Daily Market Highlights

Although negotiated cash fed cattle trade remained undeveloped through Thursday afternoon, indications continued pointing to higher prices for the week. Consider, the handful of dressed heifer sales $1 higher at $192/cwt. in the western Corn Belt. Also, Live Cattle jumped $2.52 in expiring Dec to go off the board at $124.55.

Live Cattle futures closed an average of 94¢ higher; an average of $1.61 higher in the front three contracts.

Wholesale beef values provided support. Choice boxed beef cutout value was 68¢ higher on Thursday afternoon at $202.28/cwt. Select was 49¢ higher at $190.91.

Feeder Cattle futures closed an average of 35¢ higher.

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Major U.S. financial indices closed higher on Thursday amid light trade once again.

The Dow Jones Industrial Average closed 63 points higher. The S&P 500 closed 4 points higher. The NASDAQ closed 10 points higher.

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“The number of feeder transactions by region comprising the CME Feeder Cattle Index are not distributed equally through all geographies, a key consideration producers should have when establishing a hedging program,” says Don Close, senior animal protein analyst for Rabobank’s RaboResearch Food & Agribusiness (RRFA). “The question as to how well a geographic area is represented in the composition of the index is an important consideration to incorporate in hedging strategies.”

Close suggests a regional approach to basis, utilizing the same states that currently comprise the CME Feeder Cattle Index. That index serves as a cash reference for feeder cattle nationally and provides the price by which Feeder Cattle contracts are settled.

RRFA analysts suggest five regions: Montana and Wyoming; Nebraska, South Dakota and North Dakota; Iowa and Missouri; Kansas and Colorado; and Texas, Oklahoma and New Mexico. Among other potential benefits, the notion is that such an approach would be more reflective of regional feeder cattle value while providing insight to shifting supplies.

Close’s comments are tied to conclusions drawn from a new Feeder Cattle Basis report from the RRFA, which seeks to answer whether the CME Feeder Cattle contract is still viable, and if so, how its volatility might be managed.

According to the RRFA research, the contract is still viable and worthy of efforts to support trade volume that would increase liquidity. RRFA analysts say the wide and growing gap in open interest between Feeder Cattle and Live Cattle contracts poses the greatest risk to the Feeder Cattle contract.

Odds are increasing for higher cash fed cattle prices this week. Supportive factors include likely slaughter levels, the bounce higher in Cattle futures and early trade signals.

For instance, slaughter steers and heifers traded mostly steady at Sioux Falls Regional Livestock in South Dakota on Wednesday. Choice 2-3 steers brought $119-$121/cwt. at 1401-1487 lbs.

Similarly, there were no sales at the weekly Fed Cattle Exchange Auction on Wednesday with 637 head (five lots) offered.

As for country trade, it remained at a standstill in the Northern Plains and Southern Plains through Wednesday afternoon; very inactive on very light demand in the western Corn Belt.

Although lower day to day, wholesale beef values maintained higher levels week to week.

Choice boxed beef cutout value was $1.00 lower on Wednesday afternoon at $201.60/cwt. Select was 41¢ lower at $190.42.

All of that helped Cattle futures mostly maintain gains from the previous session, although they closed narrowly mixed.

Live Cattle futures closed narrowly mixed, from 47¢ lower to 52¢ higher.

Except for fractionally lower in a couple of mid-board contracts, Feeder Cattle futures closed an average of 47¢ higher.

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Major U.S. financial indices edged higher on Wednesday amid light trade.

The Dow Jones Industrial Average closed 28 points higher. The S&P 500 closed 2 points higher. The NASDAQ closed 3 points higher.

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Total adult cattle (heavier than 500 lbs.) and calf death losses on beef operations was valued at $2.24 billion in 2015, according to a recent report from the National Animal Health Monitoring Service (NAHMS). The same year, total cattle and calf death losses were valued at $3.87 billion. That equates to right at $43 per head for the 89.8 million head inventory (all cattle and calves) on Jan. 1 that year.

Almost 3.9 million cattle and calves were lost to all causes in 2015—1.74 million adult cattle and 2.14 million calves. That was about 2% death loss for adult cattle and 6.2% death loss for calves.

For beef operations, specifically, non-predator causes accounted for $1.52 billion in total lost value for adult cattle. Predators accounted for another $592 million in lost value.

Old age was the leading non-predator cause of death (19.2%) in adult beef cattle, followed by unknown non-predator causes (17.3%), respiratory problems (15.9%), calving-related problems (12.8%) and weather-related (11.8%).

For beef operations, specifically, non-predator causes accounted for $556 million in total lost value for calves. Predators accounted for another $112 million in lost value.

Respiratory problems accounted for 23% of calf death loss due to non-predator causes, followed by calving-related problems (22.7%), and weather-related causes (18.3%).

Apparently, what Friday’s bearish monthly Cattle on Feed report took away from trader optimism, extreme cold temperatures and winter weather helped give back on Tuesday in the form of expectations for lower cattle performance. Perhaps traders also recognized the potential for high placements to moderate beef production down the road (see below). A bounce in wholesale beef values, helped, too.

Choice boxed beef cutout value was $3.04 higher on Tuesday afternoon at $202.60/cwt. Select was $2.95 higher at $190.83.

Live Cattle futures closed an average of $2 higher ($1.20 to $2.90 higher).

Feeder Cattle futures closed an average of $2.65 higher.

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Major U.S. financial indices closed little changed in light trade on Monday. Energy stocks offered some lift, while Apple stocks pulled back on reports that the firm will announce fewer than expected X phones sales in Asia.

The Dow Jones Industrial Average closed 7 points lower. The S&P 500 closed 2 points lower. The NASDAQ closed 23 points lower.

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There’s no doubt traders on Friday saw bearishness in the monthly Cattle on Feed report—issued during trading hours—with both Live Cattle and Feeder Cattle moving lower. Given the bounce higher on Tuesday, though, bearishness appears to gave been tempered by advantages to the significant increase in lightweight placements. The increase in lightweight placements is the product of continued aggressive feedlot marketing, as well as dry conditions in the Southern Plains upending plans for wheat pasture.

“The implications of this report (Cattle on Feed) may not be as bearish as it seems,” explains Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. Specifically, he points to the high percentage of lightweight placements—20.3% more weighing less than 700 lbs. year over year.

“These lightweight placements will be marketed later and are not bunched up with earlier placements,” Peel explains. “Lightweight placements tend to get spread out more over time and winter weather is likely to further spread cattle out over the next few months. Lightweight placements may help moderate beef production as well. Feedlot data shows that lighter placement weights result in lighter finished weights, and thus lighter carcass weights. It’s not a one-for-one relationship but, on average, feeders placed 200 lbs. lighter would be expected to finish about 100 lbs. lighter. Winter weather could further impact finished weights on feedlot cattle and especially these lightweight feeders.”

Moreover, Peel says, “Recent large placements means that feedlots are pulling cattle forward by placing feeders at a faster rate than the growth in feeder supply.”

The monthly Cattle on Feed report issued during trading hours on Friday pressured Cattle futures with significantly more placements than expected (see below).

Except for 20¢ higher and 20¢ lower at either end of the board, Live Cattle futures closed an average of 86¢ lower (55¢ to $1.30 lower).

Feeder Cattle futures closed an average of $1.58 lower.

Choice boxed beef cutout value was $1.44 higher on Friday afternoon at $199.56/cwt. Select was $1.01 higher at $187.88.

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Major U.S. financial indices edged lower on Friday. Support included President Trump signing tax reform into law. Pressure included less of an increase in November personal income than investors expected. According to the U.S. Bureau of Economic Analysis on Friday, November personal income was 0.3% higher.

The Dow Jones Industrial Average closed 28 points lower. The S&P 500 closed 1 point lower. The NASDAQ closed 5 points lower.

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Lots more cattle were placed on Feed in November than the trade was expecting.

According to Friday’s monthly Cattle on Feed report from USDA, 2.1 million head were placed in November, which was 13.9% more than last year. That was about 9% more than average estimates ahead of the report. In terms of weight composition, 55.1% were placed at weights lighter than 700 lbs. and 9.3% went on feed weighing 900 lbs. or more.

Marketings in November of 1.84 million head were 3.2% more than the previous year.

The total number of cattle on feed Dec. 1 in feedlots was 11.52 million head (feedlots with a capacity if 1,000 head or more). That’s 8.1% more than last year (+864,000 head), about 1.5% more than expectations.

At least frozen beef stocks shouldn’t add extra pressure, according to USDA’s monthly Cold Storage report, also released on Friday.

Total pounds of beef in freezers Nov. 30 were 4% less than the previous month and 8% less than the previous year.

Frozen pork supplies were 16% less than the previous month and 3% less than last year.

Total red meat supplies in freezers were down 10% from the previous month and down 4% from last year.

Total frozen poultry supplies were 11% less than the previous month, but 15% more than a year earlier.

Although 50¢ lower in Colorado Thursday afternoon, negotiated cash fed cattle trade continued mostly steady on a live basis at $120/cwt. Dressed trade on Wednesday was steady to $2 higher at $190-$191. There could be some cleanup sales, but odds are that the trade is done for the week.

Cattle futures found some stability on Thursday as traders shored up positions ahead of Friday’s monthly Cattle on Feed report and the long holiday weekend.

Live Cattle futures closed an average of 42¢ higher (10¢ to 72¢ higher).

Except for $1.15 higher in spot Jan and marginally mixed in the back three contracts, Feeder Cattle futures closed an average of 56¢ higher.

Choice boxed beef cutout value was 3¢ lower on Thursday afternoon at $198.12/cwt. Select was $1.38 higher at $186.87.

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Major U.S. financial indices settled higher on Thursday. Some analysts credited overall bullishness to reports that some companies plan to channel savings from lower corporate tax rates toward employee wages. The Fed might get the inflation rate they’re after yet.

The Dow Jones Industrial Average closed 55 points higher. The S&P 500 closed 5 points higher. The NASDAQ closed 4 points higher.

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“Fed cattle prices edged higher early in the fourth quarter, but the availability of market-ready cattle—and nearby futures prices, which are likely encouraging cattle feeders to remain current in their marketings—have been pressuring cash prices,” said analysts with USDA’s Economic Research Service (ERS), in the recently released monthly Livestock, Dairy and Poultry Outlook. “In addition, wholesale prices (beef) appear to be at or near their seasonal peak. The November fed steer price averaged $121.37/cwt., but prices in early-December trended lower. As a result, the fourth-quarter fed steer price forecast was lowered slightly to $116-$119/cwt.” Prices did rebound slightly the past two weeks.

On the other side of the trade, ERS analysts lowered expectations for the fourth-quarter average feeder cattle price to $155-$159/cwt.

Likewise, ERS lowered cull cow prices expected in the fourth quarter to $56-$58/cwt.

“Cow prices are seasonally lower during the fourth quarter, but prices have also come under pressure due to higher than year-ago cow slaughter,” ERS analysts say. “Commercial cow slaughter, especially of beef cows, continues to be relatively heavy so far in the fourth quarter.”

Cash fed cattle trade opened the week at mostly steady money. Live prices were at $120/cwt. in the Southern Plains and Nebraska, on moderate demand and trade. That matched the price paid in the weekly Fed Cattle Exchange auction on 239 head sold out of 466 offered (delivery 1-9 days). Dressed prices in Nebraska were steady to $2 higher than last week at $190, with a few up to $191.

Despite cash strength, Live Cattle futures closed lower, pressured by the strong downturn in Feeder Cattle, which was tied in part to wonderments about Friday’s monthly Cattle on Feed report (see below) and the level of fund liquidation through the end of the year.

Live Cattle futures closed an average of $1.34 lower (60¢ to $1.80 lower).

Feeder Cattle futures closed an average of $2.51 lower ($1.17 to $3.55 lower). That cleaved a $10.70 wedge between spot Jan and the CME Feeder Cattle Index of $152.47.

Choice boxed beef cutout value was $3.67 lower on Wednesday afternoon at $198.09/cwt.; about $5 lower in the last two days. Select was $1.17 higher at $185.49.

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Major U.S. financial indices edged lower again on Wednesday with Congress passing the tax reform bill.

The Dow Jones Industrial Average closed 28 points lower. The S&P 500 closed 2 points lower. The NASDAQ closed 2 points lower.

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Perhaps more speculation than usual surrounds the monthly Cattle on Feed report to be released Friday.

On one hand, the cowherd continues to expand.

Plus, David Anderson, Extension economist with Texas A&M University explains, “It is likely that dry conditions in the Southern Plains hindering winter pasture development may have forced more to feedlots. Feeder cattle imports from Mexico were up about 50,000 head in November compared to a year ago. Normally, many of those cattle would be going to winter pastures, but perhaps more went to feedlots given dry conditions. There were also, likely, some good opportunities to place cattle, especially early in the month. The expectation is that many more heifers are being placed reflecting more heifers born to the larger cow herd, but fewer being held back to replace cows.”

In the latest issue of In the Cattle Markets, Anderson says most analysts expect November placements to be higher again year over year, but across a wide range of about 3% to 10% more.

He explains “Placements towards the top end of the range would be the largest since the mid-2000s, while placements up about 6.7% would be the largest since 2011,” Anderson says.

On the other hand, analysts at Allendale, Inc. say, “Despite a $9 rise in fed cattle prices from October to November, cattle feeders have been impacted by profitability concerns. Kansas State University projects breakevens for December through April delivery fed cattle at $123/cwt. November placements supply the May through September slaughter period.”

Allendale expects November Placements to be 0.8% less than last year at 1.828 million head, slightly higher than the five-year November average.

As for fed cattle marketing, Anderson says some signs point to a less aggressive rate than what defined the year so far. Still, he sees November marketings 3.3% more than same period a year earlier.

“That would be the largest November marketings since the Cattle on Feed report began in its current form,” Anderson says.  

Similarly, Allendale anticipates marketings to be 2.9% more than last year.

“Combining marketings and placements leaves expected cattle on feed for December 1 up 6.9% from a year ago,” Anderson says. “That would be the most December cattle on feed since 2011, as the drought was pushing more cattle to feedlots. Beef and live cattle demand will be critical in the coming months to avoid large price declines given this number of cattle on feed.”

Although a little less bearish, Allendale estimates total cattle on feed at the beginning of December to be 5.6% more, the largest Dec. 1 total in five years.

Cattle futures closed lower on Tuesday, helped along by lighter trade and sagging wholesale beef values. Other potential pressures on the day could include everything from positioning ahead of Friday’s monthly Cattle on Feed report, to the potential for cattle getting bunched as winter grazing conditions dwindle, to pushing beads on the year-end abacus.

Except for fractionally mixed in the front two contracts, Live Cattle futures closed an average of 69¢ lower.

Feeder Cattle futures closed an average of $1.79 lower ($1.17 to $2.45 lower in spot Jan).

Choice boxed beef cutout value was $1.39 lower on Tuesday afternoon at $201.76/cwt. Select was 69¢ lower at $184.32.

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Major U.S. financial indices edged lower on Tuesday. Besides rally fatigue, pressure included a down day for tech pacesetters like Apple, never mind the fact that the House voted to approve tax reform, then figured out a procedural gaff means they must vote again.

The Dow Jones Industrial Average closed 37 points lower. The S&P 500 closed 8 points lower. The NASDAQ closed 30 points lower.

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“Retail beef prices are currently higher than last year despite the increase in beef supplies in 2017,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his latest weekly market comments. “Beef demand is all the more impressive given that total meat supplies are higher year over year, not only the result of more beef, but also increased pork and poultry production.”

For perspective, Peel explains November retail Choice beef prices were $5.81/lb., which was slightly higher than a month earlier and a year ago. The same goes for the all-fresh retail beef price in November of $5.64/lb.

“The ratio of retail beef prices relative to pork and poultry remains very strong, holding near to record levels achieved during the record high prices in 2015,” Peel says. “The calculated beef demand index, which accounts for pork and poultry impacts, as well as increased beef production, showed a slight increase for the third quarter of 2017.”

Ultimately, though, retail beef prices should move lower as tonnage continues to rise.

“This will put additional pressure on wholesale beef prices as well as fed and feeder cattle prices,” Peel says. “However, if demand continues strong, the retail price pressure may be rather modest with less negative impact on wholesale beef and cattle markets.”

More specifically, Peel says strong demand will depend on the continuation of generally strong macro-economic conditions, including decreased unemployment and growth in consumer income.

“Any change in overall macroeconomic conditions is a threat. Factors to watch include rising interest rates and inflationary pressures,” Peel says. “Shocks external to the beef industry—such as a sudden jump in gasoline prices—could sharply impact consumer spending and beef demand.”

Finally, Peel emphasizes, “Continued improvement in beef trade will also be a crucial factor to minimizing price pressure in 2018. Continued strong exports to current major beef destinations including Japan, South Korea, Mexico, Canada and Hong Kong will be essential. New export growth to China is likely to remain a small market in 2018 but holds significant potential over time.”

Cash fed cattle prices last week ended up $1-$3 higher on a live basis at $118.00 to $120.50/cwt., mostly $120. Dressed trade was $1-$3 higher at $188-$190.

The stronger cash trade fueled follow-support for Cattle futures early in Monday’s session. Support faded quickly, though. Cattle futures closed narrowly mixed, mostly to the downside, but still higher week to week.

Except for $1.07 higher in spot Dec, Live Cattle futures closed an average of 37¢ lower.

Except for 7¢ higher in the back two contracts, Feeder Cattle futures closed an average of 37¢ lower (10¢ to 85¢ lower).

Choice boxed beef cutout value was $1.28 higher on Monday afternoon at $203.15/cwt. Select was $1.76 higher at $185.01.

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Major U.S. financial indices took yet another step higher on Monday, with investors apparently expecting Congress to pass the tax reform bill as early as Tuesday. Merger and acquisition news also provided support.

The Dow Jones Industrial Average closed 140 points higher. The S&P 500 closed 14 points higher. The NASDAQ closed 58 points higher.

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Beef cow and heifer slaughter suggest cowherd expansion might be slowing, say analysts with USDA’s Economic Research Service (ERS) in the latest monthly Livestock, Dairy and Poultry Outlook released yesterday.

“Beef cow slaughter through October 2017 was 11% higher than the same period in 2016. Preliminary federally inspected beef cow slaughter in November has also been fairly strong and higher than November last year,” ERS analysts say. “Heifer slaughter has also seen a 12% increase through October 2017, while steer slaughter has only increased by about 3%.”

Likewise, while slowing, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University says current beef cow and heifer slaughter rates still suggest herd expansion.

“Part of the increase in cow slaughter is simply due to herd growth since 2014,” Peel explained in his market comments last week. “However, like heifer slaughter, beef cow slaughter was sharply reduced in 2014-2016 as a part of jumpstarting herd expansion. Net beef cow culling was a record low 7.6% in 2015. Sustained below-average culling rates in 2014-2016 were possible following above average culling rates from 2008-2013, including drought-forced liquidation that removed many older cows, and allowed a period of reduced culling as herd expansion began. If the current beef cow slaughter pace continues through the end of the year, the 2017 beef cow culling rate will be 9.0%, still below but close to the long term average of 9.6%. In other words, the industry is returning to normal beef cow culling rates. Both heifer and beef cow slaughter are consistent with continued but slowing herd expansion.”

As always, Mom Nature will have plenty to say about the possibilities, one way or the other.

Despite indications to the contrary earlier in the week, cash fed cattle prices surged higher on Friday, surprising some, but speaking to how snug supplies are in some regions, how current feedlots are and apparently how much packers want to keep running hard after the holidays.

Through the afternoon, AMS was reporting live trade $1-$2 higher than the previous week in the Southern Plains and Nebraska at $118-$119/cwt. Late in the day, though various sources were reporting live prices as high as $120 and dressed up to $190.

Feeder Cattle futures surged higher on Friday amid oversold conditions and the continued hefty gap with cash trade. That and hints of high cash bids helped lift Live Cattle.

Live Cattle futures closed an average of $1.34 higher (55¢ to $2.62 higher in spot Dec).

Feeder Cattle futures closed an average of $1.27 higher (80¢ to $1.60 higher).

Choice boxed beef cutout value was 83¢ higher on Friday afternoon at $201.87/cwt. Select was 44¢ lower at $183.25.

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Major U.S. financial indices closed at record-high levels on Friday, buoyed by increasing expectations that Congress will accomplish tax reform, given agreement on a Conference bill between the House and Senate; the vote is scheduled for this week.

The Dow Jones Industrial Average closed 143 points higher. The S&P 500 closed 23 points higher. The NASDAQ closed 80 points higher.

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The same mild winter that’s so far helping stretch feed supplies and cattle performance is also growing drought conditions.

“The South, Midwest and High Plains have areas of short-term and long-term extreme drought,” say analysts with USDA’s Agricultural marketing Service (AMS), referencing the latest Drought Monitor. “The top 15 states in beef cow numbers all have some type of drought intensity and impact.”

Andrew P. Griffith, agricultural economist at the University of Tennessee, explains, in his weekly market comments, “The drought situation that has overcome much of cow-calf and stocker grazing country is forcing producers into tough situations.

“Many stocker cattle are purchased based on currently available forage and expected forage. The currently available forage is beginning to wane and the expectation of forage is near zero if precipitation does not fall in the near term. This will continue to result in softer calf prices as feedlots fill pens with cattle that may have to come off winter annuals earlier than expected. Similarly, many of the stocker producers in the Southern Plains will not be active in purchasing calves due to reduced forage production… A good rain or two could alleviate much of the distress.”

Moreover, AMS analysts say, “When the cattle inventory report comes out in late January 2018, the number of beef cows in the main cattle states will be watched by analysts to see if producers are continuing to increase cow herds when facing these drought conditions in such a widespread area.”

Cash fed cattle trade remained undeveloped through Thursday afternoon.

Odds and ends fed cattle trade at auction the previous day pointed to steady to lower prices than last week’s 5-area weighted average of about $117.50/cwt. for steers.

Cattle futures edged higher on Thursday, supported by short covering and the overall livestock complex, but the continued lack of cash direction limited gains.

After an average of 70¢ higher in the front two contracts, Live Cattle futures closed 17¢ lower to 20¢ higher.

Feeder Cattle futures closed an average of 61¢ higher (30¢ to 82¢ higher).

Choice boxed beef cutout value was $1.44 lower on Thursday afternoon at $201.04/cwt. Select was $1.33 lower at $183.69.

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Major U.S. financial indices closed lower on Thursday. Although there was positive economic news, including lower than expected jobless claims and stronger retail sales in November than expected, various analysts attributed most of the pressure to fretting over if and when tax reform will be accomplished.

The Dow Jones Industrial Average closed 76 points lower. The S&P 500 closed 10 points lower. The NASDAQ closed 19 points lower.