.”

Other Crop Conditions

19% of the corn crop is silking, which is 11% less than last year and 8% behind the 5-year average. 65% is rated in Good (52%) or Excellent condition (13%), compared to 76% last year. 10% is rated as Poor (7%) or Very Poor (3%) compared to 5% a year ago.

34% of soybeans are blooming, which is 3% less than last year but 2% more than average. 7% are setting pods, which is 1% more than last year and 2% more than average. 62% of the crop is rated as Good (52%) or Excellent (10%) compared to 71% last year. 11% is rated as Poor (8%) or Very Poor (3%) compared to 6% last year.

67% of winter wheat is harvested, which is 2% more than last year and the 5-year average.

79% of spring wheat is headed, which is 10% less than last year, but 5% more than average. Only 35% is rated in Good (29%) or Excellent (6%) condition, compared to 70% last year. 39% is rated Poor (20%) or Very Poor (19%), compared to 7% the previous year.

Cattle futures edged lower and closed off of session lows on Monday with little support.

Other than 95¢ lower in spot Aug and narrowly mixed in the back four contracts, Live Cattle futures closed 37¢ lower.

Except for 7¢ higher in Apr, Feeder Cattle futures closed an average of 38¢ lower.

Choice boxed beef cutout value was $1.30 lower Monday afternoon at $217.54/cwt. Select was 16¢ higher at $202.67.

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Major financial indices closed little changed on Monday, but with some upward push from tech stocks.

The Dow Jones Industrial Average closed 5 points lower. The S&P 500 closed 2 points higher. The NASDAQ closed 23 points higher.

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“There is a growing recognition that international beef trade will play an increasingly important role in the U.S. beef industry in the coming years,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. While exports typically receive the most focus, Peel points out imports of beef to the U.S. also vary significantly over time.

So far this year (through May) Peel explains total beef imports to the U.S. are 9% less year over year. They were 10.5% less year over in 2016.

Canada is currently the largest source of U.S. beef imports, Peel says. May beef imports from Canada 3.4% more year over year are 3.6% less year to date.

“Canada accounts for about 23% of beef imports in 2017,” Peel explains. “Canada has varied as the number one, two or three source of U.S. beef imports in the last 10 years. However, Canada’s share of U.S. beef imports appears to have trended down some over time with the current share considerably lower than the 27% average over the past decade.”

Historically, the U.S. imports more beef from Australia than Canada, but a period of herd rebuilding there, following forced herd liquidation due to drought has pushed imports to the U.S. 34% lower year over year, according to Peel. As the Australian herd expands, he expects that nation to recover market share in the U.S. market.

“The clearest and most pronounced trend in U.S. beef imports is the growing role of Mexico as a source of beef imports,” Peel says. “In May, beef imports from Mexico were up 27.4% year over year and are up 29.7% for the year to date. Mexico, which accounted for less than 2% of beef imports a decade ago, increased to account for over 16% of U.S. beef imports in 2016 and represents 20% of beef imports so far in 2017.”

Cattle futures treaded water on Friday with light trade.

Choice boxed beef cutout value was $1.21 lower Friday afternoon at $218.84/cwt. Select was $1.25 lower at $202.51.

Live Cattle futures closed narrowly mixed (17¢ lower to 20¢ higher).

Feeder Cattle futures closed narrowly mixed (45¢ lower to 40¢ higher).

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Major financial indices closed higher on Friday, fueled by better than expected employment numbers (see below) and despite lower oil prices.

The Dow Jones Industrial Average closed 94 points higher. The S&P 500 closed 15 points higher. The NASDAQ closed 63 points higher.

“June’s unemployment numbers were little changed at 4.4% from the previous month’s level of 4.3%,” said U.S. Secretary of Labor Alexander Acosta, following release of the June 2017 Employment Situation report. “Non-farm payroll employment rose by 222,000 jobs. 187,000 private sector jobs were created in June, and 821,000 private sector jobs have been added to the economy during the five months since January 2017. Job growth was strong in the sectors of mining and logging, financial activities, and education and health services. Since January, the unemployment rate has dropped by 0.4% and is well below the pre-recession rate of 5.3%.

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U.S. beef exports in May increased significantly from the previous month and year, according to statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

May beef exports of 105,321 metric tons (mt), were 6% more than a year ago; value was 9% more at $582.6 million. For January through May, beef exports were up 12% in volume (497,322 mt) and 16% in value ($2.75 billion) compared to the same period last year.

“2017 is shaping up as a very solid year for U.S. pork and beef exports, but we remain in an extremely competitive situation in each of our key markets,” says Philip Seng, USMEF president and CEO. “That’s why it is so important to capitalize on every opportunity to increase carcass value, and this is where variety meat plays an important role. USMEF has been working with our industry partners to expand the range of variety meat product offerings and diversify their destinations, and those efforts are paying important dividends for producers.”

In May, beef variety meat exports reached 2017 highs in both volume (30,173 mt, up 12%) and value ($77.7 million, up 10%).

Export value per head of fed slaughter averaged $265.55 in May, matching the average from a year ago. Through May, per-head export value averaged $270.27, up 8% percent. Beef export prices are also increasing, especially in key Asian markets, with double-digit increases in Japan and Korea in May illustrating the strong demand for U.S. beef.

Although feeder cattle futures continue to trade narrowly at the bottom of a broader price range going back to April, Andrew P. Griffith, agricultural economist at the University of Tennessee, points out that the fall contracts are trading stronger than the seasonal trend, relative to the August contract.

“This means the futures market is expecting some strength in the market this fall for cattle ready to enter the feedlot,” Griffith says, in his weekly market comments. “Prices seem to be well supported at the bottom of the aforementioned trading range, which would suggest there is some upside potential for feeder cattle moving through the summer and into early fall. This may result in yearling cattle prices being strong relative to lighter-weight cattle at the start of the fall calf run. This occurrence may result in some feedlots looking to put more lightweight animals on feed, especially if feed costs continue to be low. Therefore, the strong feeder cattle market will support prices for freshly weaned lightweight cattle in the October and November time frame.”

Cash fed cattle trade ranged from steady to $2 lower Thursday at $117-$118/cwt. on slow trade and light demand.

Choice boxed beef cutout value was $2.53 lower Thursday afternoon at $220.05/cwt. Select was $1.56 lower at $203.76.

Despite that, short covering seemed to be the primary driver in Cattle futures.

Except for 30¢ higher in the back two contracts, Live Cattle futures closed an average of $1.00 higher (72¢ to $1.40 higher).

Except for 10¢ and 12¢ higher in the back two contracts, Feeder Cattle futures closed an average of $1.62 higher ($1.12 to $2.40 higher).

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Major financial indices closed lower on Thursday, pressured by tech stocks and fewer jobs than the trade anticipated (see below).

The Dow Jones Industrial Average closed 158 points lower. The S&P 500 closed 22 points lower. The NASDAQ closed 61 points lower.

Private sector employment increased by 158,000 jobs from May to June according to the June ADP National Employment Report®.

“The job market continues to power forward,” says Mark Zandi, chief economist of Moody’s Analytics. “Abstracting from the monthly ups and downs, job growth remains a stalwart between 150,000 and 200,000. At this pace, which is double the rate of labor force growth, the tight labor market will continue getting tighter.”

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Premiums for feeder steers relative to their fed counterparts is back to normal, according to the Livestock Marketing Information Center (LMIC).

For the week ending June 17th, the premium between a feeder steer weighing 700-800 lbs. and a fed steer selling the same week was $28.72/cwt. (basis Southern Plains) or 24%, according to LMIC, in the latest Livestock Monitor.

“That premium has been increasing seasonally, which is normal into the early summer months,” explain LMIC analysts. “The premium is slightly above a year ago ($27.34 per cwt. or 23%), likely reflecting lower cost of gain in feedlots (e.g. corn prices are down year-over-year). Looking back to 2014 and 2015 that premium has dramatically declined.”

For perspective, the premium for the comparable week in 2014 was $55.09 per cwt. (37%). It surged to $82.42 (55%) in 2015.

“Those premiums in 2014 and 2015 were not sustainable,” LMIC Analysts say. “Last year and 2017’s have been rather normal.”

Cash fed cattle prices opened the week’s trade lower on Wednesday.

The weighted average price at the weekly Fed Cattle Exchange Auction was $117.75/cwt. on 92 head for 1-9 day delivery compared to $119.51 a week earlier. Another 337 head sold for delivery $117.25 (delivery 17-30 days). About 20% sold of the 2,093 head offered.

Country trade followed suit with early sales in Nebraska $1 less than the bulk of the previous week’s trade at $117.

Live Cattle futures closed an average of $1.72 lower ($1.35 to $2.20 lower).

Feeder Cattle futures closed an average of $3.05 lower ($1.47 to $3.87 lower).

Choice boxed beef cutout value was 31¢ lower Wednesday afternoon at $222.58/cwt. Select was $2.13 lower at $205.32.

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Major financial indices closed mostly little changed on Wednesday. Although tech stocks rebounded, oil prices moved lower following the hint of a rally in recent days.

The Dow Jones Industrial Average closed 1 point lower. The S&P 500 closed 3 points higher. The NASDAQ closed 40 points higher.

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“Following relatively tight supplies fueled by a rapid pace of slaughter earlier in the year and fed cattle weights well below a year ago, supplies are starting to increase, seasonally,” says David Anderson, Extension livestock economist with Texas A&M University. “Steer slaughter remains slightly above last year’s pace, while heifer slaughter in recent weeks has run close to 10% above last year. Dressed weights are also increasing, as they usually do this time of year. Steer dressed weights have increased 23 lbs. since they bottomed at 832 lbs.”

Cow slaughter is also running higher year over year, especially since the end of May, according to Anderson, in the latest issue of In the Cattle Markets.

“The weeks following Memorial Day saw a dramatic increase in beef cow slaughter, up about 10,000 head per week, almost 20% more than the same weeks in 2016,” Anderson explains. “For the year, beef cow slaughter is up about 9.8% over last year. About 62% of the increase in total beef cow slaughter is in the Southern Plains region, including Texas and Oklahoma. While cull cow prices in the Southern Plains have increased slightly over the past month, the cow beef cutout and 90%-lean wholesale beef price have increased sharply. The boxed cow-beef cutout hit $180/cwt. last week, up steadily from $158 at the beginning of the year. This cutout increased $8 over the last month. Wholesale boneless beef, 90% lean hit $229 the last week of June, up from $218 the same week last year. The strength in lean boneless beef is indicative of relatively tight supplies of lean beef for ground beef and apparently good interest in hamburgers from consumers.”