Cattle Current Daily—July 29, 2021

Cattle Current Daily—July 29, 2021

Negotiated cash fed cattle trade was limited on light demand in in all major feeding regions through Wednesday afternoon, according to the Agricultural Marketing Service.

Central Stockyards offered 7,773 head in its weekly Fed Cattle Exchange auction. Of those, 1,085 head sold (436 heifers and 649 steers), all from the Southern Plains. Steers brought a weighted average price of $119.78/cwt. The weighted average price for heifers was $119.14.

Cattle futures limped to narrowly mixed trade Wednesday amid sluggish interest

Live Cattle support included another day of higher boxed beef prices.

Live Cattle futures closed marginally mixed, from an average of 7¢ lower in four contracts to an average of 9¢ higher. 

Feeder Cattle futures wavered with pressure from higher Corn futures, led by sharply higher Wheat futures. Kansas City Wheat on the CME was 14¢ to 18¢ higher through May ’23. Chicago Wheat was 10¢ to 14¢ higher through Sep ’22.

Feeder Cattle futures closed narrowly mixed, from an average of 37¢ lower through the front five contracts to an average of 19¢ higher.

Choice boxed beef cutout value was $3.43 higher Wednesday afternoon at $273.16/cwt. Select was $2.18 higher at $256.12/cwt. The CME Boxed Beef Index was $1.19 higher at $262.75.

Corn futures closed fractionally higher to 3¢ higher through the front six contracts, then mostly fractionally higher to 1¢ higher.

Soybean futures closed 13¢ higher in spot Aug, then 1¢ to 3¢ higher through Jan ’23.

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Major U.S. financial indices closed mixed on Wednesday after Federal Reserve Chairman Jerome Powell announced interest rates would continue near zero while acknowledging the economic recovery has made progress.

The Dow Jones Industrial Average closed 128 points lower. The S&P 500 closed 1 point lower. The NASDAQ was up 102 points.

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“Despite the challenges of the past couple of years, the beef cattle system responded remarkably well to a series of large, unexpected disruptions. Producer prices have been on the rise. Consumer demand is strong. These core facts should remain front of mind when considering changes that would significantly affect the cattle industry going forward.”

That’s the conclusion of testimony Wednesday from Jayson Lusk, noted agricultural economist at Purdue University, to the U.S. House Agriculture Subcommittee on Livestock and Foreign Agriculture. This was in a hearing titled, State of the Beef Supply Chain: Shocks, Recovery, and Rebuilding. You likely recall the U.S. Senate Agriculture Committee recently held a similar hearing.

Lusk explored central topics in his testimony, topics receiving much of the attention when it comes to cattle markets. Among them: packing capacity and price discovery. Here’s some of what he had to say.

Packing capacity

“My research with Purdue colleague Meilin Ma indicates that even if we would have had a more distributed packing sector consisting of more small and medium sized plants instead of a small number of larger plants, the price spread dynamics and beef supply disruptions would not have likely been appreciably different than what we witnessed. The problem at the time was not the size and localness of the plants but total industry capacity.”

“Support for small and local processors might benefit local economic ecosystems and increase custom harvest operations for producers, but these operations, because they lack economies of scale, must focus on quality and service to be competitive, and are such a small part of the national industry that investments at this size are unlikely to significantly alter the aggregate industry capacity.”

Price discovery

“In efforts to improve price discovery, an important distinction needs to be made: price levels and price volatility. Even if all cattle were traded on a negotiated cash basis, the price level would not necessarily improve; however, we might be more confident that any given transaction would be reflective of the ‘true’ underlying supply and demand conditions at the time and location. Whether, in fact, there are too few cash transactions to reflect market fundamentals is debatable.”

“The best economic case for mandating more negotiated transactions rests on the argument that price discovery is a public good. Are there less costly ways to improve price discovery…Even if a mandate were pursued, it might be made more efficient if coupled with a ‘cap and trade’ system, where obligations to secure cattle in the cash market might be bought and sold in a secondary ‘offset’ market, similar to what currently exists for fuel manufacturers to blend a given amount of biofuels…”

2021-07-28T19:22:25-06:00

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