Despite the lack of sustained follow-through support from the most recent Cattle on Feed report, volatile outside markets and an apparent top in wholesale beef values, cash cattle and futures mainly gained last week.
Live Cattle futures closed an average of $1.02 higher (7¢ to $1.45 higher) week to week on Friday, except for $2.27 lower in almost-spent spot Aug.
On the cash side of the fence, negotiated fed cattle prices last week, were $1-$2 higher on a live basis in the Southern Plains at $123/cwt. However, the anemic pace of trade meant there was no established trend in the North. Live prices the previous week were at $125-$127 in Nebraska and at $127 in the westerner Corn Belt. Dressed trade the previous week was at $200 in Nebraska and at $200-$205 in the western Corn Belt.
Sluggish trade pressured Live Cattle futures on Friday. Part of that stemmed from reports of mechanical problems at various plants last week.
Through Thursday, USDA’s Agricultural Marketing Service (AMS) reported 33,363 head traded direct in the five-area regions, compared to 60,342 at the same time the previous week and 65,386 head a year earlier.
Live Cattle futures closed an average of 52¢ lower through the front four contracts (5¢ lower to $1.27 lower in spot Aug) and then an average of 28¢ higher.
Overall, though, recently expanding open interest provided support, as does the reality of improving supply-side fundamentals.
As Derrell Peel, Extension livestock marketing specialist at Oklahoma State University pointed out in his weekly market comments,
“August represents the sixth consecutive monthly decline in feedlot inventories from the February peak, a decrease of 1.032 million head or 8.5% over the six months. In the previous five years, he says the average feedlot inventory decline from the spring high to summer low has been 6.2%.”
Moreover, Peel notes lighter year-over-year carcass weights also provide more indication that feedlots are getting more current. He adds lower carcass weights also reflect the impact and incentives stemming from sharply higher feedlot cost of gain, which should help hold carcass weights in check.
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“Auction calf and stocker prices have moved counter-seasonally higher in July-August, while feeder cattle markets, which typically increase through the summer, have shown a strong seasonal price increase,” Peel says.
Feeder Cattle futures closed an average of 60¢ higher on Friday (15¢ higher toward the front to $2.40 higher at the back). Week to week they closed an average of 88¢ higher, except for 85¢ lower in new spot Sep. That was with Corn futures closing an average of 16.4¢ higher through the front six contracts.
The CME Feeder Cattle Index was $3.60 higher week to week on Thursday at $159.39.
In his weekly market comments, Andrew P. Griffith, agricultural economist at the University of Tennessee explains stronger prices suggested by Feeder Cattle futures are helping keep cash prices higher for lighter weight calves than would be normally expected this time of year.
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Wholesale beef values appeared to top last week with Labor Day purchases mostly in the books.
Choice boxed beef cutout value was 28¢ higher week to week on Friday at $345.34/cwt. Select was $3.01 lower at $315.52.
However, Griffith points out beef in cold storage at the end of July was the least since November of 2014 when slaughter was light and beef prices were elevated.
“Strong beef prices in the current market are again what is reducing the quantity of beef in cold storage,” Griffith says. “Generally, 91% or more of the beef in cold storage is boneless beef, which is primarily made up of grinding beef. As is evident in wholesale beef prices, beef demand remains strong and continues to support higher prices. This strong demand and strong prices will likely continue to result in beef in cold storage remaining below year-ago levels. However, beef in cold storage will seasonally increase throughout the remainder of the year as cattle weights increase and more animals enter the slaughter mix. The big question is how long can wholesale beef prices remain at such strong levels. The answer is not clear, but prices are not expected to collapse in the near future.”
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Major U.S. financial indices closed higher Friday, buoyed by comments from Federal Reserve Chair Jerome Powell.
“The timing and pace of the coming reduction in asset purchases will not be intended to carry a direct signal regarding the timing of interest rate liftoff, for which we have articulated a different and substantially more stringent test,” explained Powell. “We have said that we will continue to hold the target range for the federal funds rate at its current level until the economy reaches conditions consistent with maximum employment, and inflation has reached 2% and is on track to moderately exceed 2% for some time. We have much ground to cover to reach maximum employment, and time will tell whether we have reached 2% inflation on a sustainable basis.”
The Dow Jones Industrial Average closed 242 points higher. The S&P 500 closed 39 points higher. The NASDAQ was up 183 points.
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Consumer prices for food surged in July, compared to the previous year but overall year-to-date prices remain closer to the 20-year average.
Consumer at-home food prices were 2.6% higher year over year in July, according to the Change in Food Price Indexes from USDA’s Economic Research Service. At-home meat prices were 5.9% higher — beef and veal prices were 6.5% more, pork prices were up 7.8% and poultry prices were 5.3% higher. Prices for food away from home were up 4.6% year over year.
Year to date, at-home food prices were up 1.9% — beef and veal prices were 4.2% more, pork prices were up 4.4% and poultry prices were 2.6% higher. Prices for food away from home were up 3.1% year over year.
The forecast is for at-home prices to be up an average 2.5% to 3.5% this year — beef and veal prices are projected 4.0% to 4.5% higher, pork prices are forecast 5.0% to 6.0% higher and poultry prices are projected 3.0% to 4.0% higher. Prices for food away from home are projected to 3.5% to 4.5% higher.
For perspective, the 20-year average annual price change for at-home food prices is 2.0% — 4.4% for beef and veal prices, 2.2% for pork prices and 2.1% for poultry prices. The annual average change for food away from home is 2.8%.