Daily Market Highlights

Cattle futures coasted to a narrowly mixed close on Friday, unable to muster much support since the mid-week selloff. Friday’s Cattle on Feed report (see below) indicating more January placements than the trade expected may add pressure early in the week.

Live Cattle futures closed narrowly mixed (55¢ lower to 22¢ higher).

Feeder Cattle futures closed narrowly mixed (52¢ lower at the back of the board to 42¢ higher in Apr).

Choice boxed beef cutout value was 3¢ lower on Friday afternoon at $218.37/cwt. Select was 76¢ higher at $212.82.

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Major U.S. financial indices closed sharply higher on Friday. Lower treasury yields on the day and higher crude oil prices provided support.

The Dow Jones Industrial Average closed 347 points higher. The S&P 500 closed 43 points higher. The NASDAQ closed 127 points higher.

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Despite early cattle placements over the last several months, due to both the growing cowherd and drought, there were even more to place in January, year over year, according to Friday’s monthly Cattle on Feed report.

Rather than being even with or slightly less than the previous year, as expected by most, January placements of 2.07 million head were 4.4% more than the previous year. That’s 87,000 head more. About half were placed on feed at 700-899 lbs.; 38.9% at 699 lbs. or lighter; 9.7% weighing more than 900 lbs.

Marketings in January of 1.86 million head were 6.1% higher (107,000 head more) than the previous year. That was mostly in line with expectations ahead of the report.

Total cattle on feed Feb. 1 was 11.63 million head (+848,000 head), which was 7.9% more than a year earlier. That’s at the upper end of most estimates ahead of the report.

There was light to moderate demand and trade for fed cattle in the Northern Plains on Thursday. Live prices were steady to 50¢ higher than the previous day at $128.00-$128.50/cwt., which is $1.50-$2.00 lower than last week. Dressed trade in Nebraska was steady to $1 lower than the previous week at $204-$205. Although there was also light to moderate demand and trade in the western Corn Belt, there were too few transactions to establish a trend on a live basis or in the beef.

Futures traders seemed mostly content with newfound price levels following the previous session’s downturn. There was some follow-through pressure on Thursday, especially in nearby contracts on apparent position taking, but nothing steep.

After $1.30 and 85¢ lower in the front two contracts, respectively, Live Cattle futures closed 27¢ lower to 22¢ higher.

Feeder Cattle futures closed an average of 53¢ lower (7¢ to $1.02 lower).

Choice boxed beef cutout value was $1.03 higher on Thursday afternoon at $218.40/cwt. Select was 14¢ higher at $212.06.

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Major U.S. financial indices closed mixed on Thursday, as investors continued to digest the impact of increased inflation and higher interest rates.

The Dow Jones Industrial Average closed 164 points higher. The S&P 500 closed 2 points higher. The NASDAQ closed 8 points lower.

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Credit is getting tougher to come by for some agricultural producers, if the latest Creighton University Rural Main Street Index is any indication.

A third of the bankers surveyed during the process reported no change in their lending practices over the last year, while 45.2% reported increasing collateral requirements, 21.4% indicated rejecting a higher percentage of loan applications, and 11.9% reported reducing the average size of farm loans.

Each month, community bank presidents and CEOs in nonurban agriculturally and energy-dependent portions of a 10-state area are surveyed regarding current economic conditions in their communities and their projected economic outlooks six months down the road. Bankers from Colorado, Illinois, Iowa, Kansas, Minnesota, Missouri, Nebraska, North Dakota, South Dakota and Wyoming are included.

Cattle futures plunged fast yesterday—led by Feeder Cattle—for no apparent reason or logic. Arguably, Cattle futures were in oversold territory. Yes, there are larger beef supplies on the horizon, and there’s bound to be positioning ahead of Friday’s Cattle on Feed report. On the other hand, cash fed cattle prices last week were the highest since June, front-end supplies remain snug by all accounts, and wholesale beef value are on the rise with plenty of seasonal upside. So, the best bet for the unforeseeable free-fall is computerized algorithmic trading that tripped some unknown trigger and sent the dominos tumbling.

After 65¢ lower in the nearly spent spot month, Live Cattle futures closed an average of $1.43 lower, (95¢ lower to $1.85 lower).

Feeder Cattle futures closed an average of $2.65 lower ($2.00 to $3.15 lower).

The sudden decline was apparently enough to entice some feedlots to pull the trigger. There were a few early trades in the Southern and Northern Plains at $128/cwt. on slow trade and light to moderate demand. That’s $2 shy of last week’s trade, but there were too few transactions to trend.

That helps explain why there were no takers for the handful of cattle (218 head) offered in the weekly Fed Cattle Exchange auction. One lot of heifers was passed out at $126.25.

Wholesale beef values continued to gain momentum. Choice boxed beef cutout value was $1.45 higher on Wednesday afternoon at $217.37/cwt. Select was $1.52 higher at $211.92.

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Equity markets extended losses for the second consecutive day with major U.S. financial indices closing mostly solidly lower on Wednesday. Softness was widely attributed to the benchmark 10-year Treasury yield reaching its highest level in four years, as well as minutes from the last Federal Reserve meeting that suggest gradual, continued increases in interest rates.

The Dow Jones Industrial Average closed 166 points lower. The S&P 500 closed 14 point lower. The NASDAQ closed 16 points lower.

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Heading into Friday’s monthly Cattle on Feed report, Allendale, Inc. sees January placements at 1.97 million head, which would be 0.4% less than last year.

“There have been 10 months in a row of higher placements (year over year) as cow-calf producers end expansion plans,” say Allendale analysts. “This report may stop that 10-month streak. Finished cattle from January through March are estimated with a $123 breakeven, according to Kansas State University. This increases to $127 and $130 for April and May. From June on out, $120-$124 breakevens are noted.”

Allendale anticipates January marketing at 1.85 million, which would be 5.5% more than a year earlier and the most for the month in five years. “There was one more weekday in January 2018 than January 2017. This artificially increased the actual number,” say Allendale analysts.

Add it up and Allendale sees the total cattle on feed inventory Feb. 1 at 11.51 million head (+8.5%), the largest total for the month in six years.

Cattle futures stuttered to a mostly narrowly mixed close to begin the trading week on Tuesday. Last week’s higher cash trade offers optimism, but traders continue to cast a wary eye toward deferred contracts with looming larger supplies.

Live Cattle futures closed marginally mixed, (30¢ lower to 20¢ higher).

Feeder Cattle futures closed mostly narrowly mixed (7¢ to 22¢ higher across the front half of the Board and then 12¢ to 85¢ lower).

Wholesale beef values appear to have rounded the seasonal corner, with a second consecutive day of healthy gains. Choice boxed beef cutout value was $3.35 higher on Tuesday afternoon at $215.92/cwt. Select was $2.97 higher at $210.40.

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Major U.S. financial indices closed mostly sharply lower on Tuesday, with renewed volatility and investors eyeing higher interest rates.

The Dow Jones Industrial Average closed 254 points lower. The S&P 500 closed 15 point lower. The NASDAQ closed 5 points lower.

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“In recent months, the number of cattle placed into U.S. feedlots has been bolstered by the large 2017 calf crop, poor small grains (e.g., wheat) grazing conditions in the Southern Plains and rather good demand for animals to put on-feed,” say analysts with the Livestock Marketing Information Center (LMIC), in the most recent Livestock Monitor. “The spike up in placements is a double-edge sword. In the short term, feeder cattle supplies outside feedlots as of January 1, 2018, were calculated to be below a year earlier (down 2.3% or 607,000 head), which tends to support prices. However, the placement pattern since last fall has put more slaughter cattle in the marketing window of late-May through mid-August than a year ago. Note that many of those animals are heifers. Those large marketings will likely pressure slaughter-ready steer and heifer prices, which are forecast to be below 2017’s. Those prices suggest dampened demand for feeder cattle late this spring on into the summer months.”

Futures and equity markets were closed Monday in observance of President’s Day. When traders get back to work Tuesday, there is no apparent reason for them to poor-mouth Cattle futures. Cash fed cattle prices ended mostly $4-$5 higher last week on a live basis at mostly $130/cwt. Dressed trade was $5 higher at $205.

Wholesale beef values also bounced higher to start the week. Choice boxed beef cutout value was $2.69 higher on Monday afternoon at $212.57/cwt. Select was $2.31 higher at $207.43.

There’s sure to be plenty of wariness, though, with the monthly Cattle on Feed report due out on Friday.

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“The strong start for beef and cattle markets is encouraging, but plenty of challenges remain in 2018,” says Derrell Peel, extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Beef production, already up over 3% so far this year, is expected to be up 4.5-5.0% for the year. Increased beef production will result from increased cattle slaughter and likely higher carcass weights. Feedlots are carrying larger inventories of feedlot cattle into the year and the 2% increase in the 2017 calf crop ensures that feeder numbers will continue to grow in 2018. Strong domestic and international demand is critical to limit the supply pressure of growing beef production in 2018.”

Supply and demand factors that Peel says are critical this year include carcass weights and trade issues.

“Carcass weights will be the key to just how much supply pressure will affect beef markets in the coming year,” Peel says. “Currently average cattle carcass weights are higher year over year as a result of heavier heifer and cow carcasses; with steers about equal to last year. Carcass weights are likely to bounce back some from last year’s sharp drop but just how much will determine total beef production. Along with increased beef production, growing pork and poultry production will result in record total U.S. meat production in 2018, adding to the supply challenges for all meat industries.”

As for trade issues, Peel explains decisions regarding NAFTA and KORUS could have far-reaching ramifications for cattle and beef markets, as could trade tensions with China.

“U.S. macroeconomic and global economic conditions generally could rise up to be a more prominent factor in beef markets,” Peel says. “Recent volatility in the stock market is a reminder that external factors can jump up quickly and may impact agricultural markets. Interest rates are likely to rise faster and more in 2018.”

Cash fed cattle prices took a solid step higher in late week trade…Equity markets settled narrowly mixed ahead of the long weekend…Coming up on your Cattle Current Market Update with Wes Ishmael.

Cattle feeders were rewarded for their marketing patience on Friday. Cash fed cattle prices were $3-$4 higher than the previous week on a live basis at $129-$130/cwt. Dressed trade was $5 higher at $205.

Although higher week to week, Cattle futures closed narrowly mixed on Friday as traders positioned ahead of the weekend, extended to three days for futures and equity markets by President’s Day.

After 82¢ higher in spot Feb, Live Cattle futures closed narrowly mixed, (12¢ lower to 40¢ higher).

Feeder Cattle futures closed narrowly mixed, 10¢ lower to 10¢ higher across the front half of the Board and then 15¢ to 55¢ higher.

Wholesale beef values continue to offer optimism. Choice boxed beef cutout value was 84¢ higher on Friday afternoon at $209.88/cwt. Select was 2¢ lower at $205.12.

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Major U.S. financial indices drifted to a narrowly mixed close on Friday, with investors apparently playing defense ahead of the long holiday weekend.

Support included 9.7% more housing starts in January than the prior month and 7.3% more than the previous year, according to the federal government’s Monthly New Residential Construction report.

The Dow Jones Industrial Average closed 19 points higher. The S&P 500 closed 1 point higher. The NASDAQ closed 16 points lower.

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“Light boxed beef movement has allowed packers to keep wholesale beef prices elevated the first six weeks of the year, but a more seasonal tone came into the Thursday and Friday market,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “February beef demand is always weak relative to most other months and that weakness is beginning to show up in wholesale beef prices.”

However, Griffith also notes that both Choice and Select cutout values remain above $200/cwt.

“This is important from the standpoint that the $200 mark was a major resistance point prior to the trough of cattle inventory in the current cattle cycle,” Griffith explains. “Since that resistance was broken, the same price point has provided significant support. Choice and Select cutouts could dip below the invisible support line, but the risk of a total collapse is small…”

Packers and feedlots remained a good $4-$5 apart by most accounts, through late Thursday afternoon, but expectations continue for steady to higher cash trade. That and a step higher in wholesale beef values helped lift Cattle futures.

Choice boxed beef cutout value was $1.23 higher on Thursday afternoon at $209.04/cwt. Select was $1.63 higher at $205.14.

Except for 20¢ higher at the back of the board, Live Cattle futures closed an average of $1.18 higher (62¢ to $2.02 higher in near Apr).

Feeder Cattle futures closed an average of $1.49 higher ($1.02 to $1.95 higher).

Major U.S. financial indices closed sharply higher again on Thursday. Apparently investors are getting more comfortable with higher inflation and interest rates, or at least considering them byproducts of growing fundamental economic strength.

The Dow Jones Industrial Average closed 306 points higher. The S&P 500 closed 32 points higher. The NASDAQ closed 112 points higher.

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U.S. beef exports are poised to build upon two consecutive years of double digit growth, according to analysts with USDA’s Economic Research Service (ERS), in the latest Livestock, Dairy and Poultry Outlook.

The forecast for 2018 beef exports was revised upward by 40 million lbs. from the previous month’s forecast to 3.0 billion lbs. based on continuing strong demand in overseas markets and the weakening of the U.S. dollar at the beginning of 2018,” ERS analysts say. “The U.S. dollar trade index has dropped to the lowest level since June 2015, making U.S. products more attractive in foreign markets.”

Cash cattle trade remained undeveloped through Wednesday afternoon. So far, there’s not any reason to believe prices will be any worse than steady, likely higher.

For instance, slaughter steers sold $1-$2 higher at Sioux Falls Regional at $126.25-$127.50/cwt. (Ch-2-4). Slaughter heifers sold $2 higher in a light test at $126.25-$128.00 (Ch 2-4).

Only 255 head (three lots of heifers) were offered in the weekly Fed Cattle Exchange auction. There were no sales, but one P.O at $124/cwt.

Expectations for steady-to-higher cash trade, the lower U.S. dollar and higher Lean Hogs helped lift Cattle futures.

Live Cattle futures closed an average of 39¢ higher (17¢ to 82¢ higher in spot Feb.).

Feeder Cattle futures closed an average of 65¢ higher (30¢ lower to 92¢ higher).

Choice boxed beef cutout value was 45¢ higher on Wednesday afternoon at $207.81/cwt. Select was 38¢ higher at $203.51.

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Major U.S. financial indices took a step higher on Wednesday, following early pressure tied to the inflation indicated by the Consumer Price Index (CPI).

The CPI increased 0.3% in January on a seasonally adjusted basis, according to the U.S. Bureau of Labor Statistics. Over the last 12 months, before seasonal adjustment, the CPI for all items is up 2.1%. The index for all items less food and energy rose 1.8% over the past year, while the energy index increased 5.5% and the food index advanced 1.7%.

The Dow Jones Industrial Average closed 253 points higher. The S&P 500 closed 35 points higher. The NASDAQ closed 130 points higher.

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Increased late-year feedlot placements due to drought and relatively slower growth in last year’s calf crop, lowered USDA’s expectations for beef production this year by 35 million lbs. to 27.7 billion lbs. That’s still 6% more than last year’s estimated production of 26.2 billion lbs., which was 3.8% more than in 2016.

“This reflects anticipation of fewer cattle to be placed in feedlots in the first half of the year and marketed in the second half, although it is largely offset by the first-half marketing of cattle placed in late-2017,” say analysts with USDA’s Economic Research Service (ERS) in the latest Livestock, Dairy and Poultry Outlook.

ERS analysts note that the timing and weight of placements in the coming months will increasingly depend on precipitation in the Southern Plains.

“Despite higher cattle slaughter and beef production during January 2018 relative to January 2017, wholesale beef prices climbed above 2017,” ERS analysts say. “With packer margins above 2017 in early 2018, January fed steer prices also averaged above year-earlier levels. On expectations of continued demand strength, fed steer price forecasts for the first and second quarters were raised to $122-$126/cwt. and $117-$125, respectively. Although first-quarter fed steer prices are expected to average above 2017, second-quarter prices could be pressured by marketings.”

Cattle futures trade on Tuesday seemed to be mostly a game of wait and see with traders having no compelling reason to stake a definitive claim on either side of the fence.

Live Cattle futures closed narrowly mixed (30¢ lower to 27¢ higher).

Feeder Cattle futures closed narrowly mixed but mostly marginally higher (40¢ lower to 22¢ higher).

Choice boxed beef cutout value was 88¢ lower on Tuesday afternoon at $207.36/cwt. Select was 84¢ lower at $203.13.

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Major U.S. financial indices settled slightly higher on Tuesday, hinting at some stability, at least for the day. No doubt, investors will look to Wednesday morning’s release of the monthly Consumer Price Index for further hints about inflation.

The Dow Jones Industrial Average closed 39 points higher. The S&P 500 closed 6 points higher. The NASDAQ closed 31 points higher.

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“Changes in where consumers buy groceries, when they buy, and what they buy will inevitably force changes all the way through the supply chain. Nowhere will these changes be more dramatic than in perishables such as meat,” says Don Close, RaboResearch Food & Agribusiness Senior Protein Analyst.

The where in this case is online, versus brick and mortar stores.

Close recently authored an in-depth report—Food Fight, Online and Brick & Mortar Battle for Business—exploring the swift transition some consumers are making to purchase their food online, and what that means to beef, specifically.

The report projects 20% of food purchased for in-home consumption will be purchased online by 2025. For perspective, Close says total domestic annual food sales are currently around $1.5 trillion; approximately half of that is for in-home consumption.

Close notes that access to a broader pool of customers, independent of geography, provides online shopping outlets with the ability to meet a wider variety of customer requests than brick and mortar stores. As examples, he mentions the opportunity for customers to buy specific beef grades and brands.

Think your way through that and a broader pool of customers for beef with narrower specifications likely provides incentive for suppliers to further segregate beef, expanding value and price differences.

“These niche desires will result in additional demands on cattle quality and production specifications, which will lead to a wider price spread across all classes of cattle, as well as a more detailed premium and discount schedule,” Close says. “These changes are indicative of a permanent change in the way food reaches the average American consumer—and if the beef industry is to ward off any further decline in beef consumption, it must embrace these changes and make beef an integral part of the consumption experience, regardless of where it is purchased.”

Cash fed cattle prices ended up mainly steady in late trade last week with live sales at mostly $126.00-$126.50/cwt. and dressed sales at $200.

The higher cash trade last week on lighter volume and another day of gains in outside markets helped lift Cattle futures to strong gains on Monday.

Live Cattle futures closed an average of 97¢ higher (60¢ to $1.37 higher).

Feeder Cattle futures closed an average of $1.37 higher (82¢ to $1.82 higher).

Choice boxed beef cutout value was $1.72 higher on Monday afternoon at $208.24/cwt. Select was $1.23 higher at $203.97.

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Major U.S. financial indices closed sharply higher again on Monday, extending gains from the previous session as the market seeks a new equilibrium following the recent steep and wild gyrations. At least part of the correction is tied to rising treasury yields, tied closely to interest rates, and the likelihood they will accelerate inflation.

Support on the day included news that the White House will roll out a plan for the federal government to spend $200 billion on infrastructure over the next decade.

The Dow Jones Industrial Average closed 410 points higher. The S&P 500 closed 36 points higher. The NASDAQ closed 107 points higher.

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“Beef purchasing decisions have become less sensitive to retail beef prices,” says Glynn Tonsor, agricultural economist at Kansas State University (KSU). “While prices will always matter, this reinforces the importance of industry focus on beef quality aspects of taste, appearance, convenience and freshness.”

That’s one of the conclusions of a newly released study commissioned by the Beef Checkoff Program, Assessing Beef Demand Determinants. The study summarizes the current knowledge of consumer demand for beef and identifies the best opportunities for the industry to influence demand positively.

Among other things, the research updated elasticity estimates (sensitivity of purchasing behavior to prices). In other words, if the price goes up by 1%, how many fewer pounds are purchased? This study showed that a 1% increase in price has a smaller impact on beef consumption than it used to.

“What I believe that signals is that beef quality issues such as taste, appearance and freshness have elevated over time,” Tonsor says.

Beef quality, consumer incomes, attention to beef in health articles in medical journals and the general media, and shifts in race composition of the U.S. population are key determinants affecting beef demand in the long term, according to the report.

Authors of the new study include Tonsor, fellow KSU agricultural economist, Ted Schroeder, and Jayson Lusk, distinguished professor and head of the Department of Agricultural Economics at Purdue University.

As beef supplies increase, beef demand is positively positioned to utilize the report’s findings.

“Both beef supplies and cattle prices increased in 2017 relative to 2016 – an outcome only possible with demand growth,” according to the report. “A perpetual industry priority is to better understand and monitor beef demand, and to inform stakeholders because demand directly influences overall industry success.”