Negotiated cash fed cattle trade staggered ahead Wednesday with live sales in the Southern Plains mostly unevenly steady at $108/cwt. A day earlier, dressed trade in Nebraska was $10-$20 lower than last week at $165, according to the Agricultural Marketing Service.
Cattle feeders offered 1,447 head in the weekly Fed Cattle Exchange auction on Wednesday. Just one lot—228 head of Texas heifers—sold for a weighted average price of $105/cwt. for delivery at 1-17 days.
Choice steers and heifers sold $2.50-$3.00 lower at the fat auction in Tama, IA, where 120 head of Choice 2-4 steers weighing an average of 1,375 lbs. brought an average price of $106.59.
At Sioux Falls Regional in South Dakota, slaughter steers and heifers sold steady to $4 lower. There were 206 head of Choice 3-4 steers weighing an average of 1,590 lbs. and bringing an average of $105.27.
Cattle futures closed mostly lower with the softer cash tone and continued decline in wholesale beef values.
Other than 27¢ higher in spot Jun, Live Cattle futures closed an average of $1.09 lower.
Feeder Cattle futures closed an average $1.07 lower (67¢ lower at the back to $1.57 lower in spot Aug).
Choice boxed beef cutout value was $10.94 lower Wednesday afternoon at $236.06/cwt. Select was $5.11 lower at $222.84.
Corn futures closed mostly 1¢ to 2¢ lower.
Other than fractionally higher to 2¢ higher in the front four contracts, Soybean futures closed mostly 2¢ lower.
Major U.S. financial indices closed mixed Wednesday, with tech stocks enjoying the most support overall. Pressure likely stemmed from the Federal Open Markets Committee (FOMC) projections that reaffirm the lengthy economic recovery ahead.
The FOMC projects the median real GDP at -6.5 for this year, 5.0 in 2021 and 3.5 in 2022. Median PCE inflation is projected at 0.8 this year, 1.6 next year and 1.7 in 2022.
“The ongoing public health crisis will weigh heavily on economic activity, employment, and inflation in the near term, and poses considerable risks to the economic outlook over the medium term,” according to an FOMC statement. “In light of these developments, the Committee decided to maintain the target range for the federal funds rate at 0.0% to 0.25%. The Committee expects to maintain this target range until it is confident that the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.”
The Dow Jones Industrial Average closed 282 points lower. The S&P 500 closed 17 points lower. The NASDAQ closed 66 points higher.
“Current proposals to increase the number of cattle transacted through a particular channel is unlikely to affect beef demand derived from consumers and passed along the supply chain to producers or alter the current supply of fed cattle ready for harvest,” says Elliott Dennis, Extension livestock economist at the University of Nebraska-Lincoln, in the latest issue of In the Cattle Markets.
He’s referring to recent policy proposals to mandate that packers buy a specific percentage of their weekly fed cattle needs each week in the spot cash market. One, referred to as the 50-14 rule, led by Senator Chuck Grassley (R-IA) and Senator Jon Tester (D-MT) would mandate large-scale packers procure a minimum of 50% of total cattle purchased in the cash market each week for delivery within 14 days.
“The hope is that by increasing cash trade transactions it will solve issues with price discovery, effectively increasing negotiated cash prices,” Dennis explains. “Supply of fed cattle and demand for wholesale beef determines the price of fed cattle. In order to increase fed cattle prices, the 50-14 rule would either need to reduce the supply of fed cattle or increase the demand for wholesale beef. While the rule would increase negotiated cash transactions helping in price discovery in a given week, it is unlikely to affect the underlying fed cattle market supply and demand conditions to effectively increase cash price levels.”
In the meantime, during the pandemic, Dennis points out there have been significant shifts in the percentage of cattle traded via formula and those marketed with a negotiated grid.
“In April, formula trade was 74% of total weekly transactions and negotiated grid was 4%,” Dennis explains. “In May, formula trade fell to 48% and negotiated grid was 20%. The past few weeks, cattle sold on formula steadily increased while cattle on the negotiated grid have decreased. There has been little change in the negotiated cash and forward contract trade, on average for the U.S., since January 1, 2020.”
There are regional differences
“Formula trade fell in the Texas-Oklahoma-New Mexico region but not below five-year historical levels. This was offset by trade in the negotiated grid. Formula priced cattle fell from 95% of cattle priced in April to 30% in May. This was replaced entirely by negotiated grid priced cattle,” Dennis explains. “In both the Texas-Oklahoma-New Mexico and Kansas region there was little movement in the negotiated price. Pricing in Nebraska has been somewhat more volatile. Negotiated cash fell to a historic low of 2% of transactions in May and was entirely offset by increased formula trade. Negotiated grid and forward contract transactions were historically constant.”
During this period of time, Dennis notes that heavyweight carcass discounts declined as carcass weights increased contra-seasonally, due to the backlog in market-ready fed cattle. Quality premiums also shifted since the beginning of the year.
“The underlying makeup of cattle transactions the market is seeing is likely more due to a change in the grid premiums and discounts than a fundamental shift in producer preference for the way cattle are transacted,” Dennis says.