Although too few to trend, early negotiated cash fed cattle prices on Monday continued at the higher levels paid in the north toward the end of last week. Live sales in Nebraska were at $119-$120/cwt. Dressed sales there and in the western Corn Belt were at $190.
Cattle futures closed higher Monday, extending the previous session’s minimal gains, helped along by continued cash price strength and significantly higher outside markets.
Live Cattle futures closed an average of 87¢ higher (25¢ higher to $1.72 higher in spot Jun).
Feeder Cattle futures closed an average of 94¢ higher (57¢ higher to $1.87 higher in spot May).
Wholesale beef values continued their expected, precipitous decline as packing capacity continues to expand ever so slowly.
Choice boxed beef cutout value was $19.37 lower Monday afternoon at $414.95/cwt. Select was $24.19 lower at $394.87.
Corn futures closed mainly fractionally mixed.
Soybean futures closed mostly 7¢ to 8¢ higher.
Major U.S. financial indices closed sharply higher Monday, buoyed by promising early test results of a potential COVID-19 vaccine.
That was despite Federal Reserve Chair Jerome Powell’s sobering comments made to the U.S. Senate Committee on Banking, Housing, and Urban Affairs.
“Available economic data for the current quarter show a sharp drop in output and an equally sharp rise in unemployment. By these measures and many others, the scope and speed of this downturn are without modern precedent and are significantly worse than any recession since World War II,” Powell explained. “Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs, reversing nearly 10 years of job gains. This precipitous drop in economic activity has caused a level of pain that is hard to capture in words, as lives are upended amid great uncertainty about the future. In addition to the economic disruptions, the virus has created tremendous strains in some essential financial markets and impaired the flow of credit in the economy.”
The Dow Jones Industrial Average closed 911 points higher. The S&P 500 closed 90 points higher. The NASDAQ closed 220 points higher.
“The buildup in fed cattle supplies that are market ready is expected to have a substantial and lasting effect on fed cattle prices,” say analysts with USDA’s Economic Research Service (ERS). “Prices will remain low as the supply of market-ready cattle remains above the sector’s ability to process them, and the supply issue is expected to linger through 2021.”
Consequently, in the most recent monthly Livestock, Dairy and Poultry Outlook, ERS lowered this year’s average price forecast for fed steers (five-area direct) to $104.08/cwt.: $118.32 in the first quarter; $99 in the second and third quarters; $100 in the fourth quarter. The projected annual average price for next year is $109.
Keep in mind the forecast runs counter to current cash prices, which appear to be supported by packers’ willingness to give back some of their margins.
For perspective on packing capacity, ERS estimated 40% of U.S. packing capacity went by the wayside since Mar. 28, as plants struggled with COVID-19 infections and new safety precautions to protect workers.
“The current situation does not allow for plants to easily make up for lost slaughter capacity given workforce challenges,” say ERS analysts. “Based on recent maximum slaughter levels for the second quarter, there is likely a significant shortfall in slaughter since it peaked the last week of March. As a result, feedlots are having to continue to feed their cattle longer, and this is likely to be an issue into 2021 as the industry works through the feeder cattle that are awaiting placement in feedlots.”
ERS estimated there were 20.54 million head of cattle outside feedlots Apr. 1. That was 657,000 head more (+3.30%) than the same time a year earlier.
As the backlog of market-ready fed cattle continues to grow and feedlot margins are squeezed, ERS expects feeder cattle prices to remain under pressure.
“Based on recent price data, the second-quarter 2020 feeder steer price was lowered by $2 to $121/cwt. The third-quarter 2020 price forecast was lowered $5 to $123 and the fourth-quarter 2020 price was lowered $17 to $118,” say ERS analysts. “As a result, this month’s annual price forecast for 2020 was $124.50/cwt., close to last month’s forecast. The price forecast for first-quarter 2021 is expected to remain relatively low at $125. Feeder steer prices are expected to improve in the second half of 2021 on increased demand. The 2021 annual feeder steer price is forecast at $131.50, more than 5% higher than 2020.”