Cattle markets move mainly sideways as trade certainty improves

Stocker demand underpins calf prices

Cattle markets trudged mostly sideways this week, helped along by early-week news that Canada will join the U.S. and Mexico in a new North American trade agreement (see “More trade dominos fall”).
Feeder cattle traded firm to $2 per cwt higher, according to the Agricultural Marketing Service (AMS). Calves sold unevenly steady with buyers discounting un-weaned and short-weaned types in some areas.
Week to week on Friday, other than narrowly mixed across the front half of the board, Feeder Cattle futures closed an average of 96 cents higher (40 cents to $1.50 higher).
The CME Feeder Cattle Index was at the highest level since last November on Thursday at $158.18.
“Numerous factors will affect the likelihood of a seasonal stocker calf price low in the next month,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Supplies will grow as feeder volumes increase to a seasonal peak by early to mid-November. With the larger 2018 calf crop, the fall run of calves is expected to exceed last year. However, demand for wheat pasture stockers may partially or totally offset increased stocker calf supplies (see “Wheat pasture prospects….)
“I really don’t expect much more increase in stocker prices but additional increases are possible in the next couple of weeks. As we move through October into November, feeder prices are likely to stabilize or perhaps move lower but the seasonal low may be quite muted. Recent purchase price increases have reduced the return potential for winter stockers, meaning that producers should carefully budget winter stockers to guide upcoming purchases. For cow-calf producers, recent calf price increases have added upwards of $50 per head to calf value in the past six weeks or so.”
Fed cattle prices hover
Negotiated cash fed cattle trade was mainly steady through late Friday afternoon at $110-$112 per cwt on a live basis and at $174-$175 in the beef. Trade remained undeveloped in the Southern Plains.
Live Cattle futures closed narrowly mixed, from an average of 32 cents lower toward the front of the board to an average of 24 cents higher.
“Packers continue to work in the black as slaughter rates remained aggressive and finished the week at 643,000 head,” say AMS analysts.
Wholesale beef values continued seasonally lower. Week to week, Choice boxed beef cutout value was 63 cents lower Friday afternoon at $203.25 per cwt. Select was $1.70 lower at $191.74.
“Wholesale beef prices seasonally come under pressure in late September and October as consumers move away from summer routines,” explains Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “How prices move is dependent on supply and demand. Demand for beef has been strong domestically and internationally. Similarly, supply of beef and other meats has been increasing the past few years, and it is expected to continue increasing.”
For perspective, based on USDA data, Griffith says per capita consumption of red meat and poultry in the U.S. last year was 215 pounds, which was the most since 2007. He says it’s projected to be about 220 pounds for the next two years, similar to the total for 2002-2007.
Choice price support
David Anderson, Extension livestock economist at Texas A&M University, points out a relative year-over-year decline in Choice-grading beef is helping to keep Choice wholesale beef values higher than last year.
“Choice beef production over the last four weeks is about 3.2% below a year ago,” says Anderson in the latest issue of In the Cattle Markets. “The effect of fewer carcasses grading Choice is compounded by fewer steers and relatively more heifers in the slaughter mix. Fed steer weights are about the same as a year ago, while heifers are reflecting heavier weights. This lack of Choice beef is showing up in prices with the Choice cutout at about $204 per cwt compared to about $192 a year ago.”
Keep in mind, the trend over time continues to be significantly more carcasses grading Choice and Prime.
Of the beef carcasses graded in September of 1997, Anderson explains 2% graded Prime and 51% graded Choice, while 37% graded Select. Through the first three weeks of September this year, 7.8-7.9% graded Prime, 70.0-70.1% graded Choice (30-30.2% upper two-thirds of Choice) and 17.6-18% graded Select. That’s according to the weekly USDA National Steer and Heifer Estimated Grading Percent reports.

Wheat pasture prospects are promising

Although wet weather is slowing the pace in some areas, winter wheat planting continues ahead of last year and looks to be the most promising in years.
At the beginning of October, 43% of winter wheat was in the ground, which was 9% more than last year and 3% more than the average. According to the weekly USDA Crop Progress report, 14% had emerged, which was 4% more than last year, but on par with the average.
“Early planting and quick germination will grant cattle earlier access to those fields and allow for longer grazing without sacrificing harvesting that wheat for grain,” say analysts with the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. “Time will tell how the forage potential of those pastures will be, but heading into the fall availability looks to be well above normal.”
In fact, the most cattle in a decade will likely graze wheat pasture in Kansas, Oklahoma and Texas, according to LMIC.
“As of Jan. 1, 2019, the three-state total could be 1.8 to 2.0 million head,” LMIC analysts say. “At that midpoint (1.9 million head), it would indicate the number of head winter grazing has increased from the prior year by 400,000 head (up 27%). That number would go a long way in absorbing the growth in this year’s national calf crop, but it may also bunch-up sales of short yearling animals coming of those pastures as early as mid-February.”
For perspective, the three-state average for the past 18 years is about 2.1 million head, according to LMIC.

More trade dominos fall

Commodity and equity markets received a boost to start the week with news that the United States, Mexico and Canada reached agreement in principle to a new trade agreement—the United States–Mexico–Canada Agreement (USMCA)—to replace the North American Free Trade Agreement (NAFTA). That follows the previous week’s signing of the modernized Korea-United States Trade Agreement (KORUS) and the start of negotiations for a bilateral trade deal between the U.S. and Japan.
“The new USMCA will advance United States agricultural interests in the most important markets for American’s farmers, ranchers, and agribusinesses. This high-standard agreement opens new markets to expand United States food and agricultural exports and support food manufacturing and rural jobs,” according to a factsheet from the U.S. Trade Representative (USTR). “Canada and Mexico are our first and third largest exports markets for United States food and agricultural products, making up 28% of total food and agricultural exports in 2017. These exports support more than 325,000 American jobs.”
The agreement maintains the zero-tariff status of agricultural products included in NAFTA. However, according to the factsheet, “Since the original NAFTA did not eliminate all tariffs on agricultural trade between the United States and Canada, the USMCA will create new market access opportunities for United States exports to Canada of dairy, poultry, and eggs, and in exchange the United States will provide new access to Canada for dairy, peanuts, processed peanut products, and a limited amount of sugar and sugar containing products.”
Dan Kowalski, vice president of CoBank's Knowledge Exchange Division explains, “This agreement will advance the ball for some sectors, but for others, the deal represents a return to the status quo. Market access gains will be modest, but we expect the increased certainty to boost domestic and cross-border investment. However, Canada and Mexico still have tariffs in place that affect the U.S. dairy, pork and beef sectors. U.S. agriculture will have much more to celebrate when those barriers are removed.”
A new report from CoBank’s KED (From NAFTA to USMCA) describes the NAFTA replacement as evolutionary rather than revolutionary.
“The impact of Mexico’s tariffs on cheese and pork, and Canada’s tariffs on prepared beef, far outweigh the benefits laid out in USMCA,” according to the report. “Therefore, an agreement on steel and aluminum trade, whenever it is struck, will offer much more for U.S. agriculture to celebrate.”

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

North Central

South Central

Southeast

CME Feeder Index

CME Feeder Cattle Futures

CME Live Cattle Futures

CME Corn Futures

CME Oil Futures (WTI)