Negotiated cash fed cattle trade continued to be light on Tuesday. The only established trend reported by AMS so far this week is mostly $180/cwt. on a dressed basis in the western Corn Belt. Although too few to trend, early live and dressed sales in Nebraska so far this week are at the top of last week’s range.
Cattle futures closed narrowly mixed Tuesday, amid sparse interest and direction.
Live Cattle futures closed from 30¢ lower to 22¢ higher, with open interest continuing to decline.
Except for 82¢ higher in spot May, Feeder Cattle futures closed an average of 39¢ lower, in light trade.
The most recent CME Feeder Cattle Index of $126.84 was the highest since the end of March.
Choice boxed beef cutout value was $5.48 lower Tuesday afternoon at $409.47/cwt. Select was $6.00 lower at $388.87.
Corn futures closed mostly 1¢ higher.
Soybean futures closed mostly 2¢ lower through Mar ’21 and then fractionally higher to 1¢ higher.
Major U.S. financial indices closed lower Tuesday. Reportedly, pressure included a negative report about a potential COVID-19 vaccine, which helped lift stocks the previous day when initial test results were announced.
Investors also were assessing the latest economic projections from the Congressional Budget Office (CBO).
“After falling by 1.2% in the first quarter of 2020, real GDP is projected to contract even more sharply—by 11.2%—in the second quarter. At annual rates, those declines are equivalent to 4.8% and 37.7%, respectively,” according to the CBO’s Interim Economic Projections for 2020 and 2021. “Although the drop in output is acute, it has been partially blunted by past investments in information technologies (such as computers, software, and communications equipment), which have made it possible for a significant portion of economic activity to continue remotely. Before the pandemic began, almost 30% of workers reported that they could work from home…”
The report suggests the domestic economy will begin recovering during the second half of this year as concerns about the pandemic wane, state and local governments loosen stay-at-home orders, etc.
“The labor market is projected to materially improve after the third quarter; hiring will rebound and job losses will drop significantly as the degree of social distancing diminishes,” according to the report. “However, those improvements will not be large enough to make up for earlier losses. Compared with their values two years earlier, by the fourth quarter of 2021 real GDP is projected to be 1.6% lower, the unemployment rate 5.1 percentage points higher, and the employment-to-population ratio 4.8 percentage points lower. Inflation and interest rates on federal borrowing will remain relatively low because of subdued economic activity and weak labor market conditions through 2021.”
The Dow Jones Industrial Average closed 390 points lower. The S&P 500 closed 30 points lower. The NASDAQ closed 49 points lower.
“It appears that the overall feed situation will be favorable and provide more flexibility for feeder and feedlot cattle operations,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his latest weekly market comments.
USDA projects corn production from the new crop at a record large 16 billion bu., in the latest World Agricultural Supply and Demand Estimates (WASDE). USDA projects ending stocks to be 1.2 billion bu. more than last year, which would be the most since 1987-88. The WASDE 2020-21 season average corn price forecast is $3.20/bu., the lowest since 2006-07.
Hay stocks on farms as of May 1 were also 5.52 million tons more (+37.03%) than the previous year at 20.43 million tons, according to the most recent USDA Crop Production report.
“The Livestock Marketing Information Center (LMIC) projects 2020 alfalfa hay production to increase 4.0%, resulting in larger ending stocks and season average prices down nearly 17% year over year to $150/ton,” Peel says. “Total other (non-alfalfa) hay production may decrease 1-2% in 2020 but a slight buildup of ending stocks is projected to push season average prices down fractionally to $132.50/ton…Regionally, the biggest concern is the Southeast with total May 1 hay stocks down 22.8% year over year (collectively) in Alabama, Georgia, Florida, North and South Carolina and Tennessee.”
As always, drought could change the outlook.
“A large area of low-level drought is building in the west from western Kansas to northern California and the Pacific Northwest. Some of the worst drought areas are in Colorado and surrounding regions and in Oregon. Drought in south Texas has improved somewhat in recent weeks but some drought continues along the gulf coast from Texas to Florida,” Peel says. “This is a critical growth period and any expansion of drought conditions may have significant implications for pasture and hay production in the West.”
More specifically, according to the most recent U.S. Drought Monitor for the week ending May 12, Peel explains 17.42% of the country is in some level of drought (D1-D4). Another 16.89% of the country is abnormally dry (D0). So, 34.31% was abnormally dry or worse, compared to 30.78% a week earlier and 24.15% three months earlier.