Last week’s strong cash fed cattle prices, recent higher wholesale beef prices and Tuesday’s break in Corn futures helped propel Cattle futures higher.
Feeder Cattle futures closed an average of $3.24 higher.
Live Cattle futures closed an average of $1.53 higher.
Negotiated cash fed cattle trade was at a standstill in all major cattle feeding regions through Tuesday afternoon, according to the Agricultural Marketing Service.
Last week, live prices were $170-$171/cwt. in the Texas Panhandle, $171 in Kansas, $180-$182 in Nebraska and $182 the western Corn Belt Dressed. prices were $280-$286 in Nebraska and $285 in the western Corn Belt.
The weighted average five-area direct fed steer price last week was $2.79 higher at $177.94/cwt. The average fed steer price in the beef was $4.02 higher at $284.36.
Choice boxed beef cutout value was $1.03 higher Tuesday afternoon at $304.96/cwt. Select was $2.85 higher at $287.77/cwt.
Grain and Soybean futures closed sharply lower Tuesday as traders appeared to take back weather premium, as well as profits from last week’s rally.
Corn futures closed mostly 6¢ to 10¢ lower.
KC HRW Wheat closed 22¢ to 35¢ lower in the front five contracts and then 8¢ to 12¢ lower.
Soybean futures closed 30¢ to 41¢ lower through Aug ’24 and then 21¢ to 26¢ lower.
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Major U.S. financial indices closed little changed Tuesday with investors focusing on continued debt ceiling talks.
The Dow Jones Industrial Average closed 50 points lower. The S&P 500 closed fractionally higher. The NASDAQ was up 41 points.
West Texas Intermediate Crude Oil futures (CME) closed $2.81 to $3.21 lower through the front six contracts, pressured by concerns about global demand.
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“Increasingly tight cattle supplies suggest that margins at all levels above the cow-calf sector will be squeezed in the coming months. The severity of the squeeze and the timing will vary across beef industry segments,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments.
Stating with the cow-calf sector, Peel explains calf prices are currently about 50% higher year over year.
“With calf prices increasing faster than feeder cattle prices, stocker margins or value of gain is eroding. However, similar to feedlots, the time lags in stocker production will allow the uptrend in feeder prices to offset part of the high calf purchase prices,” Peel explains. “Calf prices are likely to continue increasing faster than feeder cattle prices in the coming months.”
So far, feedlot returns remain positive, due to long time lags associated with the sector and the recent rise of fed cattle prices to record levels, according to Peel.
“The increase in fed cattle prices is balanced against the price of feeder cattle placed in feedlots roughly six months ago,” Peel says. “However, it’s just a matter of time before feedlot margins feel the squeeze of rising cattle prices. The prices of feeder cattle currently being placed in feedlots are up about 39% year over year. Feedlot breakevens for fed cattle will increase sharply by the end of the year.”
As for the packing sector, Peel points out margins are already being squeezed as the 25% year-over increase in fed cattle prices runs ahead of boxed beef prices, which are about 14% higher.
“Additionally, packers will face increased overhead costs as declining cattle numbers will reduce packing plant utilization rates in the coming months,” Peel says.
Finally, comes the retail sector, where Peel says prices have remained mostly static during the last 16 months.
“It appears that retail margins are decreasing as wholesale values are increasing faster than retail prices,” Peel explains. “The reported retail beef prices reflect only grocery sales and less is known about beef price adjustments in food service and export markets. The ability of retail beef prices to move higher as limited supplies and rising wholesale prices squeeze retail margins is perhaps the biggest concern in beef markets currently.”