Daily Market Highlights

Cattle futures closed mostly lower on Monday…early-week auction prices were mostly steady to higher for calves and feeder cattle…coming up on your Cattle Current Market Update with Wes Ishmael.

Cattle futures struggled to maintain some of the stability established in deferred contracts on Friday, losing the battle for the most part as traders continue fretting over sagging wholesale beef values and near-term supply abundance. Sliding nearby Lean Hog futures added spillover pressure.

Choice boxed beef cutout value was $1.20 lower Monday afternoon at $193.09/cwt. Select was 88¢ lower at $191.62.

Live Cattle futures closed 5¢ to 45¢ lower, except for 20¢ higher in Dec, 25¢ higher in away Oct and unchanged at the back.

Feeder Cattle futures closed an average of 66¢ lower across the front half of the board and then 5¢ lower to 55¢ higher.

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Major U.S. financial indices closed narrowly mixed but mostly marginally higher on Monday, amid little economic news and lingering unease over geopolitical events.

The Dow Jones Industrial Average closed 29 points higher. The S&P 500 closed 2 points higher. The NASDAQ was down 3 points.

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Along with the vagaries of seasonal beef demand, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University explains that comparatively high beef prices, as well as continued adjustment following record high prices from late 2014 to early 2016 are affecting current wholesale beef values.

“The current ratio of retail beef to broiler prices is equal to the record level set in July, 2015,” Peel says, in his weekly market comments. “The retail beef to pork price ratio is also holding steady at levels near the record during the high prices of 2014 into 2016 and, like the beef to broiler retail price ratio, are at levels well above historical ratios prior to 2014.”

For perspective, Peel explains all-fresh retail beef prices in July ($5.83) were 1% higher year over year, increasing each month of this year. Choice retail beef prices ($6.10) in July were slightly less than a month earlier, but fractionally higher year over year.

At same time, Peel points out that beef wholesale cutout values dropped sharply in the past two months after climbing to a stronger than expected seasonal peak of $250.86/cwt. in mid-June.

“Choice beef prices have struggled to find a summer bottom with ample supplies and summer heat weighing on beef markets,” Peel says. “Weekly Choice cutout values averaged higher year over year from late April until last week. Select cutout values also increased from January to a weekly seasonal peak of $224.54/cwt. in mid-May before dropping to last week’s $194.81/cwt.”

Most recently, Peel explains wholesale values for middle meets weakened more, relative to the chuck and round. He adds the ground beef market this year continues to be volatile.

“Longer term, wholesale beef product markets continue to adjust following unusual price relationships that emerged during the record high prices from late 2014 through early 2016,” Peel says. “Many lower value products increased relative to middle meats during this period but are returning to more typical price relationships in 2017. Products from the chuck, round and sirloin increased relative to loin and rib prices during this period. The Choice-Select spread narrowed during the record price period and has widened back out to near record levels at times in 2017.”

Cattle futures ended a dismal week on Friday, finding some stability across the back half of the board, from profit taking if nothing else.

Choice boxed beef cutout value was $1.34 lower Friday afternoon at $194.29/cwt. Select was $1.70 lower at $192.50.

Live Cattle futures closed 32¢ to 75¢ lower through the front three contracts and then an average of 24¢ higher except for unchanged in Apr.

After 2¢ higher in spot Aug, Feeder Cattle futures closed an average of 42¢ lower in the next three contracts (2¢ to 70¢ lower), and then an average of 99¢ higher across the back half of the board (17¢ to $1.67 higher).

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Major U.S. financial indices closed lower on Friday, but off of session lows, something of a rebound from the steep selloff a day earlier. More than anything, domestic politics seem to be the main driver—the revolving door in Trump’s White House, etc.

The Dow Jones Industrial Average closed 76 points lower. The S&P 500 closed 4 points lower. The NASDAQ was down 5 points.

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“After weeks of holding the line, finished cattle prices are being driven down by seasonal supply and demand factors,” said Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments on Friday. “The price decline this week was larger than most analysts in the industry were expecting over a seven-day period. Additionally, cattle feeders recognize prices are deteriorating to levels below a year ago, which is cause for concern. There continues to be downside risk now that the market broke through the support level. The question now is if finished cattle prices will fall below the $1 level on a live basis, which happened last year. Not to bring optimism to a dismal situation, but deferred futures are holding well above the $1 price point and fed cattle basis remains strongly positive, which would support cash prices remaining above the $1 mark.”

If this isn’t the seasonal bottom or near it, hopefully you can see it from here.

Cash fed cattle trade broke loose with moderate trade on light to moderate demand in all major cattle feeding regions on Thursday. Live prices were mainly $3-$7 less than last week at mostly $110/cwt. Dressed trade was $8-$10 less at mostly $175.

Choice boxed beef cutout value was $1.88 lower Thursday afternoon at $195.63/cwt. Select was 84¢ lower at $194.20.

Continued deterioration in fed cattle prices and wholesale beef values, along with sharply lower outside markets, supported bears’ doubts about the near term and fueled further liquidation in Cattle futures.

Live Cattle futures closed an average of $2.16 lower through the front three contracts and then an average of $1.19 lower (87¢ to $1.67 lower); an average of about $2.75 lower across the board in the last two sessions.

Feeder Cattle futures closed an average of $1.87 lower ($1.37 to $2.40 lower), a little more than an average of $5 lower in the past two sessions.

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Major U.S. financial indices closed sharply lower on Thursday. Besides profit taking, pressure was ascribed to the business backlash against President Trump—fears that it will make it more difficult to garner their cooperation—as well as increased geopolitical unrest.

The Dow Jones Industrial Average closed 274 points lower. The S&P 500 closed 38 points lower. The NASDAQ was down 123 points.

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Increasing ethanol production is likely to exceed domestic and export demand, according to a new report from CoBank’s Knowledge Exchange Division.

The report, Ethanol’s Growth Path: Output and Export Uncertainties Both Rising, outlines how an ethanol market fueled by corn prices at multi-year lows, coupled with reinvestment into production capacity, will push supply past demand growth. As U.S. ethanol producers reinvest last year’s strong profits in increased production and capacity, the report suggests profit margins could turn negative, prompting consolidation.

“Forecasts indicate that total ethanol production by 2020 will have increased by approximately 850-900 million gallons, compared to 2017 levels,” says Tanner Ehmke, CoBank senior economist. “Without a substantial increase in domestic demand or exports to clear excess supplies, ethanol producers are facing a downturn over the medium term. Those who have access to multiple transportation markets and have invested in new technology will be leaner and more cost efficient, enabling greater flexibility to endure prolonged periods of low prices.”

Domestic demand for gasoline blended with ethanol was strong over the last 18 months, as low fuel prices resulted in consumers driving more. Consumers are increasingly buying higher ethanol-gasoline blends like E-15 (15% ethanol), too.

There are a number of challenges ahead, however, according to CoBank. Among them:

• Exports of ethanol, particularly to Brazil and China, were during the past year, but that picture has changed significantly and the outlook for future ethanol exports suggests a continued decrease over the foreseeable future.
• China effectively ceased ethanol imports from the U.S. following its implementation of a 30% tariff on U.S ethanol. Exports to Brazil are also expected to erode as Brazilian sugar refiners come back online following a sugar crop failure in 2016, which led to the country’s heavy reliance on ethanol imported from the U.S.
• Growth of U.S. exports to new markets such as India, Mexico and Indonesia, where governments are seeking to improve air quality, is possible, but will likely take time to fully materialize.

Tight margins, limited profitability and consolidations are anticipated for the ethanol industry in the near future, according to CoBank. But, analysts there expect the correction to be less severe than previous ones.

Feeder Cattle led the rout in Cattle futures on Wednesday, just a day after significant support. Other than eroding wholesale beef values and the step lower in early cash fed cattle trade, emotion, technicals and algorithms might offer some explanation as fundamentals remain unchanged.

There were only 1,184 head offered in the weekly Fed Cattle Exchange auction—mostly from the Southern Plains—and zero takers.

Though too few to trend, there were some dressed trades reported in Nebraska and Iowa-Minnesota on Wednesday at $175-$177/cwt. That’s sharply lower than the previous week, but steady to $2 higher than earlier-week sales.

Live Cattle futures closed an average of $1.24 lower across a broad range (42¢ to $2.07 lower).

Feeder Cattle futures closed an average of $3.31 lower ($2.80 to $3.62 lower), basically giving back everything gained in the previous session; yet, a little higher week to week.

Choice boxed beef cutout value was $1.44 lower Wednesday afternoon at $197.51/cwt. Select was 83¢ lower at $195.04.

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Major U.S. financial indices closed higher on Wednesday, but far from session highs. Early on, minutes from the Federal Reserve, indicating they were standing pat on interest rates for the time being fueled strong gains. After President Trump disbanded his Strategic and Policy Forum and Manufacturing Council—due to the growing backlash from business leaders to recent remarks from the president—stocks came down. Softer oil prices and fewer housing starts than expected also added pressure.

The Dow Jones Industrial Average closed 25 points higher. The S&P 500 closed 3 points higher. The NASDAQ was up 12 points.

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One wildcard in all of the chatter about increased fed cattle volume is the number of heifers to be retained or fed.

Through June, heifers in feedlots with 1,000-head or greater capacity were up 10.6% more than a year earlier, according to the Economic Research Service (ERS), in the latest monthly Livestock, Dairy and Poultry Outlook (LDPO). Heifer slaughter so far this year is running 4% more than last year.

“Although to some extent this likely reflects the large supply of heifers due to herd expansion, the number of heifers on feed as a percent of total on-feed numbers increased from 33.7% in 2016 to 35.6%,” say ERS analysts. “Although comparisons to 2016 are not possible, the Cattle report estimated that heifers retained for beef cow replacement were 2% below 2015. Replacement heifers represented 14.5% of the cow inventory, lower than 2014-2015 but above the percentages of 2007-2012, a period of relatively strong cow liquidation.”

In the meantime, according to the LDPO, net second-quarter placements, (feedlots with 1,000-head or greater capacity) of 5.5 million head were 10.5% more than the previous year, the second most since 2003.

“The larger than expected number of calves placed in feedlots increases the likelihood of greater steer and heifer marketings late in the third quarter and early in the fourth quarter,” explain ERS analysts. “As a result, the third-quarter price for 5-Area Choice steers is forecast lower to $113-$117/cwt. and to $110-$116 in the fourth quarter. Similarly, with more cattle outside feedlots, and lower fed cattle prices expected to pressure cattle feeders’ returns, the average price for feeder steers weighing 750-800 lbs. is forecast lower in the third and fourth quarters to $146-$150/cwt. and $141-$147, respectively.”

Never mind lower cash fed cattle prices last week—lower yet for scattered sales so far this week—the presumed looming wall of cattle or other various reasons given for the slide in cattle futures and cash prices last week. Cattle futures on Tuesday bounced near-limit higher for many Feeder Cattle and Live Cattle contracts, re-establishing some buffer for key support levels.

There’s little question futures were oversold, but as is so often the case these days, there seemed little definitive to explain the gains. Softer grain prices helped Feeder Cattle. Another apparently large kill last week suggests cattle feeders remain aggressive sellers, maintaining currentness along the way. But still…

Live Cattle futures closed an average of $2.02 higher ($1.00 to $2.70 higher).

Feeder Cattle futures closed an average of $3.56 higher ($3.05 to $3.97 higher).

Choice boxed beef cutout value was 3¢ higher Tuesday afternoon at $198.95/cwt. Select was 57¢ lower at $195.87.

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Major U.S. financial indices closed little changed and narrowly mixed on Tuesday, with many analysts crediting pressure to soggy retail performance.

The Dow Jones Industrial Average closed 5 points higher. The S&P 500 closed 1 point lower. The NASDAQ closed 7 points lower.

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Finally, today, If you happen to be in a part of the world blessed by cooler seasonal temperatures, adequate moisture and ample forage—like Oklahoma—then Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, says cow-calf producers and stocker operators may have added options this fall, given the currently strong value of gain.

“An early start implies the potential for a longer than usual fall-winter grazing period,” Peel explains in his weekly market comments. “This may impact several stocker considerations including purchase weight, quality of animal, gender and the potential for two sets of stockers between now and next March or May.”

For cow-calf producers, Peel adds, “Good forage may allow the possibility of pushing weaning a bit later than usual or retaining calves post-weaning to add weight. At the current time, the value of additional weight tends to be about $1/lb. of gain or higher.”

Of course, value of gain depends on the beginning weight and the amount of weight added.

“For example, average Oklahoma prices for the last three weeks result in a value of gain for 475 lb. steers of $0.91/lb. for 100 lbs. of gain based on beginning price of $175.18/cwt. and a price of $160.45/cwt. for 575 lb. steers,” Peel explains. “However, starting with the 575 lb. steers and adding 100 lbs. results in a value of gain of $1.33/lb. based on a price of $156.29 for 675 lb. steers. Calf prices will likely decline seasonally into the fall and prices by weight may adjust so producers should reevaluate the value of adding weight to calves closer to weaning time.”

Feeder Cattle futures managed to build on the previous session’s gains. Although Live Cattle recovered some during the session, they closed mostly lower, taking away most of the gains from the last session.

Except for 10¢ and 20¢ higher in Apr and Jun, Live Cattle futures closed an average of 43¢ lower (22¢ to 80¢ lower).

Except for 2¢ and 10¢ lower at the back of the board, Feeder Cattle futures closed an average of 58¢ higher (40¢ to 72¢ higher).

Choice boxed beef cutout value was 68¢ lower Monday afternoon at $198.92/cwt. Select was 32¢ higher at $196.44. AMS analysts note that beef trimmings were sharply lower on light demand and heavy offerings.

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Major U.S. financial indices closed sharply higher on Monday, despite lower crude oil prices. More than anything, analysts seemed to credit easing tensions between the U.S. and North Korea, at least for the day, as well as economic growth in Japan.

The Dow Jones Industrial Average closed 135 points higher. The S&P 500 closed 24 points higher. The NASDAQ closed 83 points higher.

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Andrew P. Griffith, agricultural economist at the University of Tennessee points out in his weekly market comments that Choice boxed beef cutout value remained above $200/cwt. until Aug. 26; it breeched that mark this year on Friday.

“The concern comes in when considering the Choice cutout dropped below $180 during the back half of October 2016,” Griffith explains. “Could that be in store for the fall of 2017? Beef prices could continue to spiral downward over the next couple of months before holiday purchasing begins. Such a downward movement would put pressure on finished cattle prices as well as feeder cattle prices. If beef production remains elevated and exports falter the next few months then downside risk will remain and prices could fall below year-ago levels later in the year.”

On the other side of the coin, Griffith also notes the additional pressure on grain prices exerted by last week’s World Agricultural Supply and Demand Estimates.

“With a lower cost of gain on the table, there remains an opportunity to add weight to calves,” Griffith explains. “The lower cost of gain in feedlots could result in cattle feeders being more aggressive while purchasing cattle, but the likelihood of this is small given they have been aggressive throughout 2017.”

Futures edged higher on Friday, supported by short covering to end a lousy, bearish week.

Live Cattle futures closed an average of 77¢ higher (37¢ to $1.00 higher).

Feeder Cattle futures closed an average of 85¢ higher (52¢ to $1.37 higher).

Choice boxed beef cutout value was $1.03 lower Friday afternoon at $199.60/cwt. That’s the first time Choice cutout was below $200 since February. Select was 7¢ lower at $196.12. The Choice-Select spread was $3.48, the lowest since February.

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Major U.S. financial indices closed higher on Friday, following the steepest decline since May in the previous session. While fretting continues over North Korea, investors were reportedly encouraged by the Consumer Price Index of 0.1% in July being less than expected; as a gauge on inflation, some believe it’s too little to enable the Fed to hike interest rates in September.

The Dow Jones Industrial Average closed 14 points higher. The S&P 500 closed 3 points higher. The NASDAQ closed 39 points higher.

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“Despite the lower market, analysts with the Agricultural Marketing Service said on Friday that low feed costs and the surplus of corn in farmer feeder country continues to spur demand for steers. They explain that Prices in the Northern Plains and upper Midwest continue to be the highest in the nation, adding that Cattle producers in that area are taking advantage of the market before demand decreases when farmers get busy with corn and soybean harvest.”

Feeder cattle opened the week steady to $4/cwt. higher in the cash market, before the rout began in Cattle futures. By the end of the week, they were trading $3-$10 lower. That was for the North Central and South Central Plains. Prices were mixed in the Southeast, from $8 lower to $6 higher, according to AMS.

Reflecting on the week’s prices, AMS analysts note, “The last time cash fed cattle prices and spot live cattle futures were this low was in December 2016.”

The sell-off continued in Cattle futures on Thursday, less dramatically than the day before, with sharply lower grain prices tempering the pullback in Feeder Cattle.

Live Cattle futures closed an average of $1.16 lower (75¢ to $1.45 lower).

Feeder Cattle futures closed an average of 44¢ lower across a broad range (7¢ to $1.10 lower).

There weren’t enough cash fed cattle trades to trend on Thursday, but those reported at $116/cwt. on a live basis were steady with the highs established earlier in the week.

Choice boxed beef cutout value was $1.03 lower Thursday afternoon at $200.63/cwt. Select was 42¢ lower at $196.19. The Choice-Select spread was $4.44, the narrowest since March.

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Major U.S. financial indices closed sharply lower on Thursday—the steepest decline since May, according to analysts—pressured by mounting tensions with North Korea on the one hand and a rare disappointment, in recent terms, in tech stocks.

The Dow Jones Industrial Average closed 204 points lower. The S&P 500 closed 35 points lower. The NASDAQ closed 135 points lower.

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World Agricultural Supply and Demand Estimates (WASDE) increased forecast total meat production in 2017 on increased commercial beef (+0.8%) and broiler production.

“The increase in beef production reflects relatively large cattle placements in the second quarter, which will likely impact fourth quarter cattle slaughter,” say WASDE analysts. “For 2018, the beef production forecast is raised from the previous month, as expected higher placements in late 2017 and early 2018 result in higher steer and heifer slaughter.”

WASDE reduced estimated fed cattle prices for the remainder of this year and for 2018, based on weakened current prices and larger expected supplies. Fed cattle prices are estimated $1-$3 lower than the previous month at $120-$122/cwt. for the year; third quarter projected at $113-$117 and fourth quarter projected at $110-$116. Prices for next year were estimated $1-$2 lower than the previous month at $112-$121.

The handful of cattle selling in the weekly Fed Cattle Exchange auction on Wednesday traded at the lower level that trickled into the country a day earlier. Only 518 head sold out of 1,659 offered, at a weighted average price of $115.04/cwt., which was 96¢ lower than the previous week. Specifically, cattle selling for delivery at 1-9 days brought $115.28; $114.50 for delivery at 1-17 days; $114 for delivery at 17-30 days.

Country trade followed even lower.

Negotiated cash fed cattle prices were $1-$4 less than the previous week at $114-$116/cwt. ($115 in the Southern Plains and Colorado). Dressed trade was $2-$5 less at $183 (Iowa-Minnesota) to $185 (Nebraska).

So, bears found all the reasons they were looking for to take Feeder Cattle futures down the limit and Live Cattle sharply lower: lower cash fed cattle prices, softer wholesale beef values, less open and non-commercial interest and lower outside markets pressured by mounting tensions with North Korea.

Live Cattle futures closed an average of $2.39 lower ($1.85 to $2.85 lower).

Feeder Cattle futures closed mostly limit-down $4.50.

Choice boxed beef cutout value was 59¢ lower Wednesday afternoon at $201.66/cwt. Select was 25¢ lower at $196.61. Drop value was 47¢ lower week to week at $10.88, which was the lowest since March of last year.

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Although major U.S. financial indices bounced back from session lows on Wednesday, rising tensions with North Korea helped push them to a lower close.

The Dow Jones Industrial Average closed down 36 points. The S&P 500 closed fractionally lower. The NASDAQ closed 18 points lower.

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The pace of fed cattle marketing through August and September will determine market price dynamics from October through the remainder of the year, says Stephen Koontz, agricultural economist at Colorado State University.

“Calculations of the inventory of cattle on feed more than 90 days and more than 120 days show the volume coming and what the market will have to address this late summer and early fall,” Koontz explains in the most recent issue of In the Cattle Markets. “Both of these calculated inventories are well below last year, communicating that marketings have been timely to aggressive through summer. This will continue to hold some strength in fed cattle prices. However, the inventory of animals on feed more than 120 days dropped sharply while the inventory on feed more than 90 days increased sharply. Show lists are clean but very big numbers are coming.”

Those looming numbers explain much of the bearish sentiment driving cattle futures prices in recent days.

With continued strong fed cattle marketings, Koontz says prices will soften through the fall. Otherwise, if marketings slow and show lists get heavy, he expects prices to decline sharply.

On the plus side, Koontz explains, “The seasonal increase in slaughter weights is underway, albeit starting, luckily, 20-30 lbs. behind last year. Current carcass weights are 12-13 lbs., or about 1.5%, behind last year.

For the more technically inclined, Koontz says, “Resistance was established in early May for all summer and fall contracts. This resistance was tested and held in early June and then again in mid-July. Any up trend that you can identify from the spring moves is broken. Thus, seasonal weakness into the fall is in the cards on the charts.”

Although there were too few transactions to trend, cash live fed cattle sales were reported in Kansas and Iowa-Minnesota on Tuesday at $115-$116, which is steady to $2 shy of last week’s pace in those regions. There were a few dressed trades in Nebraska at $184-$186, compared to $187-$188 last week.

Cattle futures drifted to a mostly lower close on Tuesday, unable to sustain the hint of early support.

Choice boxed beef cutout value was 47¢ lower Tuesday afternoon at $202.25/cwt. Select was 14¢ lower at $196.86.

Except for 15¢ and 2¢ higher at the back, Live Cattle futures closed an average of 37¢ lower (25¢ to 52¢ lower).

Except for 15¢ higher in April, Feeder Cattle futures closed an average of 36¢ lower (10¢ to 72¢ lower).

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Major U.S. financial indices closed lower on Tuesday, amid rally fatigue and U.S. sabre rattling with North Korea.

The Dow Jones Industrial Average closed down 33 points. The S&P 500 closed 5 points lower. The NASDAQ closed 13 points lower.

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“So far in 2017, beef cow slaughter is running 10.4% above 2016 levels,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “This follows a 13.7% year-over-year increase in 2016. Although increased beef cow slaughter is consistent with slower herd growth, it does not indicate herd liquidation or even zero herd growth. If beef cow slaughter continues at the current pace (as projected) through the end of the year, net culling for the beef herd will still be under 9% and less than the long term average culling rate.”

The sharp increase in beef cow slaughter in 2016 and 2017 is mostly the result of low culling during herd expansion since 2014, Peel explains.

“More cows in the herd, plus previously delayed culling, means that a substantial increase in beef cow slaughter is inevitable,” Peel says. “By 2018, herd culling rates may return to typical levels. Beef cow slaughter typically increases sharply in the fourth quarter to a seasonal peak but is projected to maintain the current year-over-year levels for the remainder of the year. Dairy cow slaughter has increased recently bringing the current year-to-date level to 3.0% above last year. This follows a 1.0% year-over-year decrease in 2016.”

Overall, Peel says total cattle slaughter this year is projected to increase 4.5-5.0% compared to last year. It will likely increase another 3.5-4.0% next year.