Cattle Current Daily—Aug. 13, 2019

Cattle Current Daily—Aug. 13, 2019

Cattle and grain markets were plumb ugly Monday.

The fire that partly destroyed the Tyson Foods beef plant in Holcomb, KS (near Garden City) on Friday took Cattle futures limit down as traders tried to assess what the lost packing capacity means to markets.

Live Cattle futures closed limit down $3.00, except for $2.67 lower in the back contract.

Feeder Cattle futures closed limit down $4.50.

According to the Kansas Livestock Association, in an assessment sent to its members Monday, “The Holcombe plant operated at about 6,000 head of fed cattle per day, leaving a shortfall in the national packing capacity of 30,000 head for a five-day work week. “According to CattleFax, the association says that amounts to 6% of total U.S. fed cattle packing capacity the rest of the processing industry will need to absorb.

In his weekly market comments, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University  explains, “The loss of 30,000-35,000 head of slaughter capacity per week will disrupt both boxed beef and fed cattle markets, at least initially and potentially longer, depending on the duration of the plant closure.” He adds that, “The disruptions will add costs for both fed cattle and boxed beef as additional logistics are needed to adjust flows of slaughter cattle and boxed beef. There are many unknowns for Tyson and the industry going forward, he says, including the possibility that this sets the stage for new investment in beef packing.

According to KLA, “Based on CattleFax analysis, shifting the supply to other plants in Kansas, Texas, Colorado, Nebraska and Iowa will mean capacity in those regions needs to run 8% to 8.5% higher, which will be difficult to make up based on current packing industry infrastructure.            

“Potential market impacts predicted by CattleFax include a possible loss of currentness in the cattle feeding segment, possibly some lost market leverage by cattle feeders and possibly more price risk for all classes of cattle.

Likewise, Stephen Koontz, agricultural economist at Colorado State University, says in the latest In the Cattle Markets, “The impact of this event on fed cattle markets will be substantial. The market is in the middle of the third quarter: supplies are heaviest, slaughter weights are ramping up, and competing meat supplies will begin their fall increase. This is the quarter with the highest volume of beef supplies and forecasts are for sustained supplies into the fourth quarter.”

Koontz expects the rest of this month will be difficult, as plenty of uncertainty will surround the largest annual fed cattle supplies being moved around temporally and spatially to make up for the capacity loss in the Southern Plains.

By all measures, though, beef packing capacity utilization has been running historically high as consumer beef demand and packer economics encourage timely harvest of record large fed cattle supplies.

“This disruption will maintain incentives for a packer to run as many hours as possible,” Koontz explains. “Market-ready inventories of cattle are strong but are being depleted through the summer and this will persist into the fall. Further, prices for fed cattle have been reasonable through the summer—after early summer collapses—and feeding costs have been declining. Also, margins for retailers have been very strong and some of the strongest in recent years.”

Tyson plans to rebuild the Holcombe plant at the same location, though it’s way too early to know when a revamped facility will be up and running.

In the meantime, Steve Stouffer, group president of Tyson Fresh Meats explains, “We’re taking steps to move production to alternative sites. Tyson Foods has built in some redundancy to handle situations like these and we will use other plants within our network to help keep our supply chain full.”

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The same uncertainty about supply disruptions that cratered cattle futures helped boost Wholesale beef values Monday, with good demand and heavy offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was $2.25 higher Monday afternoon at $218.62/cwt. Select was $3.98 higher at $197.79.

Negotiated cash fed cattle traded ended up $1 lower last week in the Southern Plains and Nebraska at $110/cwt. and $113, respectively. Live prices were steady to $2 lower in the western Corn Belt at $113-$115. Dressed sales were steady to $5 lower in Nebraska at $180-$185. Prices in the western Corn Belt were $4-$5 lower at $180-$181.

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Grain futures collapsed on Monday, too, beneath the weight of bearish USDA numbers the latest World Agricultural Supply and Demand Estimates and the August Crop Production report.

Revised acreage estimate for corn of 90.01 million acres was above the top end of the range for pre-report estimates and only 1.84% less than the estimate in the June Acreage report. Estimated yield of 169.5 bu./acre was 3.5 bu. more than the previous estimate. Corn production of 13.9 billion bu. is 26 million bu. more than the July estimate and just 500 million bu. less than last year. The season average corn price received by producers was lowered 10¢ to $3.60/bu.

Corn futures closed mostly 25¢ limit-lower through Jul ’20, then 7¢ to 15¢ lower through Jul ’21; mostly 3¢ lower the rest of the way.

Even though acreage numbers were positive, Soybean futures closed 10¢ to 12¢ lower through May ‘20, and then mostly 4¢ to 9¢ lower.

U.S. soybean acres were estimated at 76.70 million acres, which was 3.3 million acres fewer than in the June Acreage report and below pre-report estimates. Estimated yield of 48.5 bu./acre would be 3.1 bu./acre less than last year. U.S. soybean production was forecast at 3.68 billion bu., which would be 165 million bu. less than the previous estimate and 860 million bu. less than the previous year. The U.S. soybean average price for 2019-20 was unchanged at $8.40/bu. Forecast prices for soybean meal and oil were also unchanged at $300/short ton and 29.5¢/lb., respectively.

Incidentally, Agricultural producers reported they were unable to plant crops on more than 19.4 million acres, according to the most recent USDA data. This marks the most prevented plant acres reported since USDA’s Farm Service Agency began releasing the report in 2007 and 17.49 million acres more than reported at this time last year.

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Major U.S. financial indices closed sharply lower Monday, driven by declining bond yields and rising geopolitical uncertainty with the protests in Hong Kong.

The Dow Jones Industrial Average closed 391 points lower. The S&P 500 closed 35 points lower. The NASDAQ was down 95 points.

2019-08-12T20:36:37-06:00

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