WLI

Cattle futures closed lower again on Tuesday with Feeder Cattle leading the way. There seems to be a growing belief that holders of non-commercial long positions will begin unwinding them within the next couple of weeks—arguably they’ve already started—as wholesale beef values and cash fed cattle prices swoon seasonally lower. News that JBS S.A. plans to sell JBS Five Rivers Cattle Feeding added uncertainty (see below).

Other than 35¢ higher in spot Jun, Live Cattle futures closed an average of 18¢ lower.

Feeder Cattle futures closed an average of $1.35 lower (95¢ to $2.67 lower).

Choice boxed beef cutout value was $2.47 lower Tuesday afternoon at $246.99/cwt. Select was $1.48 lower at $219.88.

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Major U.S. financial indices closed lower on Tuesday, pressured by softer energy prices, led by another step lower in Crude Oil.

The Dow Jones Industrial Average closed 61 points lower. The S&P 500 closed 16 points lower. The NASDAQ closed 50 points lower.

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JBS S.A. announced yesterday that it is selling Five Rivers Cattle Feeding as part of a divestiture program to reduce the company’s net debt.

You’ll recall that JBS announced a month ago that seven of its executives and its controlling entity—J&F Investimentos—entered into a plea bargain agreement with the Federal Public Prosecutor’s Office in Brazil, which came with a fine of about $67.6 million (US). Apparently, that’s besides the approximately $3.2 billion (US) that J&F agreed, in principle, to pay in fines. All of that was the result of a massive political and financial scandal reportedly involving thousands of bribes by JBS and J&F to government officials in Brazil.

Five Rivers is the largest cattle feeder in the United States with feedlots in six states and close to 1 million head capacity. As well, JBS will sell other assets including: shareholding interests in Vigor Almientos, S.A. (one of Brazil’s largest dairy companies) and Moy Park (one of the 10 largest food companies in the United Kingdom).

JBS executive directors estimate that the divestment program will result in a capital injection of approximately $6 billion (Brazilian Real), which is equivalent to about $1.8 billion U.S., based on the current exchange rate.

“Selling these assets is central to a strategy designed to reinforce JBS’ competitive advantage in the global food industry,” according to a JBS news release. “The sale of feedyard assets will more closely align the JBS business model with key U.S. competitors and allow the company to concentrate its efforts on its core food and value-added products businesses.”

If the announcement firms up the odds of JBS maintaining its beef packing plants in the U.S., the market will view it as positive. In the meantime, uncertainty increases with the fact that JBS had to liquidate Five Rivers and other assets, and that there is apparently no buyer for Five Rivers lined up and ready to go.

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.