Calf prices soften amid increased volume

Although wet and muddy conditions continued to hamper cattle movement in some areas, the fall calf run began in earnest this week with sharply higher auction receipts and many barns holding their first calf sales of the season.

Overall, steer and heifer calves sold steady to $5 per cwt lower, according to the Agricultural Marketing Service (AMS). Yearling steers and heifers sold steady to $3 lower.  

“The best demand for calves this week was for very lightweight offerings of either sex as buyers have their sights on next year's yearling market,” explained the AMS reporter at Miles City Livestock Commission in Montana Tuesday. “Many of these offerings are going to local feeders or hay meadows to wean while they wait for turnout time for wheat pasture in the Southern Plains.”

Calf health risk, defined in part by weaning and vaccination management, continued to be key to price differentiation.

“The wide price spreads seen in this report reflect how important a full vaccination program is this year,” explained the AMS reporter at  Tuesday’s Mobridge Livestock Auction in South Dakota. “Harsh spring weather, the recent cold and wet fall weather, and  poor lot conditions are all factors contributing to caution exhibited by buyers trying to procure calves that have the least chance of getting sick.”

With that said, more promising winter forage conditions so far continue to underpin calf and feeder prices. Pasture conditions continued to improve week to week, according to the latest USDA Crop Progress report. Although 2% behind the five-year average, winter wheat planting is running 7% ahead of last year with 65% in the ground. At 44%, emergence is 9% more than last year and 3% more than average.

Cattle futures mostly softened week to week, amid uncertainty and light interest.

Week to week on Friday, Feeder Cattle futures closed an average of 85 cents lower (5 cents to $1.92 lower)—an average of $4.79 lower in the last two weeks.

“When feeder cattle futures decline $1 per hundredweight, then the expectation is for calf prices to decline more than $1 per hundredweight during the fall marketing time period,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “Given the results of how the market is reacting, one may surmise strong demand for calves. This is probably a safe hypothesis for the strength in the fall calf market as potential for grazing winter wheat in the Southern Plains remains positive.”

Analysts with USDA’s Economic Research Service raised expected feeder cattle prices (OKC, 750-800 pounds) to $150-$156 per cwt for the fourth quarter, based on expectations of continued strong demand.

“Price information from Oklahoma National Stockyards for feeder steers weighing 750-800 pounds suggests that there is competition for ownership of these animals,” ERS analysts say, in the latest monthly Livestock, Dairy and Poultry Outlook. “Coupled with counter-seasonal gains in prices for lighter-weight feeder cattle, this may suggest that winter forage conditions have improved over last year.”

ERS estimates feeder prices at $141-$149 per cwt in the first quarter next year, $143-$153 in the second quarter and $145-$155 in the third quarter.

Fed cattle prices remain near steady

For the sixth consecutive week, negotiated cash fed cattle prices mainly hovered in place. Live prices were steady to $2 lower in Nebraska at $109-$111 per cwt, and steady to $1 higher in the western Corn Belt at $109-$110. Dressed trade was steady in Nebraska at $174; steady to $1 lower in the western Corn Belt at $173-$174.

“Prices for live cattle will be expected to move in a positive direction during the fourth quarter. The results of the last month and a half may be indicating a moderate fourth-quarter increase or it could be setting the stage for a violent surge in prices,” Griffith says.

Week to week on Friday, Live Cattle futures closed narrowly mixed, but mostly lower from an average of 42 cents lower to an average of 52 cents higher.

ERS raised the expected fourth-quarter price for fed steers (Five Area direct) to $110-$114 on a projected slower marketing pace.

“The slower pace is likely in part a reflection of lighter placement weights during the spring months, but may also reflect a desire by feedlots to capture premiums implied by October and December futures,” ERS analysts explain. “Although fed steer prices in the Five Area marketing region for September averaged above year-earlier levels, expected increased supplies of cattle available for slaughter in fourth-quarter 2018 are likely to pressure prices relative to last year.”

USDA reduced estimated beef production for this year by 150 million pounds to 26.9 billion pounds.

Wholesale beef values finally gained some seasonal traction. Week to week, Choice boxed beef cutout value was $5.22 higher Friday afternoon at $207.93 per cwt. Select was $1.96 higher at $194.24.

Although beef demand continues at a healthy pace, beef supplies continue to increase, as do supplies of competing proteins. Plus, Griffith points out pork production hits a seasonal peak in November and December.

Retail prices for beef and pork drifted lower in September, reversing a trend from the summer months, according to the Livestock Marketing Information Center (LMIC), in the latest Livestock Monitor. Retail chicken prices moved lower, too, but within a narrow range established early last year.

“The biggest retail price decline from August to September was for Choice beef, falling 15 cents per pound,” say LMIC analysts. “Even with the drop in price, compared to 12 months earlier, prices were still 2% higher. That compares with retail pork prices that were 5% lower than a year earlier and chicken prices that were lower by a fraction of a percent.” They note the prices are based on Bureau of Labor Statistics survey data that is compiled by ERS.

“The 2019 beef production forecast was raised by 190 million pounds to 27.9 billion pounds,” say ERS analysts. “The adjustment reflects a greater number of cattle expected to be placed in feedlots in second-half 2018 and in first-half 2019 (see “Feedlot placements…”), equating to more fed cattle marketed and slaughtered in 2019. The expected higher number of fed cattle to be slaughtered was partially offset by an expectation of lower dressed weights in early 2019.”

Feedlot placements declined in September

Depending on you abacus, Friday’s Cattle on Feed report came in about neutral with fewer placements and slightly fewer cattle on feed than expected, but also fewer marketings.

There were 2.05 million head placed in September in feedlots with 1,000 head or more capacity. That was 4.60% less (-99,000 head) than a year earlier. Heading into the report, most analysts expected placements to be about even with last year. Keep in mind there was one less weekday in September this year.

“High placements have been seen despite profitability concerns,” explained analysts with Allendale, Inc., ahead of Friday’s report. “Kansas State estimates a $110 loss per head on finished cattle in September. First-half 2019 marketings are slated for $122-$125 breakevens. August placements determine a part of the March through early August beef supply.”

In terms of weights, 36.81% went on feed weighing 699 pounds or less; 43.69% weighing 700-899 pounds; 19.5% weighing 900 pounds or more. That continues the trend of recent months.

Analysts with the Livestock Marketing Information Center (LMIC) point out, in the latest Livestock Monitor, that cattle placed at weights lighter than 600 pounds were 14% more in July than the previous year and 19% more in August. Similarly 23% more cattle were placed in July weighing 600-699 pounds; 18% more in August.

September marketings of 1.72 million head were 3.59% less (-64,000 head) than the previous year. Expectations ahead of the report were for marketings to be about even.

So, cattle on feed Oct. 1 were 11.40 million head, which was 5.43% (+587,000 head) more than last year. Most analysts expected to see about 6% more. Still, it’s the largest Oct. 1 inventory since the data series began in 1996.

Of the 12 major cattle feeding states listed in the report, South Dakota was the only one with fewer cattle on feed at the beginning of October, year over year. There were 2.30% more steers on feed than a year earlier and 11.03% more heifers.

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

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