Cattle futures closed lower on Tuesday, helped along by lighter trade and sagging wholesale beef values. Other potential pressures on the day could include everything from positioning ahead of Friday’s monthly Cattle on Feed report, to the potential for cattle getting bunched as winter grazing conditions dwindle, to pushing beads on the year-end abacus.
Except for fractionally mixed in the front two contracts, Live Cattle futures closed an average of 69¢ lower.
Feeder Cattle futures closed an average of $1.79 lower ($1.17 to $2.45 lower in spot Jan).
Choice boxed beef cutout value was $1.39 lower on Tuesday afternoon at $201.76/cwt. Select was 69¢ lower at $184.32.
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Major U.S. financial indices edged lower on Tuesday. Besides rally fatigue, pressure included a down day for tech pacesetters like Apple, never mind the fact that the House voted to approve tax reform, then figured out a procedural gaff means they must vote again.
The Dow Jones Industrial Average closed 37 points lower. The S&P 500 closed 8 points lower. The NASDAQ closed 30 points lower.
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“Retail beef prices are currently higher than last year despite the increase in beef supplies in 2017,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his latest weekly market comments. “Beef demand is all the more impressive given that total meat supplies are higher year over year, not only the result of more beef, but also increased pork and poultry production.”
For perspective, Peel explains November retail Choice beef prices were $5.81/lb., which was slightly higher than a month earlier and a year ago. The same goes for the all-fresh retail beef price in November of $5.64/lb.
“The ratio of retail beef prices relative to pork and poultry remains very strong, holding near to record levels achieved during the record high prices in 2015,” Peel says. “The calculated beef demand index, which accounts for pork and poultry impacts, as well as increased beef production, showed a slight increase for the third quarter of 2017.”
Ultimately, though, retail beef prices should move lower as tonnage continues to rise.
“This will put additional pressure on wholesale beef prices as well as fed and feeder cattle prices,” Peel says. “However, if demand continues strong, the retail price pressure may be rather modest with less negative impact on wholesale beef and cattle markets.”
More specifically, Peel says strong demand will depend on the continuation of generally strong macro-economic conditions, including decreased unemployment and growth in consumer income.
“Any change in overall macroeconomic conditions is a threat. Factors to watch include rising interest rates and inflationary pressures,” Peel says. “Shocks external to the beef industry—such as a sudden jump in gasoline prices—could sharply impact consumer spending and beef demand.”
Finally, Peel emphasizes, “Continued improvement in beef trade will also be a crucial factor to minimizing price pressure in 2018. Continued strong exports to current major beef destinations including Japan, South Korea, Mexico, Canada and Hong Kong will be essential. New export growth to China is likely to remain a small market in 2018 but holds significant potential over time.”