Daily Market Highlights

Sharply higher nearby Lean Hog futures and firming wholesale beef values provided support for Cattle futures early in Tuesday’s session. By the end, though, Feeder Cattle closed lower, while Live Cattle mostly eked out minimal gains.

After 72¢ and 10¢ lower in the front two contracts, Live Cattle futures closed an average of 12¢ higher, except for 45¢ lower in away Oct.

Feeder Cattle futures closed an average of 54¢ lower (15¢ to $1.05 lower).

Choice boxed beef cutout value was $1.10 higher Tuesday afternoon at $192.45/cwt. Select was 18¢ lower at $190.47.

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Major U.S. financial indices closed sharply lower on Tuesday, apparently pressured most by weekend news that North Korea successfully tested a hydrogen bomb.

The Dow Jones Industrial Average closed 234 points lower. The S&P 500 closed 18 points lower. The NASDAQ closed 59 points lower.

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Besides Midwestern farmer-feeders filling yards as a corn marketing alternative, lousy wheat prices and bountiful prospects for wheat pasture could add support to calf prices.

In Oklahoma, for example, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University explains most of the state received about double the average precipitation in August, along with below-normal temperatures, enabling earlier wheat sowing.

“Early planted wheat, along with other forages may add 30 or more days to the front end of winter grazing,” Peel says. “At the same time, expectations for 2018 wheat prices are dismal enough that some producers are beginning fall grazing with an intent or high likelihood of grazing out wheat next spring. A full graze-out adds another 75 or so days to the winter dual-purpose grazing period. Together, these conditions suggest the possibility of 220 or more days of grazing compared to a more typical 120 day winter grazing period.”

Such a lengthy grazing opportunity also means some stocker operators will be looking for two turns on wheat rather than one.

“Two sets of stockers allow producers to consider a wider range of purchase weights and perhaps avoid demand bunched around lightweight stockers,” Peel explains. “It is common in the fall to see prices for typical stocker sizes (400-525 lbs.) to be high relative to heavier stockers (550-650 lbs.). Current prices for stocker cattle suggest that a wide range of purchase weights (400-650 lbs.) all offer roughly the same value of gain and similar potential for returns.”

Negotiated cash fed cattle trade was at $104-$105/cwt., which was $1-$3 less than the previous week. Dressed trade was $2-$5 less at mainly $165-$166.

Cattle futures edged mostly higher by the end of light trade on Friday, likely mostly due to light trade and position squaring ahead of the long weekend. Traders will return from Labor Day looking for indications of how aggressive consumers were in purchasing beef for the last unofficial holiday of summer.

Except for 25¢ lower in new spot Oct, Live Cattle futures closed an average of 52¢ higher (30¢ to 77¢ higher).

Feeder Cattle futures closed an average of 45¢ higher (12¢ to 85¢ higher).

Choice boxed beef cutout value was 56¢ lower Friday afternoon at $191.35/cwt. Select was 69¢ lower at $190.65.

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Despite a fractional increase in the nation’s unemployment rate to 4.4% and fewer new jobs added last month than expected (156,000), according to Friday’s monthly Employment Situation report from the Bureau of Labor Statistics, major U.S. financial indices closed higher on Friday.

The Dow Jones Industrial Average closed 39 points higher. The S&P 500 closed 4 points higher. The NASDAQ closed 6 points higher.

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Wholesale beef prices last week showed signs of steadying for the first time since the middle of June, says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments.

“The Choice cutout price has declined about $58/cwt. in an 11-week period, while the Select cutout price has lost nearly $29 over the same time period,” Griffith says. “During the wholesale beef price decline, the Choice-Select spread essentially moved from historically wide spread (above $30/cwt.) to no spread at all (less than $1). The Choice-Select spread typically narrows this time of year due to demand factors, but the supply side has provided a strong case for a narrowing spread.”

Griffith explains an average of about 64% of federally inspected fed steers and heifers graded Choice or higher in August for the past five years. More than 70% graded Choice or higher so far this year—nearly 74% in recent weeks. In other words, more Choice and higher-grading carcasses in tandem with fewer lower-grading carcasses are also helping to narrow the spread.

For broader perspective, although domestic per-capita beef consumption this year will be the largest since 2012 on a retail weight basis, and domestic per-capita consumption of total red meat and poultry will be the most since 2008, analysts with the Livestock Marketing Information Center (LMIC) point out that neither are projected to be record-large, even though total red meat and poultry production this year is projected to be record-high.

That’s why context is important, they explain in a recent Livestock Monitor.

Production is calculated on a carcass weight basis and LMIC projects U.S. production of red meats this year to be record-high at approximately 52.1 billion lbs. Of the red meats, only pork production is projected record-high at about 25.7 billion lbs. Projected beef production is projected at 26.2 billion lbs. U.S. poultry production this year is projected to be record-large at 47.4 billion lbs.

Rather than an anomaly, LMIC analysts point out that record-large and near record-large annual meat production is the rule rather than the exception. In fact, they say that for 71% of the years from 1960 through last year, record-large U.S. red meat and poultry production was achieved.

Now for the consumption side of the equation.

Consumption, or disappearance, accounts for population growth, subtracts meat exports, adds meat imports and adjusts for year-over-year changes in frozen stocks.

With that in mind, domestic per-capita red meat and poultry consumption is not projected to be record large this year.

“Drilling down into the production numbers shows large supplies of most meats and poultry, but not unheard of levels,” LMIC analysts emphasize. They add that looking at retail weight per person is important because it offers insight, including how exports impact domestic use.

Cash fed cattle trade continued at a grudging pace on Thursday. For the week, live prices have been mainly $104-$105 with dressed sales at $165-$166.

Cattle futures were mixed on Thursday but mostly lower.

After $1.02 lower in spot Aug and 72¢ lower in new spot Oct, Live Cattle futures closed marginally mixed but mostly lower (25¢ lower to 22¢ higher).

Other than 17¢ lower in expiring Aug, Feeder Cattle futures closed an average of 86¢ lower.

Choice boxed beef cutout value was 19¢ higher Thursday afternoon at $191.91/cwt. Select was 22¢ higher at $191.34.

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Traders on Wall Street ended the month on an optimistic note, pushing major U.S. financial indices higher on Thursday. Market-friendly news, depending on how you look at it, included paltry month-to-month gains in personal income of 0.4% and personal consumption expenditures (PCE) of 0.3%, according to the U.S. Bureau of Economic Analysis. The PCE price index measures consumer prices paid for goods and services other than food and energy.

The friendly part of the equation comes with the notion that neither support the Fed’s goal of 2% inflation, leading some to bet against another increase in interest rates.

The Dow Jones Industrial Average closed 55 points higher. The S&P 500 closed 14 points higher. The NASDAQ closed 60 points higher.

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Softer sales and traffic levels dampened the outlook for restaurant sales growth in July, according to the latest Restaurant Performance Index (RPI) released by the National Restaurant Association yesterday. The RPI declined for the first time in three months, declining 0.4% to 100.6.

Likewise, the NPD Group (NPD) reports customer visits to U.S. restaurants and foodservice outlets remained negative in the second quarter this year, resulting in six consecutive quarters of weak traffic performance. The U.S. foodservice industry has not experienced six consecutive quarters of no traffic growth since the recession of 2008-09.

The slowdown in restaurant and foodservice visits is most prevalent at midscale/family dining and casual dining concepts, according to NDP. Midscale registered a 4% decline in traffic for the quarter compared to same quarter year ago. Casual dining visits dropped by 3%, according to NPD’s CREST®, which daily tracks all aspects of how consumers use restaurants .

“No doubt the rising cost of a restaurant meal is weighing heavily on industry traffic performance,” says Bonnie Riggs, NPD Group restaurant industry analyst. “The vast majority of consumers give restaurants fairly low ratings on affordability compared to other customer satisfaction attributes.”

According to NDP, the average check at foodservice outlets rose by 2.6%—the largest increase in several years—reflecting higher menu prices.

“Operators will need to be critical in increasing prices and make sure that when they do raise prices the quality of the food and experience is commensurate with their customer’s cost,” Riggs says.

Most of the offering in Wednesday’s weekly Fed Cattle Exchange Auction sold—1,140 out of 1,777 head—but it was at lower money than cash trade last week.

Prices were basically $105/cwt. (weighted average) on a live basis and $166 in the beef—delivery for 1-17 days. That’s $1-$2 less than last week’s country trade for live cattle and $4 less on a dressed basis.

As for country trade, there were too few negotiated cash fed cattle sales to trend in any major cattle feeding region through mid Wednesday afternoon—a few live sales at $105/cwt. in Nebraska and the western Corn Belt; a few in the beef at $165-$166. That’s $2 less on a live basis than last week in those regions and $4-$5 lower dressed.

After moving lower early in the session with follow-through selling, Cattle futures eked out minimal gains at the close, presumably tied to profit taking.

Except for 7¢ and 22¢ lower in the back two contracts, Live Cattle futures closed an average of 24¢ higher.

Except for 15¢ and 42¢ lower at the back of the board, Feeder Cattle futures closed an average of 47¢ higher.

Choice boxed beef cutout value was 5¢ lower Wednesday afternoon at $191.72/cwt. Select was 33¢ higher at $191.12.

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Major U.S. financial indices close higher on Wednesday, supported by positive economic news, including a healthier increase in national employment than expected. According to the closely watched ADP National Employment report, private sector employment grew by 237,000 jobs last month.

The Dow Jones Industrial Average closed 27 points higher. The S&P 500 closed 11 points higher. The NASDAQ closed 66 points higher.

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U.S. exports must increase to accommodate the expanding U.S. cattle and beef industries, according to a new baseline report from RaboResearch Food and & Agribusiness (RRFA) group.

The RRFA report, Expanding Beef Production Increases the Need for Exports: U.S. Long-Term Beef and Cattle Baseline Outlook projects industry expansion lasting another 2-3 years and notes that the domestic industry is mature with a steady rate of beef consumption.

“In order for the beef market to remain in equilibrium, the U.S. will have to increase exports to be consistently above 10% of total production (greater than 3.1 billion lbs.), thereby also becoming a net exporter of beef,” according to the report.

“Population growth, along with improving middle-class incomes, are the global drivers behind the opportunity for increased beef exports,” notes RaboResearch Global Senior Data Analyst Sterling Liddell. “Conversely, beef imports into the U.S. face headwinds as an increased number of head available for slaughter combines with relatively persistent carcass weights to equal, or exceed, domestic demand levels.”

In the meantime, RRFA analysts expect demand for existing capacity to be high, and packers to enjoy the largest balance of market power through 2022.

The report provides an outlook through 2025 for U.S. beef and cattle industries.

Cattle futures closed sharply lower on Tuesday, basically giving back what they gained during the previous day’s rally, driven by short covering and placement numbers in last week’s Cattle on Feed report. Among other factors, bears continue focusing on increasing cattle numbers and stagnant wholesale beef values, rather than the increased tonnage cleared through the market and signs that cattle feeders are maintaining currentness.

Live Cattle futures closed an average of $1.50 lower (92¢ to $2.27 lower).

Feeder Cattle futures closed an average of $2.60 lower. The exception was 17¢ higher in spot Aug.

There were a few early dressed fed cattle trades reported in Nebraska at $168/cwt. with light demand and very limited trade, but too few transactions to trend. Elsewhere trade was mostly inactive on light demand.

Choice boxed beef cutout value was 27¢ higher Tuesday afternoon at $191.77/cwt. Select was $2.17 higher at $190.79, squeezing the Choice-Select spread to 98¢.

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After early pressure, attributed to North Korea firing a missile over Japan, major U.S. financial indices rebounded to close higher on Tuesday.

The Dow Jones Industrial Average closed 56 points higher. The S&P 500 closed 2 points higher. The NASDAQ closed 18 points higher.

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Reflecting on last Friday’s Cattle on Feed report, analysts with the Livestock Marketing Information Center (LMIC) point out in the latest Livestock Monitor that July placements were less than June for the first time since 2007.

“More animals are on feed than a year ago, but that does not imply any cattle feeders have not marketed animals when ready, as happened in 2016,” LMIC analysts say. “Marketing’s remained aggressive compared to the last two years. However, the percentage of animals marketed relative to the calculated number of head that had been on feed for over 90 days was not as dramatic as in the last eight months (back to November 2016) and was in line with the 5-year average from 2011-15.”

“Marketings remained strong in July (up 4%), but with the deterioration in feeding returns, it’s clear feedlots are thinking twice about filling pens with negative returns projected,” says Katelyn McCullock, an economist with the American Farm Bureau Federation.

In a recent edition of In the Cattle Markets, McCullock explains feedlot returns fell significantly from June to July and are expected to turn negative in August.

Cattle futures surged higher on Monday, supported by Friday’s Cattle on Feed report, which has July placements significantly less than many anticipated—up 2.7% year over year, rather than general expectations for an increase of 6%. Stable to higher wholesale beef values lent support.

Except for 25¢ higher in spot Aug, Live Cattle futures closed an average of $1.49 higher ($1.10 to $1.80 higher).

Feeder Cattle futures closed an average of $2.82 higher ($1.05 to $3.45 higher).

Choice boxed beef cutout value was 18¢ higher Monday afternoon at $191.50/cwt. Select was 32¢ higher at $188.62.

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Major U.S. financial indices closed narrowly mixed on Monday, supported by a spike in gasoline prices with Gulf Coast refineries shutting down in the wake of Hurricane Harvey.

The Dow Jones Industrial Average closed 5 points lower. The S&P 500 closed 1 point higher. The NASDAQ closed 17 points higher.

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“July placements, though up year over year, were up less than the double-digit levels of the previous four months,” says Derrell Peel, Extension livestock marketing specialist, in his weekly market comments. “The very surprising 16% year-over-year increase in June placements included increased lightweight placements. These were likely placed early, in June rather than July, and contributed to the rather modest year over year increase in July placements.”

Although difficult to estimate, Peel adds that about 6-13% of the increase in placements for May-July are borne by early cattle movement due to drought. Since May, placements in South Dakota, alone, are 48% more year over year.

“USDA currently estimates that about 12% of the total cattle herd in the country is in regions experiencing some level of drought,” Peel says. “I estimate that 6.5-7.0% of the total beef cow herd—roughly 2.1 million beef cows are in regions suffering with severe (D2) to exceptional (D4) drought conditions. This includes nearly a million head of cows in Montana and 500,000-700,000 head each in North and South Dakota. Parts of the region have also experienced large wildfires. Lack of forage has led to significant destocking in the worst areas with cows culled or relocated to other regions. Heading into fall and winter with limited pasture and hay supplies means that cattle producers in the region will continue to struggle at least into spring 2018.”

On the other end of Mother Nature’s meteorological rope, Peel estimates a million beef cows in Texas and Louisiana are being impacted by the torrential rains and flooding associated with Hurricane Harvey.

Cash fed cattle trade finished the week $2-$4 lower at mostly $106-$107 on a live basis. Dressed sales were $5-$7 less at $168-$170.

Choice boxed beef cutout value was 43¢ lower Friday afternoon at $191.32/cwt. Select was 36¢ lower at $188.30.

Early support faded in Cattle futures, though they still closed mostly higher.

Except for unchanged in spot Aug and 92¢ higher at the back, Live Cattle futures closed an average of 25¢ higher (5¢ to 57¢ higher).

After 22¢ lower in spot Aug, Feeder Cattle futures closed an average of 71¢ higher (55¢ to $1.02 higher).

If anything, Friday’s monthly Cattle on Feed Report (see below) should be neutral to supportive, with fewer July placements than many analysts anticipated.

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Major U.S. financial indices basically tread water on Friday, but mostly to the upside, buoyed by news that President Trump will begin beating the drum for tax reform this week. Support also came from news out of the closely watched Federal Reserve-sponsored economic policy symposium in Jackson Hole. It included Federal Reserve Chair, Janet Yellen, explaining that financial stability has risen from the ashes of the Great Recession and the financial crisis that preceded it a decade ago.

The Dow Jones Industrial Average closed 30 points higher. The S&P 500 closed 4 points higher. The NASDAQ closed 5 points lower.

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Cattle feeders placed fewer cattle on feed in July than many analysts anticipated, according to the monthly Cattle on Feed report from USDA on Friday.

Specifically, July placements of 1.615 million head were 2.7% more than the previous year. Pre-report estimates were generally in the area of 6.0% higher.

On the other hand, the composition of placements—percentage of placements by weight—is similar to a month earlier, especially on the heavier side. There were 36.9% placed at weights lighter than 700 lbs. in July (595,000 head), compared to 39% in June (690,000 head). There were 39.3% placed on feed at weights heavier than 800 lbs. in July (635,000 head), compared to 36.2% in June (650,000 head).

Marketings in July (1.784 million head) were 4.1% more than the previous year, in line with pre-report estimates.

The on-feed total Aug. 1 of 10.604 million head was 4.3% more than the same period a year ago, which reflected estimates ahead of the report.

Negotiated cash fed cattle trade continued lower on Thursday at $106/cwt. in the western Corn Belt, which was $2-$4 less than last week. Live sales in other regions on Wednesday were mainly $3 less than last week at $107.

Choice boxed beef cutout value was 58¢ lower Thursday afternoon at $191.75/cwt. Select was 81¢ lower at $188.66.

Cattle futures spent most of the day under pressure, but reversed directions by the closing bell, apparently the product of short covering.

Except for 7¢ lower at the back, Live Cattle futures closed an average of 63¢ higher (30¢ to 92¢ higher).

After 2¢ lower in spot Aug, Feeder Cattle futures closed an average of 58¢ higher across a broad range (7¢ to 87¢ higher).

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Major U.S. financial indices edged lower on Thursday amid little economic news.

The Dow Jones Industrial Average closed 28 points lower. The S&P 500 closed 5 points lower. The NASDAQ closed 7 points lower.

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Given the hefty level of feedlot placements in recent months, perhaps more than usual, plenty of folks will pore over the monthly Cattle on Feed report to be published by USDA on Friday. Heavyweight placements in July will likely attract much of the attention.

Pre-report estimates are all over the board with plenty of variables.

In his market comments last week, David Anderson, Extension livestock economist with Texas A&M University, noted that placement estimates range from less than 1% higher to an increase of more than 10%.

“Most years, July placements exceed June placements. Only in 2005 and 2007 were July placements smaller than in June in recent years,” Anderson says. “July placements would have to be up a whopping 12.6% over a year ago to equal June’s placements.”

Among the logical reasons for a year-to-year increase in July placements, Anderson cites:

Increasing reports of Corn Belt feeders buying calves, and perhaps the need for some of them to free up bin space ahead of what appear to be another near-record corn crop.

Continued drought in the Northern Plains, pushing cattle to market earlier.

Profit opportunities continued for cattle placed in July.

On the other hand, Anderson says, “It may also be that the large placements in May and June pulled some cattle ahead and out of July placements…Placement levels so far this year would suggest the increase in feeder cattle over last year have already been placed, limiting supplies to lighter weight calves and heifers.”

Anderson estimates July placements at 2.5% more than a year ago.

Although too few to trend, except in Colorado, early negotiated cash fed cattle trade on Wednesday was mainly $3 lower at mostly $107 on a live basis.

For the second consecutive week no cattle traded hands in the weekly Fed Cattle Exchange auction on Wednesday. There were 1,067 head offered.

Choice boxed beef cutout value was 70¢ lower Wednesday afternoon at $192.33/cwt. Select was $1.42 lower at $189.47.

With traders apparently squaring positions in the previous day’s positive session, and perhaps in some defensive positioning ahead of this Friday’s monthly Cattle on Feed report, Cattle futures moved lower again on Wednesday. Prospects of ample near-term supplies and eroding wholesale beef values continue to apply pressure.

Live Cattle futures closed an average of 94¢ lower (65¢ to $1.55 lower).

Feeder Cattle futures closed an average of 77¢ lower across a broad range (15¢ to $1.20 lower).

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Major U.S. financial indices closed lower on Wednesday. Lots of attention was paid to President Trump’s comments about his willingness to see the government shut down in order to get the border wall, and his doubts about the North American Free Trade Agreement. But there was also fundamental news digested by traders, including declining new home sales in July (see below).

The Dow Jones Industrial Average closed 87 points lower. The S&P 500 closed 8 points lower. The NASDAQ closed 19 points lower.

New home sales in July were 9.4% less than in June, according to the U.S. Commerce Department yesterday. Sales were 8.9% less than the previous July. The median sales price was $313,700.

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“It is likely that feedlots will be forced to continue to bid less aggressively on feeder cattle than during the past few months as they closely monitor the profitability of their operations,” explains Josh Maples, a livestock economist at Mississippi State University.”

Maples refers to increasing breakevens and dwindling profit potential as illustrated in the latest Historical and Projected Kansas Feedlot Net Returns (KFNR) from Kansas State University.

“Current and expected fed cattle prices have declined by approximately $10/cwt. over the past five weeks,” Maples explains in the latest issue of In the Cattle Markets. “This decline has eroded the projected profitability for feedlots through the rest of 2017. According to K-State’s Kansas Feedlot Net Return series, the projected net return for steers in Kansas feedyards was $136 per head for July closeouts. In fact, each month in 2017 saw positive returns with some months in the late spring showing more than $300 per head returns. The projections for the next nine months, however, are negative. August closeouts show projected losses of $31 per head while the projected loss for November is $169 per head.”

Maples emphasizes the KFNR reflects a cash market situation without price risk management strategies being implemented.

“Many feedlots do engage in some type of price risk management. However, few can fully offset price risks and most feedlots at least partially exposed to price risks at placement,” Maples says.

Short covering and position squaring seemed to be key drivers behind the surge in Cattle Futures on Tuesday. At least it offers a modicum of hope for cash fed cattle trade this week.

Choice boxed beef cutout value was 6¢ lower Tuesday afternoon at $193.03/cwt. Select was 73¢ lower at $190.89.

After 72¢ higher in spot Aug, Live Cattle futures closed an average of $1.59 higher ($1.20 to $2.02 higher).

Feeder Cattle futures closed an average of $2.47 higher ($2.15 to $2.90 higher).

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Major U.S. financial indices blasted higher on Tuesday, with many analysts attributing the surge to renewed hopes for tax reform. Presumably, the optimism is based on reports that the Trump administration and pivotal legislators agree on a path forward.

The Dow Jones Industrial Average closed 196 points higher. The S&P 500 closed 24 points higher. The NASDAQ closed 84 points higher.

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If the monthly Cold Storage report released by USDA is any indication of market clearing, then beef supplies continue to be in relatively strong fundamental shape.

Total pounds of beef in freezers Jul. 31 were 4% more than the previous month but 8% less than a year earlier. At the same time last year, beef in cold storage was 3% higher than the previous month but 2% less than the previous year,

Frozen pork supplies were down 1% from the previous month and down 7% from last year.

Total red meat supplies in freezers were up 1% from the previous month but down 8% from last year.

Total frozen poultry supplies were up 1% from the previous month and up 2% from a year ago.