Negotiated cash fed cattle prices for the week were generally steady to mostly $2 higher on a live basis through Thursday afternoon, according to the Agricultural Marketing Service: $112/cwt. in the Southern Plains, mostly $112 in Nebraska, mostly $111 with a few up to $112 in Colorado. They were steady to $6 higher week to week in the western Corn Belt at $110-$112. Dressed trade was $3-$4 higher at $175-$176.
Cattle futures closed mostly higher Thursday, helped along by stronger front-month Lean Hog futures.
Live Cattle futures closed an average of 62¢ higher.
Feeder Cattle futures closed an average of 26¢ higher, except for an average of 17¢ lower in three contracts.
Choice boxed beef cutout value was 58¢ lower Thursday afternoon at $209.95/cwt. Select was $4.21 lower at $195.65.
The average dressed steer weight of 921 lbs. the week ending Dec. 19 was 1 lb. lighter than the previous week, but 17 lbs. heavier than the same time a year earlier, according to USDA’s Actual Slaughter Under Federal Inspection report. The average dressed heifer weight of 847 lbs. was 1 lbs. lighter than the previous week, but 14 lbs. heavier year over year.
Net U.S. beef export sales of 14,900 metric tons reported for 2020 were up noticeably from the previous week and up 82% from the prior four-week average, according to the U.S. weekly Export Sales report for the week ending Dec. 24. Increases were primarily for Japan, China, South Korea, Mexico and Canada.
Strong exports combined with iffy South American production continued to fuel grain futures. According to USDA’s Weekly Export Sales report, net U.S. corn export sales of 964,500 metric tons (MT) for 2020/2021 were up 48% from the previous week, but down 27% from the prior four-week average.
Net U.S. soybean export sales of 695,400 MT for 2020/2021 were up 97% from the previous week and 25% percent from the prior four-week average.
Net U.S. wheat export sales of 520,600 metric tons (MT) for 2020/2021 were up 32% from the previous week and up 4% from the prior four-week average.
On Thursday, Corn futures closed 8¢ to 9¢ higher through Jly ‘21 and then mostly 1¢ higher.
Soybean futures closed 9¢ to 11¢ higher through May ‘21. And then mostly 5¢ to 8¢ higher.
Major U.S. financial indices closed higher. Support included weekly initial unemployment insurance claims of 787,000, according to the U.S. Department of Labor. That was 19,000 fewer than the previous week and more positive than the trade expected.
The Dow Jones Industrial Average closed 196 points higher. The S&P 500 closed 24 points higher. The NASDAQ was up 18 points.
When you consider the unprecedented market disruptions spawned by the pandemic in 2020, perhaps the most extraordinary realization is how well markets work, though we don’t always understand the finer points or like the outcome.
Among cattle market lessons and reminders gleaned:
“If packers cannot run or cannot run at typical throughput levels—especially if animal supplies are abundant—then the marginal value of that last group of animals that is not sold is close to zero. And the last pen or truckload or group of animals is a perfect substitute for the first. It is the marginal value of the last product that sets the market. This point is critical. In fact, that is what is communicated by economists when supply and demand curves are drawn. The equilibrium quantity and price are what is traded at the lowest marginal value to buyers and the highest marginal value to sellers.”—from Economic Reasons for What was Observed in Fed Cattle and Beef Markets During the Spring of 2020 by Stephen Koontz, agricultural economist at Colorado State University.
“‘We heard a lot of questions about how it was possible that farm prices could decline while wholesale prices increased, if the market was even halfway functioning,” explained Ted Schroeder, agricultural economist at Kansas State University. “It’s a market phenomenon. The direction of price change and the magnitude of change is exactly what our demand models suggested. We’re surprised by the veracity of the event every day, but we’re not surprised by what the market responses have been.’”
He was explaining the difference between primary and derived demand—from Beef Demand is Everything, BEEF magazine, by Wes Ishmael.
“Much attention has been paid to the increase in apparent gross margins for beef packers, which was the impetus of the USDA investigation. However, this spread is a metric of just two factors, live cattle prices and wholesale beef prices. It does not reflect all costs incurred in harvesting and processing cattle into beef. The cattle-to-beef margin excludes other operating costs, such as labor costs. Because of the impact of COVID, including procuring personal protective equipment, redesigning plant operations, and other necessary adjustments, labor and other operating costs increased.
“More importantly, the cattle-to-beef margin does not reflect fixed costs. Fixed costs constitute the largest percentage of overhead for meat packers. Overall, per head margins on processing cattle rise dramatically as slaughter throughput is decreased. Fixed costs must be spread out across the volume of cattle processed. Reducing the number of cattle processed by up to one-third, or idling a plant for several days, adds significantly to the per head cost of slaughter and processing.”—from Analysis of USDA’s Boxed Beef and Fed Cattle Price Spread Investigation Report, by Dave Juday of The Juday Group.
“The U.S. has fewer FI (federally inspected) cattle slaughter plants than it had 20 years ago. But, the current number of FI plants is the highest since 2004. In 1998, the U.S. had 795 FI cattle slaughter plants. Plant numbers bottomed at 626 in 2007 and 627 in 2012, before reaching 670 in 2019. In 2019, 71.6% of FI slaughter plants each slaughtered between 1 and 999 head annually, 16.0% slaughtered between 1,000 and 9,999 head, and 10.6% slaughtered between 10,000 and 999,999. This compares to 71.7%, 14.8% and 11.7%, respectively, in 1998. Plants that each slaughtered over one million head only comprised 1.8% of the total number of U.S. FI cattle slaughter facilities in both 1998 and 2019. Nonetheless, it remains the case that roughly 60% of total beef‐and pork‐processing capacity is provided by the 10 largest beef and the 15 largest pork packing plants (National Pork Board 2019)”—from Beef and Pork Marketing Margins and Price Spreads during COVID-19, by agricultural economists, Jayson Lusk at Purdue University, Lee Shultz at Iowa State University and Glynn Tonsor at Kansas State University.