Cattle markets shake off early-week gloom

Calf prices face seasonal pressure

Given how markets started, many will chalk this week up in the victory column.
As suspected, Cattle futures took a dim view of last Friday’s Cattle on Feed report, which indicated significantly more August placements than expected, at least on a percentage basis (see “Further cattle on feed perspective” below). However, a day following limit-down and near-limit-down moves, stability returned. On Wednesday, futures closed sharply higher. The dip on Friday likely had plenty to do with month-end and quarter-end position squaring.
Along the way, cash feeder cattle sold mostly uneven from $4 per cwt lower to $4 higher, according to the Agricultural Marketing Service (AMS). The swing was wide, as much as $8 per cwt lower early in the week and as much as $7-$8 higher later. Heavy rain and mud hampered receipts at some weekly auctions in the Southern Plains.
Bawlers continued to face pressure as the weather transitions to wide daily temperature gyrations; demand was described as steady at best.
Keep in mind that calf and feeder cattle prices continue significantly higher year over year. In the North Central region, prices are about 17-23% higher across the different weight classifications in USDA’s most recent National Weekly Feeder and Stocker Cattle Summary. They’re 16-18% higher in the South Central; 23-26% higher in the Southeast.
“Demand for feeder cattle and yearlings was moderate to very good, with many headed home to farmer feeders,” AMS analysts say. “Corn harvest is in full swing, with farmers looking to feed part of their corn crop to livestock, especially with the lower grain prices across the country.”
Friday’s Grain Stocks report from the National Agricultural Statistics Service provides some insight to corn’s reality. Although less than the trade expected, old-crop corn stocks are 32% more than last September at 2.29 billion bushels. Of those, 787 million bushels are stored on farms, which is 25% more than a year earlier.
Likewise, old-crop soybean stocks are 53% more than last September at 301 million bushels. Soybean stocks stored on farms is 112% more at 87.9 million bushels.
Feeder Cattle futures closed an average of $2.32 lower week to week on Friday ($1.45 to $3.87 lower), counting expiring Sep.
“Feeder cattle futures continue to be well supported through the first of 2018 with very few chinks in the armor, which means prices for cattle ready to enter the feedlot will be supported the next several months,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments.
“However, support in the yearling market does not translate into perfect support in the freshly-weaned calf market. It appears strong demand will continue for calves that will be placed on grass in stocker operations, but that will not keep prices from softening in October and November.”
With seasonal price softness at hand, Griffith encourages cow-calf producers to consider marketing alternatives, such as running the pencil on cost of gain versus the value of gain to evaluate the potential of keeping calves and adding weight.
Fed cattle prices hold steady
Cash fed cattle trade remained undeveloped until late in the week as packers tried to exploit the early-week negativity. On the other hand, cattle feeders were eyeing the wide discount in Live Cattle futures between spot October and the winter contracts. Confidence was bolstered by the belief that marketings remain current and packers will have to add inventory soon.
“Packers remain profitable and consumer demand for beef continues to drive packer operating margins in the black,” AMS analysts say. “This corroborates the live cash prices received the past couple weeks.”
Cash fed cattle trade ended the week primarily steady with the previous week on a live basis at $108 per cwt ($1 lower in Nebraska). Dressed trade was steady to $2 higher at $172.
Live Cattle futures closed an average of $1.82 lower week to week on Friday ($1.30 to $4.47 lower).
“There is no guarantee prices (fed cattle) will not decline over the next couple of months, but the expectation is for prices to have a steadiness and slowly gain ground heading through the fourth quarter of 2017,” Griffith explains. “There remain a large number of cattle on feed, but timely marketing the past 12 months has kept cattle current and the risk of a wall of cattle pushed to the sidelines. Cattle feeders have continued to purchase feeder cattle aggressively with the expectation of prices improving moving forward.”
Wholesale beef values show nascent signs of helping, too.
Choice boxed beef cutout value was $5.02 higher week to week on Friday afternoon at $196.62 per cwt. Select was 23¢ lower at $188.50. The Choice-Select spread widened by $5.25 to $8.12.
“September and October are two months when beef prices do more wallowing than moving in a defined direction,” Griffith says. “This wallowing is largely due to moving from the grilling holidays of summer to a time period of relatively strong beef supplies and indifference by consumers for beef products prior to the year-end holidays.
“Another factor impacting beef prices in early fall is competing meats such as pork. Pork production year to date is running 2.8% higher than last year and further increases in production are expected.”

Further cattle on feed perspective

Dig a little deeper and the unexpected surge in feedlot placements that shook markets at the beginning of this week are less negative than indicated by the initial reaction.
For context, last Friday’s monthly Cattle on Feed report indicated 2.6% more placements in August of this year than last. That was 5-6% more than the trade was expecting, saying as much with limit-down moves in Cattle futures on Monday.
“What may be overlooked is the continued strong marketings pace,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Marketings outpaced placements in August and pulled down the year-over-year increase in feedlot inventories, though not as much as expected.”
For the first eight months of the year, total placements are up 1.16 million head, an 8.4% year-over-year increase. “However, total marketings were up 0.847 million head, 6.1% more than last year, largely offsetting the increased placements. As a result, the September 1 on-feed inventory was up a modest 369,000 head year over year.”
Likewise, David Anderson, Extension livestock economist at Texas A&M University, explains in the most recent issue of In the Cattle Markets, “Total placements were 49,000 head above August 2016. That’s not a large number compared to total placements of 1.9 million. The 65,000 head increase in the heavier categories marketed over a likely two-month period is about 1,500 head per day, likely early in 2018, with maybe a few in late 2017.”
Plus, Peel notes that lighter carcass weights and continued strength in beef demand are offsetting some of the impact of increasing numbers and beef production.
For the year to date, steer carcasses averaged 14.1 pounds lower than last year, according to Peel. Heifer carcasses are 12.3 pounds lighter.
The August Choice beef price (retail, $5.94 per pound) was nearly 1% more than August of last year, Peel says. The All-Fresh beef retail price was fractionally higher than one year ago.
“It’s worth remembering also that current prices reflect the current market,” Anderson says. “The Cattle on Feed report contains information about supplies that will affect prices some months down the road. If anything, there is some fundamental market information that would suggest $108 fed cattle might be underpriced.”
“Clearly the supply challenges will continue for the foreseeable future,” Peel says. “However, 2017 has demonstrated very well that strong domestic and international demand for U.S. beef can mitigate much of the price pressure from growing beef production. Continued strong beef demand can limit 2018 cattle and beef price changes to modest declines.”

Consider last week’s USDA Cold Storage report indicating that total frozen beef supplies were 10% more than the previous month, but down slightly from last year. Total red meat supplies in freezers were 7% more than the previous month, but 3% less than last year.
“Even with very large tonnage being produced, most products (red meat) have continued to flow through marketing chains at a brisk pace and stocks have not increased year-over-year,” say analysts with the Livestock Marketing Information Center, in the latest Livestock Monitor.

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

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