Daily Market Highlights

Between follow-through buying and increasing fundamental bullishness, Cattle futures extended gains from the surge in the previous session.

Live Cattle futures closed an average of $1.37 higher (92¢ to $2.25 higher).

Except for 55¢ higher in the back contract, Feeder Cattle futures closed an average of $1.74 higher ($1.10 to $1.95 higher).

Choice boxed beef cutout value was $3.12 higher Tuesday afternoon at $206.44/cwt. Select was 26¢ higher at $193.90. At $12.54, the Choice-Select spread was the highest since July.

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Major U.S. financial indices ended the month slightly higher on Tuesday.

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

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Agricultural lenders cited commodity prices, liquidity positions, income levels, and financial leverage as their top concerns about customer financial health in the first half of 2017, according to the Summer Agricultural Lender Survey results released this week.

“Overall, the data showed that agricultural lenders are a little more optimistic about what’s ahead for their customers than they were in December of 2016,” says Brittany Kleinpaste, director of economic policy and research for the American Bankers Association (ABA).

All told, 82% of agricultural lenders reported a decline in farm profitability in the last 12 months, according to the joint survey by the ABA and the Federal Agricultural Mortgage Corporation (Farmer Mac). Despite the continued decline, the survey of more than 580 agricultural lenders indicates the agricultural loan approval rate is 84%.

By commodity sector, lenders expressed the most concern about grains, dairy and beef cattle (see chart below). They were less concerned about the sectors of swine, poultry, fruit and nuts, and vegetables.

“Farmland represents an increasingly important component of agricultural industry wealth and borrowing capacity,” according to the report. “Real estate represents more than 80% percent of all farm sector assets, and it secures more than $200 billion in mortgage lending. Because many farm acres are at least partially financed through loans, agricultural lenders must be in-tune with changes in land markets. Through a previous survey, Farmer Mac tracked lender expectations of land markets since 2014, which showed a downward trend. The June 2017 ABA-Farmer Mac survey shows a slight reversal of this trend, with

57% of respondents reporting stable values in the first half of 2017, and 51% expecting no major changes in the second half of 2017. On average, survey respondents from the June survey exhibited more confidence in stable land values than respondents to the December survey.”

Other highlights from the survey include:

• The average agricultural lender expected 52% of their customers to be profitable in 2017, a drop of two percentage points from December 2016.
• Portfolio credit quality and competition topped lender business concerns in early 2017.
• Virtually all respondents expected short-term interest rates to rise in the second half of 2017 (85%), and a wide majority of respondents expected long-term interest rates to rise as well (71%).

It took all of last week to get cash fed cattle traded, but it was well worth the wait. Prices were mainly $5-$8 higher on a live basis at mostly $116.00-$119.50/cwt. Dressed prices were mainly $5-$10 higher at $180-$185.

Those significantly higher cash prices fueled sharp gains in Cattle futures on Monday, with Live Cattle in the lead.

Live Cattle futures closed an average of $2.82 higher through the front three contracts ($1.70 to $4.20 higher) and then an average of 69¢ higher (35¢ to 32¢ to 97¢ higher).

Feeder Cattle futures closed an average of $1.30 higher ($1.07 to $1.85 higher).

Choice boxed beef cutout value was 28¢ lower Monday afternoon at $203.02/cwt. Select was $1.16 higher at $193.64.

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Major U.S. financial indices closed lower on Monday. Key pressure was apparently tied to a report that proposed tax reform could include a gradual reduction in the corporate tax rate, rather than an immediate and full break to lower levels.

The Dow Jones Industrial Average closed 85 points lower. The S&P 500 closed 8 points lower. The NASDAQ closed 2 points lower.

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“Cow-calf producers are selling weaned calves for $150 to $200 per head more than last year,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.

Besides calf and feeder cattle prices being significantly higher than last year, he explains price levels for heavier feeders, relative to stocker weights, are boosting the value of gain.

“Heavy feeder cattle prices have not declined seasonally; rather, they have increased this fall,” Peel says. “Seven-weight steers were up about 6% in October from August and were 25% higher than last year. An increase in heavy-feeder price, relative to stocker price, increases the value of gain and is a stocker signal to put more weight on cattle in the country.”

For instance, he ran the numbers at the end of October for adding 250 lbs. to a steer calf weighing 500 lbs. The value of gain was $1.35/lb. He also notes Feeder Cattle futures continued to offer opportunities to lock in favorable margins.

“March Feeder futures at the time of writing this article were about $153/cwt., suggesting a rare margin opportunity for winter grazing,” Peels says. Stocker producers and cow-calf producers with potential to retain weaned calves as stockers, should pencil out the opportunities depending on beginning weight and expected timing and weight of later sales. While cash market fundamentals are solid, spring Feeder futures are arguably overpriced and subject to correction at any time. The best opportunities may be fleeting.”

Cattle futures closed mostly slightly lower Friday with profit taking from the week’s rally and positioning.

Other than $1.22 higher in spot Oct and 12¢ higher in near Dec, Live Cattle futures closed an average of 50¢ lower (32¢ to 85¢ lower).

Not counting expired Oct and newly hatched away Oct, Feeder Cattle futures closed an average of 27¢ lower, except for 2¢ higher in Aug.

Choice boxed beef cutout value was 93¢ higher Friday afternoon at $203.30/cwt. Select was 57¢ higher at $192.48

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Major U.S. financial indices closed higher on Friday led by tech stocks, including better than expected earnings from Amazon and Microsoft.

The Dow Jones Industrial Average closed 33 points higher. The S&P 500 closed 20 points higher. The NASDAQ closed 144 points higher.

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“Thus far, prices in the fall of 2017 have been beneficial to adding additional weight to calves,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “As an example, starting October with a 525-pound steer and adding 50 lbs. in the month has resulted in a value of gain near $1.74 per pound, which has likely resulted in $50-$70 per head gains after feed costs. Continuing to hold on to lightweight calves should prove beneficial if those animals will be carried into 2018 and sold as value-added calves. Alternatively, if the plan is to sell calves in the next four to five weeks, then producers continue to face the risk of calf prices seasonally declining in November. Calf prices could remain steady over the next month, but there is no guarantee. Stocker producers should run breakeven analysis on fall purchased calves. It appears profits of at least $100 per head can still be hedged at this time.”

Cattle futures took another step higher on Thursday, buoyed by stronger wholesale beef values and continued expectations for higher cash fed cattle prices this week.

Live Cattle futures closed an average of $1.34 higher through the front four contracts and then an average of 46¢ higher.

Feeder Cattle futures closed an average of 69¢ higher (42¢ to $1.22 higher).

Choice boxed beef cutout value was $2.16 higher Thursday afternoon at $202.37/cwt. Select was 48¢ lower at $191.91.

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Major U.S. financial indices closed mixed on Thursday, with another hurdle cleared toward tax reform–the House passing the budget–on one side of the ledger and lower pending home sales on the other. Wednesday, pressured by weaker quarterly earnings reports, including Boeing.

The Dow Jones Industrial Average closed 71 points higher. The S&P 500 closed 3 points higher. The NASDAQ closed 7 points lower.

There wasn’t much country trade to speak of, and there were only 897 head offered in the weekly Fed Cattle Exchange auction, with no sales.

However, slaughter steers sold mostly $1-$2 higher at Sioux Falls in South Dakota. Slaughter heifers sold mostly $2 higher.

So, that and other factors including chatter about tighter front end supplies suggest odds continue to favor higher cash fed cattle prices this week.

Cattle futures received support early with follow-through buying from the previous day’s rally. Although that support faded, futures were confined to a narrow trading range and managed a mixed close.

Live Cattle futures closed narrowly mixed (after 60¢ and 45¢ lower in the front two contracts, mainly 2¢ to 27¢ higher).

After 27¢ lower and 5¢ higher in the front two contracts, Feeder Cattle futures closed an average of 57¢ higher.

Choice boxed beef cutout value was 8¢ higher Wednesday afternoon at $200.21/cwt. Select was 30¢ lower at $192.39.

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Major U.S. financial indices closed sharply lower on Wednesday, pressured by weaker quarterly earnings reports, including Boeing.

The Dow Jones Industrial Average closed 112 points lower. The S&P 500 closed 11 points lower. The NASDAQ closed 34 points lower.

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“Even though the head (fed cattle) marketed has not been a surprise, its role in the market has been key to fed cattle prices, which recently have been more than $10/cwt. above a year ago,” say analysts with the Livestock Marketing Information Center, in the latest Livestock Monitor. “A critical result of the marketing pace has been year-on-year declines in slaughter steer and heifer dressed weights. To a large extent, the market environment since late 2016 has pulled animals through the feeding stage of the production system, and that has driven weights below a year ago. For the last five weeks of data (through the week ending October 7) steer carcass weights were essentially flat and did not increase seasonally.”

Those analysts point out weight declines early this year were driven by market incentive, not severe winter weather.

“The bottom line is, at this time, a backlog of market ready cattle is not apparent,” say LMIC analysts.

Cattle futures closed sharply higher on Tuesday, led by Feeder Cattle and supported by some traction in wholesale beef values, as well as the steady to slightly higher prices for fed cattle last week. If it holds together, the rally could help set the stage for higher cash fed cattle trade this week.

Live Cattle futures closed an average of $2.31 higher ($1.95 to $2.95 higher).

Feeder Cattle futures closed an average of $3.49 higher ($1.50 to $4.12 higher).

Choice boxed beef cutout value was 88¢ higher Tuesday afternoon at $200.13/cwt. Select was $1.64 higher at $192.69.

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Major U.S. financial indices closed sharply higher on Tuesday, buoyed by strong quarterly earnings reports from the likes of Caterpillar and 3M.

The Dow Jones Industrial Average closed 167 points higher. The S&P 500 closed 4 points higher. The NASDAQ closed 11 points higher.

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“Grass hay values were surprisingly weak in August, mostly due to a 25% price decline in Oklahoma, the third largest non-Alfalfa hay producing state,” say analysts with the Livestock Marketing Information Center (LMIC), in the most recent Livestock Monitor. “Grass hay prices were down 5% in Texas, the largest producer of non-Alfalfa hay. California, Minnesota, and Ohio also recorded double-digit percentage declines in non-Alfalfa hay prices from July to August.”

Until August, LMIC analysts explain hay prices were higher year-over-year on 2% less hay in tandem with the growing cowherd. In the Southern Plains they say favorable pasture conditions in August, coupled with abundant carryover hay supplies began to pressure prices.

“Carryover hay supplies from last year in Oklahoma were at the highest levels since 2008 at the end of April and tripled the inventory on hand in April 2012 when Oklahoma experienced its last drought,” LMIC analysts say. “These large supplies, coupled with favorable weather in August for pastures in Oklahoma put pressure on hay prices even though current year grass hay production is about the same as last year. Also, alfalfa hay production in Oklahoma is up more than 40% from 2016.”

Cattle futures closed mostly narrowly mixed on Monday. They were pressured early in the session, but rather than crashing sharply lower in response to Friday’s Cattle on Feed report, they recovered most of the ground by the end of the day (see below).

Live Cattle futures closed narrowly mixed (25¢ lower to 45¢ higher).

Except for unchanged in spot Oct and $1.20 lower in the back contract, Feeder Cattle futures closed an average of 25¢ lower.

Choice boxed beef cutout value was 61¢ lower Monday afternoon at $199.25/cwt. Select was 9¢ lower at $191.05.

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Major U.S. financial indices closed lower on Monday, perhaps due partly to profit taking ahead of a busy week for quarterly earnings reports.

The Dow Jones Industrial Average closed 54 points lower. The S&P 500 closed 10 points lower. The NASDAQ closed 42 points lower.

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Futures price reaction to Friday’s Cattle on Feed report—13.5% more September placements than a year earlier—may go a long ways in underscoring the strength of the current marketplace. Prices wobbled early on, but then bounced back quickly. Besides more placements being expected as the cowherd grows, logical reasons for the subdued reaction include: placements the previous September were atypically low; market strength continues supporting packer profits and feedlot demand.

“Counter-seasonally strong feeder cattle prices this fall indicate good demand despite growing feeder cattle supplies,” explains Derrell Peel, Extension livestock marketing specialist, in his weekly market comments. “The October Cattle on Feed report confirmed that much of that demand came from feedlots.”

Heifers continue to comprise an increasing proportion of the on-feed mix—13% more Oct. 1 than a year earlier—suggesting that herd growth is slowing.

“Heifer slaughter so far this year is consistent with these inventory totals, up 12% year over year, and suggests that heifer slaughter will continue to grow for the foreseeable future,” Peel says. “These numbers suggest that heifer retention (and likely herd growth) is slowing. However, the average ratio of steer to heifer slaughter (which peaked recently in 2016) and is adjusting down, is still at levels not seen since 1975 (prior to mid-2015).”

Along the way, Peel points out average fed carcass weights are 14.6 lbs. lighter year to date.

“Average fed carcass weights are down due to lighter steer and heifer carcasses and a growing proportion of heifers to steers in the fed slaughter mix,” Peel says. “USDA reports total cattle slaughter up 5.8% year over year so far this year with beef production up 4.2% for the year to date.”

Negotiated cash fed cattle prices in the Southern Plains on Friday were steady with the previous week at $111/cwt. Dressed trade was also steady in Nebraska at $175. Trade and demand were moderate in both regions. Elsewhere, prices appeared to be mostly steady, but there were too few transactions to trend.

Cattle futures edged hire on Friday, presumably in part due to short covering ahead of the monthly Cattle on Feed report (see below).

Live Cattle futures closed an average of 49¢ higher, (20¢ to 85¢ higher).        

Feeder Cattle futures closed an average of 41¢ higher (10¢ to 82¢ higher).

Choice boxed beef cutout value was 29¢ higher Friday afternoon at $199.86/cwt. Select was 38¢ higher at $191.14.

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Major U.S. financial indices closed higher on Friday—sharply higher for the Dow. Analysts broadly attributed much of the optimism to the Senate’s budget approval, another step toward tax reform.

The Dow Jones Industrial Average closed 165 points higher. The S&P 500 closed 13 points higher. The NASDAQ closed 23 points higher.

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For the second consecutive month, feedlot placements were significantly higher than most analysts expected.

According to the monthly Cattle on Feed report issued Friday, feedlot placements (2.15 million head) in September were 13.5% more than last year. That’s at least 6% more than most pre-report estimates.

You’ll recall that last month, August placements (+2.6%) were about 6% higher that pre-release estimates, too. The news helped push Cattle futures sharply lower the following, Monday.

Of the cattle placed in September, 34.7% weighed 699 lbs. or less, 46.7% weighing 700-899 lbs. and 18.6% weighed 900 lbs. or more.

Marketings in September of 1.78 million head were 2.9% more, which was in line with estimates.

Total cattle on feed Oct. 1 of 10.81 million head were 5.4% more, which mirrored estimates ahead of the report.

Cash fed cattle trade was still mostly undeveloped for the week through Thursday afternoon.

There were a few live trades in Kansas and Nebraska at $110/cwt., on limited trade and light to moderate demand. That was $1 less than the previous week, but there were too few transactions to trend.

Cattle futures continued in range-bound two-sided trade on Thursday.

Live Cattle futures closed mostly marginally higher, from an average of 27¢ lower to an average of 31¢ higher.  

Feeder Cattle futures closed an average of 93¢ higher (62¢ to $1.20 higher).

Choice boxed beef cutout value was $2.31 higher Thursday afternoon at $199.57/cwt. Select was $1.67 higher at $190.76.

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After trending lower for much of the day, major U.S. financial indices closed narrowly mixed on Thursday. There was mixed economic news, nothing strongly bullish or bearish.

The Dow Jones Industrial Average closed 5 points higher. The S&P 500 closed fractionally higher. The NASDAQ closed 19 points lower.

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“The overall perspective on protein markets is that beef, pork and poultry supplies are likely to be large through the fall and early winter,” says Stephen Koontz, agricultural economist at Colorado State University, in the latest issue of In the Cattle Markets. “Supplies are large and cold storage stocks are increasing. Thus, feeder cattle and calve are unlikely to hold at the levels seen in this environment.”

The latest monthly livestock slaughter data from USDA’s National Agricultural Statistics Service (NASS) underscores that notion. Total red meat and pork production was record high in September.

Beef production of 2.22 billion lbs. in September was 2% more than the previous year. Cattle slaughter of 2.70 million head was 3% more than last September, although average cattle live weight was 11 lbs. lighter at 1,359 lbs.

Commercial U.S. red meat production was 2% more than the previous September at 4.33 billion lbs., according to NASS.

For January through September this year, commercial red meat production was 4% more than the same month last year at 38.4 billion lbs. Accumulated beef production was up 5%. Pork production for the period was up 3%.

Early negotiated cash fed cattle prices were a mixed bag on Wednesday.

Direct trade in the Texas Panhandle was reported at $110/cwt. on a live basis, which was $1 less than last week. That was on moderate demand and light to moderate trade.

Fat cattle auctions in the north trended higher.

For instance, Slaughter steers sold steady to $1 higher at Sioux Falls Regional Livestock in South Dakota with instances of $2 higher. Slaughter heifers sold steady to $1 higher.

Choice steers sold $1.75-$2.00 higher at Tama, Iowa (mostly $113.95). Heifers traded $1.00-$1.75 higher (mostly $113.85).

There were only 919 head offered in the weekly Fed Cattle Exchange auction. Of those 230 head (two lots of heifers from Kansas) sold for a weighted average price of $109/cwt. with delivery at 1-9 days. There were no sales there last week for a trend.

Cattle futures closed mixed on Wednesday, rebounding some from early pressure.

Live Cattle futures closed an average 39¢ higher in the front five contracts (17¢ to 67¢ higher) and then unchanged to 47¢ lower.     

Except for 37¢ higher in spot October, Feeder Cattle futures closed an average of 50¢ lower (27¢ to 70¢ lower).

Choice boxed beef cutout value was 40¢ lower Wednesday afternoon at $197.26/cwt. Select was 76¢ lower at $189.09.

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Major U.S. financial indices closed higher on Wednesday, led by a bounce in the DJIA, driven in part by stronger than expected quarterly results from IBM.

The Dow Jones Industrial Average closed 160 points higher. The S&P 500 closed 1 point higher. The NASDAQ closed fractionally higher.

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“Despite the sizable number of cattle outside feedlots, medium-frame feeder steers in Oklahoma City averaged $148.12/cwt. in the third quarter, which is $7.48 higher than the same period last year,” according to analysts with USDA’s Economic Research Service (ERS), in the monthly Livestock, Dairy and Poultry Outlook released on Wednesday. “Winter grazing opportunities in the Southern Plains are likely encouraging increased demand by stockers, which should support feeder calf prices. Fourth-quarter prices are raised from last month to $143-$147/cwt., reflecting firm demand by both backgrounders and feedlots. First-half 2018 prices are raised from last month as well.”

On the other side of the trade, ERS analysts note that increasing cattle numbers are keeping fed cattle prices near year-ago levels.

“Recent large supplies of market-ready cattle have prevented the USDA 5-area fed steer price from rebounding off recent lows,” say ERS analysts. “In July, the monthly weighted average price for fed steers was $118.45/cwt. and trended lower through September to $107.11/cwt. for a quarterly average of $112.46/cwt. The third-quarter estimate is slightly below prices last year, but the latest weekly price of $109.45/cwt. (Oct. 6) is about 8% higher than the same week last year. As a result, fourth-quarter fed steer price is unchanged from last month to $108-$112/cwt., staying above 2016 for the quarter.”