Cattle futures, especially Live Cattle lost some steam Tuesday. While technical correction and month-end position squaring were likely behind some of the pressure, most commodities followed the sharp drop in equity markets, which were tied to uncertainty about the Covid variant, Omicron, and its potential economic impact.
Feeder Cattle futures closed an average of 60¢ higher (17¢ to $1.00 higher), except for an average of 46¢ lower in the front two contracts.
Live Cattle futures closed an average of 80¢ lower, from 12¢ lower toward the back to $1.45 lower toward the front of the board.
Corn futures closed 12¢ to 15¢ lower through the front five contracts and then mostly 8¢ to 9¢ lower.
Soybean futures closed 20¢ to 27¢ lower through the front seven contracts and then mostly 10¢ to 18¢ lower.
Negotiated cash fed cattle trade ranged from limited to mostly inactive on light demand through Tuesday afternoon, according to the Agricultural Marketing Service.
Last week, live prices were $7 higher in the Southern Plains at $140/cwt., $3-$6 higher in Nebraska at $136-$140, $5-$8 higher in Colorado at $140 and $3-$6 higher in the western Corn Belt at $135-$140. Dressed trade was $7 higher in Nebraska at $217 and $3-$7 higher in the western Corn Belt at $213-$217.
Choice boxed beef cutout value was $5.90 lower Tuesday afternoon at $271.68/cwt. Select was $1.73 lower at $260.29/cwt.
Major U.S. financial indices closed sharply lower Tuesday, with apparent pressure from COVID variant worries.
“The recent rise in COVID-19 cases and the emergence of the Omicron variant pose downside risks to employment and economic activity and increased uncertainty for inflation. Greater concerns about the virus could reduce people’s willingness to work in person, which would slow progress in the labor market and intensify supply-chain disruptions,” explained Federal Reserve Chair Jerome Powell, in testimony before the U.S. Senate Committee on Banking, Housing and Urban Affairs.
Moreover, based on various reports, Powell suggested the FOMC might consider accelerated tapering of the federal bond buying program as inflation continues higher.
The Dow Jones Industrial Average closed 652 points lower. The S&P 500 closed 88 points lower. The NASDAQ was down 245 points.
CME WTI Crude Oil futures closed $3.72 to $3.79 lower in the front six contracts.
“There should be three strong weeks of cattle prices leading up to the cattle market break that will occur during the Christmas and New Year holidays. However, prices are expected to strengthen moving into January,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his most recent market comments. “The number of cattle marketed the next three weeks will depend on a producer’s desire to market cattle before the end of the year or after the start of the new year as it can have tax implications. Regardless of the month producers decide to market calves, prices are expected to slowly increase from December through April. The expectation is to see the strongest prices since the spring of 2016.”
Likewise, Stephen Koontz, agricultural economist at Colorado State University points out underlying cattle market fundamentals continue pointing to increasing price strength.
“Boxed beef cutout valuations continue to drift lower following summer seasonal highs, but packer margins remain incredibly strong by historical standards,” Koontz explains, in the most recent issue of In the Cattle Markets. “Federally inspected steer and heifer slaughter remain at elevated levels and repeatedly press on what I perceive as industry capacity of 525,000 head per week. Saturday slaughter also is at elevated levels. Cattle on feed over 120 days and over 150 days continue the seasonal decline but remain above last year. The leverage remains with the packer in this situation, but the packer has a strong incentive to run as many hours as possible. Beef cow slaughter also remains strong. The beef herd liquidation, at least partially, continues and will impact next year’s supply.”
Plus, Koontz explains reduced beef cold storage inventory amid increased beef supplies suggest ongoing domestic demand strength.
“There are solid underlying supply and demand fundamentals, and it is clear that the bottleneck in the packing sector remains,” Koontz says. “It is reasonable to have long-term optimism but at the same time be willing to periodically and aggressively reduce risk.”