Cattle futures closed sharply lower on Thursday, pressured by position squaring following the previous session’s rally, surging grain futures prices and the ongoing lack of commercial interest.
Live Cattle futures closed an average of $1.26 lower (80¢ to $1.80 lower), except for unchanged at the back.
Feeder Cattle futures closed an average of $2.19 lower ($2.05 to $2.37 lower).
Choice boxed beef cutout value was 8¢ lower Thursday afternoon at $207.65/cwt. Select was 9¢ higher at $195.58.
Analysts seemed to attribute Thursday’s narrowly mixed performance on Wall Street to a combination of profit taking and ongoing political worries.
The Dow Jones Industrial Average closed 28 points lower. The S&P 500 closed fractionally lower. The NASDAQ closed 4 points higher.
“USDA forecasts feeder calf prices to peak in the third quarter of this year at $152-$158/cwt. and to decline slightly in the fourth quarter,” say analysts with USDA’s Economic Research Service (ERS), in the latest monthly Livestock, Dairy and Poultry Outlook (LDPO). “However, relatively large feedlot placements should provide an abundant supply of fed cattle from which meatpackers can purchase as needed.”
USDA will issue the monthly Cattle on Feed report on Friday.
Respondents to the Urner Barry Survey, shared in Wednesday’s Daily Livestock Report expect, on average, the cattle on feed inventory July 1 to be 2.8% more than a year earlier, June placements to be up 5.9% and June marketing to be 4.6% more than last year.
On Friday, USDA will also release the mid-year Cattle report, which should provide insight to the current pace of herd expansion.
On the other side of the ledger, ERS analysts note that estimates for commercial beef production for this year inched higher recently to 26.5 billion lbs., due to greater than expected commercial slaughter in the second quarter and higher anticipated commercial slaughter in the third and fourth quarters.
That has plenty to do with the economic incentive encouraging feeders to market cattle aggressively.
“As packers bid higher for fed cattle for slaughter in the first and second quarters of 2017, feedlots experienced positive returns from marketing calves bought at relatively low prices during the second half of 2016,” ERS analysts explain. “The price for feeder steers weighing 750-800 lbs. sold at the Oklahoma City National Stockyards averaged $128.30/cwt. in the fourth quarter of 2016, while the 5-Area price for fed cattle marketed at an average of $132.76/cwt. in the second quarter of 2017.”
Based on estimates from the Livestock Marketing Information Center (LMIC), Katelyn McCullock, an economist with the American Farm Bureau Federation says cattle feeding returns in the Southern Plains are the most in more than 10 years.
“Through the first six months of the year, average feeding returns (LMIC estimates) were $177 per head,” McCullock explains, in the most recent issue of In the Cattle Markets. “May was the highest month so far this year showing a profit of $260 per head, and June followed at $208 per head. This is in stark contrast to the last two years of negative returns, which were estimated as deep as $500 per head in late 2015.”
Keep in mind, LMIC estimates are based on fixed assumptions and don’t account for risk management. In other words, the figures mentioned above portray trends, not necessarily specific levels of profit or loss.
With softer fed cattle prices expected in the second half of 2017, though not as low as last year, McCullock says feedlot returns will likely shrink in the second half of the year and may turn red by the end of the 2017.