Cattle futures leaked lower in light trade on Thursday as traders awaited direction from the cash market. Negotiated cash fed trade remained undeveloped through Thursday afternoon.
Except for 12¢ higher in the back contract, Live Cattle futures closed an average of 25¢ lower.
Feeder Cattle futures closed an average of 55¢ lower.
Boxed beef cutout values were lower on Choice and firm on Select, with light to moderate demand and offerings, according to the Agricultural Marketing Service.
Choice boxed beef cutout value was 88¢ lower in the afternoon at $217.41/cwt. Select was 56¢ higher at $201.61.
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Major U.S. financial indices closed lower Thursday, pressured by ongoing worries about the impact of a trade war with China.
The Dow Jones Industrial Average closed 196 points lower. The S&P 500 closed 17 points lower. The NASDAQ closed 68 points lower.
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“While feeder prices have been on an uptrend over the past month, it can’t be simply attributed to lower corn prices alone,” says Josh Maples, a livestock economist at Mississippi State University. “However, we know that cattle prices are certainly paying attention to the corn market and research suggests that any continued corn price weakness can help to provide support for feeder cattle prices.”
Between historically favorable early-season crop conditions, trade uncertainty and other factors, corn prices began heading south in mid-May.
“Both nearby and new-crop corn futures prices tumbled by over 40¢ or approximately 10%,” Maples explains, in the most recent In the Cattle Markets. “The December 2018 corn futures contract price hit $4.26 May 23—its highest level since July 2017. Just 18 trading days later, it closed at a contract low of $3.77.”
During the same approximate period, both cash feeder cattle prices and Feeder Cattle futures increased. The CME Feeder Cattle Index reached its recent low May 22 at 133.43 and then began to edge higher; 142.21 on Wednesday. Spot Aug Feeder Cattle futures reached a contract low May 16 at 136.725. It increased since then, trading at 149.425 on Wednesday this week.
The reality of declining corn prices supporting calf and feeder cattle prices, and vice versa, is nothing new, of course. However, Maples also points to research from Kansas State University (KSU) that suggests feeder cattle prices since 2008 are even more sensitive to corn prices and fed cattle prices than previously. The study, Price Relationships between Calves and Yearlings: An Updated Structural Change was conducted by KSU agricultural economist, Glynn Tonsor and Emily Mollohan, a former KSU graduate student, who is now an instructor at Northeastern Junior College in Sterling, CO.
“Using monthly data, they found that a 1% increase in corn price reduces feeder cattle prices by about 0.18%,” Maples explains. “To put their findings into a current context, what might a 10% decline in corn prices imply for feeder cattle prices? It would suggest a 1.8% increase in feeder cattle prices. So, a decline from $4.00/bu. corn to $3.60 would suggest a feeder price increase from $150/cwt. to $152.70.”
Keep in mind, according to the KSU study, “The impact of live cattle price expectations on feeder cattle prices is three or more times larger than the same proportional impact of corn price, and this relative impact has increased since 2008.”