Despite sharply lower outside markets, Cattle futures renewed gains on Tuesday, buoyed, in part, by notions that last week’s anemic trade volume of fed cattle means packers must step up to the plate this week. Moreover, all indications suggest cattle feeders remain plumb current in marketing.
Except for 22¢ higher and 37¢ higher on either end of the board, Live Cattle futures closed an average of 77¢ higher.
Feeder Cattle futures closed an average of $1.08 higher; an average of 79¢ higher across the front half and then an average of $1.37 higher.
Boxed beef cutout values were lower on light to moderate demand and moderate offerings, according to the Agricultural Marketing Service.
Choice boxed beef cutout value was $1.01 lower in the afternoon at $219.70/cwt. Select was $1.90 lower at $202.30.
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Major U.S. financial indices closed sharply lower Tuesday, in the wake of President Trump doing exactly what he said he would do: apply more tariff pressure to China if that nation retaliated against tariffs levied last week.
“On Friday, I announced plans for tariffs on $50 billion worth of imports from China. These tariffs are being imposed to encourage China to change the unfair practices identified in the Section 301 action with respect to technology and innovation. They also serve as an initial step toward bringing balance to our trade relationship with China,” said President Trump, in a White House Statement. “However and unfortunately, China has determined that it will raise tariffs on $50 billion worth of United States exports. China apparently has no intention of changing its unfair practices related to the acquisition of American intellectual property and technology. Rather than altering those practices, it is now threatening United States companies, workers, and farmers who have done nothing wrong…Therefore, today, I directed the United States Trade Representative to identify $200 billion worth of Chinese goods for additional tariffs at a rate of 10%. After the legal process is complete, these tariffs will go into effect if China refuses to change its practices, and also if it insists on going forward with the new tariffs that it has recently announced. If China increases its tariffs yet again, we will meet that action by pursuing additional tariffs on another $200 billion of goods. The trade relationship between the United States and China must be much more equitable.”
The Dow Jones Industrial Average closed 287 points lower. The S&P 500 closed 11 points lower. The NASDAQ closed 21 points lower.
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“The weekly average fed steer price in the 5-area marketing region likely reached a second-quarter peak of $124.81/cwt. for the week ending May 6,” says analysts with USDA’s Economic Research Service, in the latest monthly Livestock, Dairy and Poultry Outlook. “During that week, the price was nearly $20 above the asking price of the June Live Cattle contract. Although the spread narrowed during the month, the prospect of lower prices during June likely influenced feedlot operations to promptly market their cattle.”
Although marginally improved, by at least one measure, feedlots will face heavy economic pressure for the remainder of the year.
“Currently, the net returns projected for closeouts in May are minus-$118.09/head for steers and minus-$80.18/head for heifers,” according to the most recent Historical and Projected Kansas Feedlot Net Returns from Kansas State University (KSU). “Current projections indicate losses spanning the rest of 2018, with some improvement from last month’s expectations. If realized fed cattle basis continues to be stronger than projected, then that will further improve returns.”
Analysts emphasize these estimated returns are on a cash-to-cash-basis, assuming no price risk management.
Estimated net returns for fed steers in Kansas feedlots decline from minus-$249.05/head in June to minus-$64.00 in December. Net returns for heifers decline from minus-$162.54 in June to minus-$37.41 in December.