Cattle Current Daily—Aug. 20, 2019

Cattle Current Daily—Aug. 20, 2019

Renewed stability defined cattle markets Monday, helped along by news that estimated cattle slaughter last week, following the Tyson fire, was 9,000 head more than the previous week at 651,000 head. That according to USDA’s Estimated Daily Livestock Under Federal Inspection reports.

When all was said and done last week, negotiated cash fed cattle traded mostly $5 lower in the Southern Plains at mostly $105/cwt. They were $6-$7 lower in Nebraska at mostly $107 and $5-$6 lower in the western Corn Belt at $106.50-$110.00. In Nebraska, dressed trade was at $165-$172 in a light test, which was $13-$15 lower. It was $9-$10 lower in the western Corn Belt at $170-$172.

Cattle futures showed signs of life early in Monday’s session but lost steam as the session progressed.

Live Cattle futures closed narrowly mixed, from and average of 12¢ lower to an average of 15¢ higher.

Other than $1.10 higher in spot Aug, Feeder Cattle futures closed narrowly mixed, from and average of 3¢ lower to an average of 29¢ higher.

Wholesale beef values were firm to higher on moderate demand and light offerings, according to the Agricultural Marketing Service.

Choice boxed beef cutout value was 44¢ higher Monday afternoon at $239.13/cwt. Select was $1.26 higher at $214.52.

Corn and Soybean futures softened with a more favorable weather outlook and worries about export demand.

Corn futures closed mostly 3¢ to 6¢ lower.

Soybean futures closed mostly 11¢ to 13¢ lower.

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Major U.S. financial indices continued to rally Monday, building on gains from the end of last week. Support included further strengthening of bond yields.

The Dow Jones Industrial Average closed 249 points higher. The S&P 500 closed 34 points higher. The NASDAQ was up 106 points.

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The degree of price movement following the fire at Tyson’s beef packing plant at Holcombe, KS may have been shocking, but the way the market reacted wasn’t, according to Derrell Peel, Extension livestock marketing specialist at Oklahoma State University.

Markets seek to coordinate equilibrium between supply and demand, Peel explains in his weekly market comments. When a severe shock occurs to either, markets seek to reestablish that equilibrium as quickly as possible.

“With fresh beef production suddenly decreased, boxed beef prices rose sharply to ration a suddenly limited supply,” Peel explains. “Choice boxed beef prices increased by over $22/cwt. or 10.3% in one week. This illustrates one of the most important functions of markets (one that is commonly taken for granted): markets make sure that we don’t run out of things. With less supply available, the market uses higher prices to determine how limited beef supplies will be allocated. It is a common market reaction. When a freeze hits Florida, orange juice prices begin to rise immediately, not because there is an immediate shortage of juice but to make sure that the current supply continues to be available over time. Markets will never tell a consumer that they cannot have a product but prices will rise enough to convince some consumers not to consume as much of the product at this time.”

As well, Peel says markets discourage wasting products.

“This is particularly important for perishable products. Thus, watermelon prices drop dramatically when the seasonal supply becomes available to make sure that all watermelons are consumed. Fed cattle ready for slaughter are no less perishable and the current drop in fed prices ensures that all possible adjustments are used to absorb the cattle into remaining industry capacity,” Peel says. “Prices decrease enough initially to provide ample incentive to change existing production plans and cover the additional costs of shifting logistics and timing of production.”

Looking ahead, Peel provides some context, via a similar situation almost 20 years ago, when the ConAgra beef packing plant at Garden City burned and never reopened. 

“Subsequent research confirmed initial reactions generally similar to the current situation.” Peel says. “Most of the negative impacts on fed cattle prices subsided in three to six weeks after the event. Packing capacity, relative to cattle supplies, is somewhat tighter this time, so the impacts may be slightly larger or longer-lived. Nevertheless, boxed beef and cattle markets will likely adjust relatively quickly in the coming weeks with final adjustments depending on the duration of the plant closure.” 

2019-08-19T19:54:16-05:00

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