Cattle futures crawled higher Wednesday, building on the previous session as lower grain futures provided some support, despite lower cash fed cattle prices and languishing wholesale beef values.
Established country trade so far this week is $2-$3 lower on a live basis at $113/cwt. in the Texas Panhandle and $112-$113 in Kansas.
Similarly, there were 412 head (three lots from Kansas) offered in the weekly Fed Cattle Exchange Auction. One lot (heifers) sold for a weighted average price of $113, with delivery at 1-9 days.
Live Cattle futures closed an average of 87¢ higher (30¢ to $1.22 higher).
Feeder Cattle futures closed an average of $1.87 higher.
Wholesale beef values were lower on Choice and steady on Select with light to moderate demand and moderate to heavy offerings, according to the Agricultural Marketing Service.
Choice boxed beef cutout value was 89¢ lower Wednesday afternoon at $222.11/cwt. Select was 3¢ lower at $207.18.
Grain futures dove lower amid heightened volatility as traders weigh domestic planting prospects against what looks to be bumper crops in South America. That’s besides the potential impact of threatened U.S. tariffs on Mexican imports.
Corn futures closed mostly 10¢ lower through Jul ’20 and then 2¢ to 8¢ lower.
Soybean futures closed mostly 9¢ to 12¢ lower.
Major U.S. financial indices closed strongly higher again Wednesday. Follow-though support seemed tied to the previous day’s notion that the Fed is willing to cut interest rates in an effort to sustain economic growth.
Perhaps that’s why markets faded the ADP National Employment Report that indicated a month-to-month increase in private-sector non-farm employment of just 27,000, which was significantly less than the trade expected.
Optimism also came in the face of further erosion in oil prices, with pressure including more inventory than anticipated and wonderments about economic growth and demand. Crude Oil futures (WTI-CME) closed at their lowest levels since January, about $7 lower week to week through the front six contracts.
The Dow Jones Industrial Average closed 207 points higher. The S&P 500 closed 22 points higher. The NASDAQ was up 48 points.
Assuming other costs remain constant, last month’s increase in corn prices equates to an additional $5/cwt. for feedlot cost of gain, according to Brenda Boetel, Extension agricultural economist at the University of Wisconsin-River Falls.
“Using regression results obtained by Michael Langemeier from Purdue University that found each $0.10/bu. increase in corn prices increases feeding cost of gain by $0.87/cwt. and each $5/ton increase in alfalfa prices increases feeding cost of gain by $0.55/cwt., one can estimate that even if hay price and all other costs remain constant, cost of gain will increase by $5/cwt., given the May increase in price of corn,” Boetel, explains. “This calculation assumes price remains at this level and feeders haven’t conducted any hedging activities, but it highlights the increased costs of feeding producers should expect.”
In the latest issue of In the Cattle Markets, as of the first part of June, Boetel points out CME Corn futures for the front three months were up 59¢, which was 48¢ more than the 5-year average for the same period of time.
“If one assumes corn planting will be down 6 million acres to 86.8 million acres and we see a decrease of 2 bu./acre to 174.6 bu./acre yield we would see a decrease in corn production of 554 million bu.,” Boetel says. “Although the market may focus on the news concerning Mexico and trade, the long-term impact (and in my opinion the more likely scenario) of lower acres and yield will eventually have the greater impact on prices.”