Negotiated cash fed cattle prices trended higher through Wednesday afternoon, according to the Agricultural Marketing Service (AMS). Live sales in Colorado were $2 higher than last week at $98/cwt. In Nebraska, live trades were 50¢ to $2 higher at $98; dressed sales were $1.00-$1.50 higher at $158.00-$158.50.
Cattle feeders sold 422 head of the 1,022 offered in the weekly Fed Cattle Exchange auction—all from the Southern Plains. Of those 103 head sold for a weighted average price of $96/cwt. (1-9 day delivery) and 319 head sold for a weighted average price of $96.12 (9-17 day delivery). Those prices mirrored country trade in the region on Tuesday.
Cattle futures closed mixed, but mostly slightly higher on Wednesday, with more strength later in the session. Some positioning is likely Thursday, ahead of Friday’s Cattle on Feed report and the semiannual Cattle inventory report.
Live Cattle futures closed mixed, from an average of 24¢ lower through the front four contracts to an average of 42¢ higher.
Feeder Cattle futures closed an average of 31¢ higher.
Choice boxed beef cutout value was 27¢ higher Wednesday afternoon at $201.15/cwt. Select was $2.02 lower at $189.28.
Corn futures closed 2¢ to 4¢ higher.
Soybean futures closed mostly 1¢ to 2¢ higher.
Major U.S. financial indices closed higher Wednesday, buoyed by promising coronavirus vaccine news and chatter about additional federal economic stimulus.
The Dow Jones Industrial Average closed 165 points higher. The S&P 500 closed 18 points higher. The NASDAQ closed 25 points higher.
USDA released its investigation into cattle and beef price reactions to last summer’s fire at the Tyson plant in Holcombe, KS and to disruptions wrought by COVID-19.
The report—Boxed Beef & Fed Cattle Price Spread Investigation Report—details market conditions and prices before, during and after those events, although the pandemic continues.
Keep in mind this USDA investigation does not examine potential violations of the Packers and Stockyards Act. USDA continues to cooperate with the Department of Justice Antitrust Division in that agency’s current investigation.
Instead, the report provides the logic and details behind the price reactions of the two black swan events: higher wholesale beef prices and lower fed cattle prices spawned by disruption to packing capacity and by altered demand flow, in the case of the pandemic.
No surprises, no matter how distasteful the reality.
“Record high meat prices are not a surprise,” says Stephen Koontz, agricultural economist at Colorado State University, reflecting on COVID impacts, specifically, in Economic Reasons for What was Observed in Fed Cattle and Beef Markets During the Spring of 2020.
“The grocery store supply chain was emptied during the closures of local economies and then had difficulty catching up,” Koontz explains. “Further, prices associated with specific cuts that consumers typically prepare at home were the highest. Prices of cuts sold at restaurants initially dropped to record lows and then rallied as consumers made substitutions and began purchasing cuts they did not buy typically. However, all rallied as total beef supplies diminished with closures and partial operations.
“Record low livestock prices are also not a surprise. 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.”
The USDA report also offers considerations relative to price discovery, market transparency and price risk management.