Daily Market Highlights

Cattle futures borrowed support from limit up moves in Lean Hog futures and stronger wholesale beef values to rebound and close higher on Tuesday.

Live Cattle futures closed an average of $1.28 higher (92¢ to $1.47 higher).

Feeder Cattle futures closed an average of $2.28 higher ($1.85 to $2.70 higher).

Choice boxed beef cutout value was 65¢ higher Tuesday afternoon at $197.87/cwt. Select was 74¢ higher at $189.02.

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Major U.S. financial indices closed higher again on Tuesday, extending the recent rally, tied in part to betting on lower corporate rates in the tax reform proposal currently under consideration.

The Dow Jones Industrial Average closed 84 points higher. The S&P 500 closed 5 points higher. The NASDAQ closed 15 points higher.

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“A strong rally in Feeder Cattle futures since late August offers improved winter stocker profit potential,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “At current levels, March Feeder futures would allow a 750 lb. steer to be priced at roughly $150/cwt. in Oklahoma. A 475 lb. steer at today’s prices, would have a March 1 breakeven of $130-$137/cwt. at 750 lbs. depending on pasture and other costs. Such opportunities to price in winter stocker margins are rare and generally fleeting.”

Currently, Peel explains the strength of current prices for spring Feeder Cattle contracts is difficult to justify from a fundamental perspective.

“Producers should act promptly if these futures price levels are attractive,” Peel says. “Remember that futures have been notoriously volatile in recent years and Feeder futures can move $11.25/cwt. in two days of limit moves. While no major cattle market weakness is foreseeable at this time, general expectations are for modestly lower cattle prices in 2018 on continued growth in cattle supplies and beef production. There is clearly more downside risk than upside potential from current levels.”

Incidentally, contrary to early promise, Peel says wheat pasture planting in Oklahoma is behind the average pace due to dry topsoil conditions last month and the continued threat of army worms.

Cattle futures closed lower on Monday, following limited early support. Presumably part of the pressure came from notions that cash fed cattle prices must move lower this week, although there are plenty of fundamental reasons to suggest the opposite, including aggressive feedlot marketings and wholesale beef values that seem to have turned the corner.

Live Cattle futures closed an average of $1.18 lower (87¢ to $1.82 lower).

Feeder Cattle futures closed $1.52 lower (95¢ to $2.40 lower).

Choice boxed beef cutout value was 60¢ higher Monday afternoon at $197.22/cwt. Select was 22¢ lower at $188.28.

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Major U.S. financial indices closed higher on Monday, with those cited here settling at record-high levels. Other than popping the cork on a new quarter and continued optimism surrounding proposed tax reform, there didn’t seem to be a clearly defined driver.

The Dow Jones Industrial Average closed 152 points higher. The S&P 500 closed 9 points higher. The NASDAQ closed 20 points higher.

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Currently available slaughter capacity at U.S packing plants will be sufficient to handle the increase in cattle numbers over the next two years, according to a new report from CoBank’s Knowledge Exchange Division.

“Plants will add additional slaughter hours to manage the extra supply through 2019,” says Trevor Amen, animal protein economist at CoBank. “The biggest potential concerns as the industry drifts closer to maximum packing capacity are labor availability and temporary plant closures for unforeseen maintenance issues.” He adds that processors are expected to increase investments in automation and robotics to reduce the risk of skilled labor shortages.

The CoBank report notes that Saturday slaughter hours have been increasing steadily since the middle of 2016. Analysts note that it is unlikely that packers will need to reopen shuttered plants or build additional facilities.

For perspective on increasing cattle numbers, CoBank projects beef cowherd expansion at 3-5% in 2018 and 2019. USDA estimates the 2017 calf crop will top 36 million head, an increase of 2.9% over 2016 and an 8.3% more compared to the cyclical low calf crop in 2014.

Cash fed cattle trade ended the week primarily steady with the previous week on a live basis at $108/cwt.—$1 lower in Nebraska. Dressed trade was steady to $2 higher at $172.

In the futures market, position squaring for the end of the month and quarter seemed to be the chief order of business on Friday.

Live Cattle futures closed unchanged to marginally higher across the front half of the board and then an average of 53¢ lower.

Feeder Cattle futures closed 85¢ lower (62¢ to $1.05 lower) counting newly minted away Sep.

Choice boxed beef cutout value was 21¢ higher Friday afternoon at $196.62/cwt. Select was 61¢ lower at $188.50.

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Major U.S. financial indices closed higher on Friday.

The Dow Jones Industrial Average closed 23 points higher. The S&P 500 closed 9 points higher. The NASDAQ closed 42 points higher.

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“There remain a large number of cattle on feed, but timely marketing the past 12 months has kept cattle current and the risk of a wall of cattle pushed to the sidelines,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “Cattle feeders have continued to purchase feeder cattle aggressively with the expectation of prices improving moving forward.”

Although calves face seasonal price pressure the next couple of months, Griffith explains strong stocker demand and Feeder Cattle futures remain supportive.

Although too few to trend, there were a few trades on Thursday at the upper end of last week’s range: $108/cwt. on a live basis and $172 in the beef.

Cattle futures closed narrowly mixed on Thursday amid sluggish trade and waiting for the week’s cash fed cattle trade to provide some near-term direction.

Live Cattle futures closed 25¢ lower to 40¢ higher.

Feeder Cattle futures closed 22¢ lower to 50¢ higher.

Choice boxed beef cutout value was $1.11 higher Thursday afternoon at $196.41/cwt. Select was 80¢ lower at $189.11.

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Major U.S. financial indices edged higher on Thursday, extending gains from the previous session with continued support from optimism surrounding the tax reform plan announced Wednesday.

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

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“Even with very large tonnage being produced, most products (red meat) have continued to flow through marketing chains at a brisk pace and stocks have not increased year-over-year,” say analysts with the Livestock Marketing Information Center, in the latest Livestock Monitor. “As of Aug. 30, frozen beef tonnage was unchanged from 2016, pork dropped 5%, and lamb/mutton was down 11%.”

The data refers to the latest USDA monthly Cold Storage report released last week.

“Frozen products have differing shelf-life before they must be sold,” LMIC analysts explain. “For example, typical industry specification is that that a frozen whole turkey should be sold within about two years, while frozen ground meats require marketing much sooner (e.g. six month or so). At times U.S. cold storage stocks are increasing to support growing tonnage of frozen products being exported. At other times, stocks may build due to surging U.S. imports, like when Australia has a drought. Stocks can also build up when product is difficult to sell.”

So much for Monday’s limit-down moves in Cattle futures, on the heels of more August feedlot placements than expected. Stability returned yesterday; today, prices were on a tear to the upside, except for spot contracts. There was likely short covering, but there seems little fundamental explanation for the surge. Perhaps funds are returning, or maybe enough folks are coming to rational conclusions about the higher placements noted in last week’s Cattle on Feed report (see below).

There were only 1,342 head offered, and no sales, in the weekly Fed Cattle Exchange auction. That might have plenty to do with the surge in futures prices and increasing expectations for at least steady cash fed cattle trade this week, if not higher.

After 30¢ higher in spot Oct, Live Cattle futures closed an average of $1.09 higher (67¢ to $1.42 higher).

Feeder Cattle futures closed an average of $2.48 higher ($1.82 to $2.87 higher).

Choice boxed beef cutout value was $1.48 lower Wednesday afternoon at $195.30/cwt. Select was $3.20 lower at $189.91. Both are still higher week to week.

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Major U.S. financial indices closed higher on Wednesday, with many analysts crediting much of the optimism to the tax reform plan announced yesterday.

The Dow Jones Industrial Average closed 56 points higher. The S&P 500 closed 10 points higher. The NASDAQ closed 73 points higher.

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“Before we all freak out about placements being above the average expectation, a little perspective is in order,” says David Anderson, Extension livestock economist at Texas A&M University, referring to last Friday’s Cattle on Feed report. “Total placements were 49,000 head above August 2016. That’s not a large number compared to total placements of 1.9 million. The 65,000 head increase in the heavier categories marketed over a likely two-month period is about 1,500 head per day, likely early in 2018, with maybe a few in late 2017. And remember, marketings exceeded placements in August for the first time since 2013, pulling down on-feed inventories. Feedlot marketings continued at their rapid pace, up 6%, which is preventing backed up supplies.”

Moreover, Anderson emphasizes that fundamentals remain strong.

“It’s worth remembering also that current prices reflect the current market,” Anderson explains, in the most recent In the Cattle Markets. “The Cattle on Feed report contains information about supplies that will affect prices some months down the road. If anything, there is some fundamental market information that would suggest $108 fed cattle might be underpriced.”

Some stability returned to Cattle futures on Tuesday…new beef demand indices indicate strengthening consumer beef demand…coming up on your Cattle Current Market Update with Wes Ishmael.

Although pressure continued for nearby Cattle futures on Tuesday, the rest of the board showed some stability, perhaps helped along by two consecutive days of strong gains in wholesale beef values.

After an average of 95¢ lower in the front two contracts, Live Cattle futures closed 20¢ higher (2¢ to 40¢ higher), except for 12¢ lower in Jun.

Other than an average of 90¢ lower in Oct and Nov, Feeder Cattle futures closed an average of 58¢ higher (10¢ to 90¢ higher).

Choice boxed beef cutout value was $2.82 higher Tuesday afternoon at $196.78/cwt. Select was $2.22 higher at $193.11. That’s a little over $5 higher for Choice in the last two days, and a little more than $4 higher for Select.

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Corn futures closed mostly fractionally lower.

Cash grain and soybean bids were mixed to lower on Tuesday, according to the Daily National Grain Market Summary.

“Soybeans were pressured by favorable weather in South America and lighter export demand than the previous week,” according to Market Summary analysts. “Forecasts show potential rainfall near the southwestern plains, however there doesn’t seem to be much concern that this will effect winter wheat plating significantly.”

Soybean bids were mostly 11¢-12¢ lower. Wheat bids were mostly 1¢-2¢ lower. Sorghum bids were 2¢ lower. Corn bids were mostly steady to 1¢ to 2¢ lower.

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Major U.S. financial indices closed narrowly mixed on Tuesday. Pressure included a decline in new home sales last month. Sales of new, single-family homes were 3.4% less in August than the prior month, according to data released yesterday by the U.S. Department of Housing and Urban Development and the U.S. Census Bureau.

Year to date, new homes sales are 7.5% higher than the same period last year, according to the National Association of Home Builders (NAHB).

“This month’s report is another reminder that builders need to manage rising supply-side costs to meet consumer demand for affordably priced homes,” says Granger MacDonald, NAHB chairman and a homebuilder and developer from Kerrville, Texas.  

The Dow Jones Industrial Average closed 11 points lower. The S&P 500 closed fractionally higher. The NASDAQ closed 9 points higher.

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New indexes indicate growing consumer beef demand.

“The June 2017 index of 113 indicates retail beef prices in June were 13% higher than they would have been had demand not improved since January 2011,” says Glynn Tonsor, agricultural economist at Kansas State University. “Given this index was 101 for November of 2016, sizeable demand improvement over the seven months captured in this update is evident.”

Tonsor is referring to nine updated beef demand retail indexes recommended to the Cattlemen’s Beef Board. Tonsor and fellow KSU agricultural economist, Ted Schroeder, developed the indexes for industry consideration with funding from the beef checkoff.

You’ll note that observed gains in demand run counter to commonly used industry beef demand indexes that rely on aggregate data. For instance, according to the All-fresh Beef Demand Index (AFBI) maintained by Tonsor, beef demand declined in the first two quarters compared to a year earlier. The same for the Choice Beef Demand Index (CBI).

This paradox underscores the need for the new indexes.

In broad terms, Tonsor explains that aggregate data utilized in traditional beef demand indexes like the AFBI and CBI rely on beef disappearance data—retail and food service—from USDA and prices reported by the U.S. Bureau of Labor Statistics—the same folks who track prices and provide the Consumer Price Index. In other words, such indexes cannot account for actual prices paid, regional differences, etc.

Conversely, the updated indexes mentioned at the outset utilize grocery store scanner data—actual prices paid at retail for specific beef cuts and packages.

Cattle futures nosedived—limit down near limit down in most Feeder Cattle contracts—on Monday in response to the bearish placement numbers in Friday’s Cattle on Feed report. As mentioned in yesterday’s Cattle Current, that report showed August placements 2.6% more than a year earlier at 1.93 million head, better than 5% more than estimates.

Live Cattle futures closed $2.80 lower ($1.85 to $3.00 lower).

Feeder Cattle futures closed an average of $4.13 lower ($2.92 to $4.50 lower).

Live sales ended last week $2.00-$3.50 higher at $108.00-$109.50/cwt. Dressed trade was $2-$7 higher at $170-$172.

Choice boxed beef cutout value was $2.36 higher Monday afternoon at $193.96/cwt. Select was $2.16 higher at $190.89.

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Major U.S. financial indices closed lower on Monday. Pressure included the ongoing tensions between the U.S. and North Korea.

The Dow Jones Industrial Average closed 53 points lower. The S&P 500 closed 5 points lower. The NASDAQ closed 56 points lower.

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More August feedlot placements than expected in Friday’s monthly Cattle on Feed report spooked futures markets on Monday. Considering the net on-feed inventory, however, provides broader context.

“What may be overlooked is the continued strong marketings pace,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Marketings outpaced placements in August and pulled down the year-over-year increase in feedlot inventories, though not as much as expected. For the first eight months of the year, total placements are up 1.16 million head, an 8.4% year-over-year increase. However, total marketings were up 0.847 million head, 6.1% more than last year, largely offsetting the increased placements. As a result the September 1 on-feed inventory was up a modest 369,000 head year over year.”

Plus, Peel notes that lighter carcass weights and continued strength in beef demand are offsetting some of the impact of increasing numbers and beef production.

For the year to date, steers carcasses have averaged 14.1 lbs. lower than last year, according to Peel. Heifer carcasses are 12.3 lbs. lighter.

The August Choice beef price (retail, $5.94/lb.) was nearly 1% more than August of last year, Peel says. The all-fresh beef retail price was fractionally higher than one year ago.

“Clearly the supply challenges will continue for the foreseeable future,” Peel says. “However, 2017 has demonstrated very well that strong domestic and international demand for U.S. beef can mitigate much of the price pressure from growing beef production. Continued strong beef demand can limit 2018 cattle and beef price changes to modest declines.”  

Cash fed cattle trade was $2 higher in the Southern Plains through Friday afternoon at $108/cwt. Dressed trade was $2-$5 higher in the western Corn Belt at $170, with light live trade $1-$3 higher at $108. Elsewhere, there were too few transactions to trend.

Impending and eventual gains in cash trade helped lift Cattle futures higher again on Friday. The monthly Cattle on Feed report (see below) may apply pressure as this week begins.

Live Cattle futures closed 71¢ higher (7¢ to $1.47 higher).

Feeder Cattle futures closed an average of 50¢ higher (25¢ to 80¢ higher).

Choice boxed beef cutout value was 9¢ higher Friday afternoon at $191.60/cwt. Select was 32¢ higher at $188.73.

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Major U.S. financial indices closed narrowly mixed on Friday.

The Dow Jones Industrial Average closed 9 points lower. The S&P 500 closed 1 point higher. The NASDAQ closed 4 points higher.

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There’s no surprise in the fact that national cowherd expansion continues to yield more cattle to be placed on feed. However, August placements revealed in Friday’s monthly Cattle on Feed report were a surprise to many. The thinking ahead of the report was that so many cattle were pulled forward during earlier months, as feedlots turned cattle quicker, that placements for the month would be lower year over year; about 3% less, according to pre-report estimates.

In fact, August placements were 2.6% more than a year earlier at 1.93 million head. So, that was about 6% more than estimates. Placement weights were about evenly split between cattle weighing 799 lbs. and less (55%) and those weighing 800 lbs. and more (45%).

Marketings in August of 1.98 million head were 5.9% more than last year, which was in line with pre-report estimates.

The 10.5 million head on feed Sept. 1 were 3.6% more than a year earlier, which was about 1% more than expectations.

Packers and feeders drew the line between bids and asking prices deeper in the sand yesterday, with cash fed cattle trade yet to develop through late in the afternoon. Perhaps packers were eyeing stagnant wholesale beef values and hoping for bearish news in Friday afternoon’s monthly Cattle on Feed report (see below). On the other side, it could be feedlots sensing a seasonal bottom at hand with spot Live Cattle futures moving toward the away months this week rather than the other way around.

Cattle futures closed mostly narrowly mixed on Thursday, other than some apparent defensiveness and positioning in nearby contracts for the aforementioned reasons.

Except for 85¢ lower in spot Oct and 5¢ lower in Dec, Live Cattle futures closed 7¢ to 40¢ higher.

Feeder Cattle futures closed an average of 98¢ lower through the front three contracts and then 2¢ to 7¢ lower, except for 10¢ higher in Jan and 42¢ lower at the very back.

Choice boxed beef cutout value was 53¢ lower Thursday afternoon at $191.51/cwt. Select was 11¢ lower at $188.41.

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Major U.S. financial indices closed lower on Thursday. Other than rally fatigue, there didn’t seem much hard news to drive the move.

The Dow Jones Industrial Average closed 53 points lower. The S&P 500 closed 7 points lower. The NASDAQ closed 33 points lower.

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With Friday’s monthly Cattle on Feed report in mind, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University points out, “Average monthly feedlot placements have been sharply higher for about 15 months, but monthly marketing grew as well. As a result, we haven’t grown the feedlot inventory too rapidly.”

Peel points out that the positive cattle feeding returns until recently encouraged aggressive marketing. Along with robust domestic and international demand, he says that continues to help mitigate the impact of increasing cattle numbers and beef production.

With feedlots apparently pulling some cattle forward earlier in the year, some expect August placements to be lower than last year.

These were among the insights Peel provided at yesterday’s annual Kansas State University Beef Stocker Field Day. Peel also provided perspective on national herd expansion.

“It looks like we’re still growing the cowherd to some extent,” Peel says. He expects growth of 1% to 2% this year, then flat to minimal growth in 2018.

Although heifer slaughter is increasing, Peel says the steer-to-heifer slaughter ratio suggests slowing herd growth but certainly not liquidation.

The weekly Fed Cattle Exchange auction on Wednesday showed more life than recent weeks and helped bolster notions about higher country trade this week. All told, 636 head sold of the 1,450 head offered, for a weighted average price of $106.67/cwt., all for delivery at 1-9 days. The weighted average price there last week on 128 head sold was $104.75.

Strong buying support pushed Feeder Cattle futures sharply higher on Wednesday. That and reasonable hopes for higher cash fed cattle trade this week helped lift Live Cattle higher and beyond the recent narrow range.

Live Cattle futures closed an average of $1.73 higher ($1.00 to $2.97 higher).

Feeder Cattle futures closed an average of $3.07 higher ($2.37-$4.47 higher).

Choice boxed beef cutout value was 7¢ lower Wednesday afternoon at $192.04/cwt. Select was 31¢ lower at $188.52.

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Major U.S. financial indices closed narrowly mixed but mostly higher on Wednesday. Bank stocks received support on news that the Fed is leaving interest rates alone for the time being and that it will begin unwinding its multi-trillion dollar war chest built via long-term quantitative easing.

The Dow Jones Industrial Average closed 41 points higher. The S&P 500 closed 1 point higher. The NASDAQ closed 5 points lower.

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“Drought conditions in the Northern Plains and hurricanes Harvey and Irma have likely affected regional U.S. cattle production,” say analysts with USDA’s Economic Research Service (ERS), in the monthly Livestock, Dairy and Poultry Outlook. “While much of the effects from the drought in the Northern Plains has likely already played out, it is too early to estimate the impacts of the two hurricanes.”

In the meantime, those analysts remind that forecast beef production this year is 26.6 billion lbs. The most production in about a decade underscores the growing importance of the U.S. beef export market.

ERS analysts explain that year-over-year, July U.S. beef exports increased by 10% to 239 million lbs. with the lion’s share of the increase due to Japan.

“The Foreign Agricultural Service weekly Exports Sales Report shows year-over-year larger U.S. exports to Japan in August, despite the Aug. 1 implementation of the Japanese safeguard that raises the tariff on U.S. frozen beef,” ERS analysts say. “Increased tariffs were likely partially offset by lower U.S. domestic prices and the relative weakening of the U.S. dollar against the Japanese Yen.”