Negotiated cash fed cattle trade was yet to be established through Wednesday afternoon, but early indications point to prices being no worse than steady.
Slaughter steers sold mostly $1-$2 higher at Sioux Falls Regional in South Dakota on Wednesday. Slaughter heifers sold steady to $1 higher. Both at prices near steady with last week’s country trade.
Similarly, a single lot (148 heifers at 1,250 lbs.) sold out of the 829 head offered in the weekly Fed Cattle Exchange Auction, for a weighted average price of $126/cwt., which was fully steady with last week’s country trade.
Cattle futures made a stride toward increased stability on Wednesday with a mixed close, albeit with less support than at the outset of the day’s trading.
Live Cattle futures closed from 60¢ lower to 67¢ higher.
Feeder Cattle futures closed an average of 40¢ higher, except for 42¢ and 7¢ lower in the front two contracts.
Choice boxed beef cutout value was 94¢ higher on Wednesday afternoon at $209.37/cwt. Select was 41¢ higher at $203.14.
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On Wall Street Wednesday, major U.S. financial indices settled mostly slightly lower. Along with recent, violent volatility, investors seem to be keeping a close eye on rising treasury yields.
The Dow Jones Industrial Average closed 19 points lower. The S&P 500 closed 13 points lower. The NASDAQ closed 63 points lower.
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“Over the last two weeks, a rumor has come up in several Western cattle auctions, and even in the futures market, about an impending dairy cow buyout,” says David Anderson, Extension agricultural economist at Texas A&M University, in the latest In the Cattle Markets. “This rumor was used as the explanation for lower prices. Most remember (either you were around then, or you have heard the stories from your elders) the government dairy herd buyout in the 1980s to deal with ruinous levels of production, stocks, and prices. That was also a time period where farm programs used a number of tools to limit production (high acreage reduction programs and payment-in-kind). More recent herd retirement programs run by private industry remain embroiled in lawsuits. There is no appetite or serious talk for any herd buyouts, either in the federal government or private industry efforts.”
Although increasing global milk production is pressuring prices, Anderson explains trends in demand enabled the industry to absorb increased supplies the last several years.
“In the U.S., growing butter consumption, the shift to Greek and other yogurts, the use of milk in a variety of new drinks, and continued growth in cheese consumption supported expanding milk production,” Anderson says. “It appears that the market has reached the point where demand growth is not enough to offset supply growth at profitable prices.”
So, he says, milk prices have declined enough to force a little more cow culling and less milk production.
“Some cow culling has come from farms’ exiting production,” Anderson says. “Production growth in some regions of the U.S. hit the limit of processors to use the milk. The end result has been some producers losing their milk market.”
Last year, Anderson notes dairy cow slaughter was 3.7% more than in 2016. So far this year, it’s 3.6% more year over year.
Between the likelihood of increased dairy cow slaughter and more beef cow slaughter from the growing herd, Anderson looks for cull cow prices to remain lower than last year well into 2018.