Based on reports from the Agricultural Marketing Service, negotiated cash fed cattle prices ended the week $2 higher in the Southern Plains at $106/cwt. on a live basis, steady to 50¢ higher in the Northern Plains at $106.00-$106.50 and $2 higher in the western Corn Belt at $107-$109. Dressed trade was unevenly steady at $169.
Through Thursday, the five-area direct weighted average steer price was $106.62/cwt. on a live basis, which was $2.13 more than the previous week and $2.19 less than the same time last year, keeping in mind the market was dealing with the aftermath of the Tyson plant fire in 2019. The dressed steer price of $169.11 was $1.05 higher than the prior week, but $5.91 less the same time a year earlier.
Cattle futures closed lower on Friday as traders awaited the monthly Cattle on Feed report (see below).
Live Cattle futures closed an average of 85¢ lower, (30¢ lower at the back to $1.22 lower at the front).
Feeder Cattle futures closed an average of $1.07 lower (50¢ lower at the front to $1.55 lower at the back).
Choice boxed beef cutout value was 56¢ higher Friday afternoon at $225.94/cwt. Select was $2.68 higher at $208.99.
Total estimated cattle slaughter for the week ending Aug. 22 was 652,000 head, according to USDA. That was 8,000 head more than the previous week’s estimate, but 17,000 head fewer than the same week last year. Estimated beef production for the week of 542.9 million lbs. was 10.5 million lbs. more than the previous week and 7 million lbs. more than the prior year.
Corn futures closed mostly fractionally mixed to 1¢ higher.
Soybean futures closed fractionally lower to 1¢ higher.
Major U.S. financial indices closed higher on Friday, buoyed by positive economic news.
For instance, existing home sales in July continued upward for the second consecutive month, according to the National Association of Realtors®.
Total existing-home sales completed transactions that include single-family homes, townhomes, condominiums and co-ops, jumped 24.7% from June to a seasonally adjusted annual rate of 5.86 million in July.
“The housing market is well past the recovery phase and is now booming with higher home sales compared to the pre-pandemic days,” said Lawrence Yun, NAR’s chief economist. “With the sizable shift in remote work, current homeowners are looking for larger homes and this will lead to a secondary level of demand even into 2021.”
The Dow Jones Industrial Average closed 190 points higher. The S&P 500 closed 11 points higher. The NASDAQ closed 46 points higher.
If anything, the market will likely view Friday’s monthly Cattle on Feed report as at least a little bullish, with fewer placements than expected, as well as slightly more marketings and slightly fewer cattle on feed for feedlots with 1,000 head or more capacity.
Placements in June of 1.80 million head were 37,000 head more (+2.1%) than a year earlier, compared to average expectations for an increase of 6%.
In terms of placement weight, 41% went on feed weighing less than 699 lbs., 43% went on feed weighing 700-899 lbs. and 16% weighed more than 900 lbs.
Marketings in June of 1.97 million head were 26,000 head more (+1.34%) than last year, about 1% more than average expectations.
Cattle on feed July 1 of 11.44 million head were 42,000 head fewer (-0.37%) than last year. Ahead of the report average analyst estimates were for the number to be unchanged. Inventory was the second largest to start the month since the data series began in 1996.
“The controversy surrounding wholesale and farm-level price movements following a packing plant fire in Kansas was but mere prelude to the unprecedented COVID-19-related disruptions and historic rise in the spread between livestock and wholesale meat prices. Concerns about concentration and allegations of anticompetitive behavior have led to several civil suits and inquiries by the U.S. Department of Agriculture and the U.S. Department of Justice, with increases in price differentials serving as a focal point.”
That’s from the introduction to Beef and Pork Marketing Margins and Price Spreads during COVID-19, by agricultural economists Jayson Lusk at Purdue University, Glynn Tonsor at Kansas State University and Lee Schulz at Iowa State University. The stated goal of the effort is to provide data-driven, economic-guided insights to the situation. Along the way, they shatter a popular myth or two.
For instance, these economists document how little concentration has changed since 1998, when considering the largest federally inspected (FI) beef packing plants—those harvesting 1 million head or more of cattle annually.
“In 1998, FI packing plants that slaughtered more than 1 million cattle per year slaughtered 17.9 million head, or 51.7%, of the FI cattle slaughter. More than 20 years later, in 2019, plants with over 1 million head per year capacity slaughtered 17.3 million head, or 52.4%, of the FI slaughter. The total volume slaughtered by the largest plants is down, and it is a stretch to characterize a 0.7 percentage point rise in slaughter market share over 22 years as a takeover,” say the authors. “This suggests that smaller FI slaughter facilities, in aggregate, are maintaining market share. In 2019, packing plants that slaughtered between 1 and 9,999 head slaughtered 424,700 head, or 1.3%, of the FI cattle slaughter annually, 3.3% for plants slaughtering between 10,000 and 99,999 head, and 43.1% for plants slaughtering between 100,000 and 999,999 head. This compares to 1.5%, 4.7% and 42.1%, respectively, in 1998.”
The trio of economists points out the number of FI beef packing plants is the most since 2004, albeit fewer than two decades ago.
Further, these economists define the difference between marketing margins, gross margins and related price spreads, what they can and can’t say about suggested profitability. They also define and demonstrate primary demand versus derived demand and how it is that wholesale beef prices can run counter to fed cattle prices.
“Even though we cannot observe an individual packers’ costs, we can observe the market’s perception of their profitability―at least for publicly traded firms,” according to the economists. “On balance, changes in the stock prices of companies with significant packing operations do not suggest substantial windfalls corresponding with COVID-19 driven developments, and indeed the performance of publicly traded packing companies has lagged that of the overall market since the first of the year. Perhaps market developments are rationale responses to massive shocks from a common enemy to society, COVID-19.”
Bottom line, the study suggests price reactions in the wake of packing disruptions following last summer’s packing plant fire and during the pandemic are in keeping with the expectations of economic theory.