Judging by Feeder Cattle futures this week, available supplies are tighter than folks expected or folks are just lots more nervous about how many cattle will be available in coming months.
Already record-high, week-to-week Feeder Cattle futures jumped an average of $8.72 across the board.
Although cash prices for calves and feeders were less steamy, they continued to march ahead, too. All classes of calves and stocker cattle traded firm to $5/cwt. higher, according to the Agricultural Marketing Service (AMS). From the middle of the week forward, there were instances of as much as $10 higher for yearlings and calves.
“Price levels continue to soar for good yearlings, especially those selling with good weighing conditions, and strings of fancy calves,” AMS analysts say.
“Cattle rallied this week as traders brace for the pace of young, lightweight animals entering the food chain to slow in the months ahead,” explains John Otte, Penton market analyst. “Though the cattle herd has contracted for decades, the cheapest feed grains in years have hiked demand for livestock to be fed for slaughter.”
This week’s quarterly Grain Stocks report from USDA did nothing to dispel the notion that feed prices should move lower.
Old-crop corn stocks in all positions Sept. 1 were 50% higher than a year earlier at 1.24 billion bu. Of the total, 462 million bu. are on the farm, which is 68% more than a year ago. Off-farm stocks of 774 million bu. are 42% higher than a year ago.
Old-crop soybeans stored in all positions Sept. 1 of 92.0 million bu. are 35% lower than a year earlier.
All wheat stored in all positions Sept. 1 at 1.91 billion bu. is 2% more than a year earlier.
Though wholesale beef process continue to languish and folks keep fretting about consumer willingness to pay increasingly high retail prices, Live Cattle futures surprised many this week, jumping an average of $3.31 through the front four contracts week-to-week.
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“Asset managers in recent months sunk money into cattle and other commodities such as cocoa and coffee that have bucked declines in other commodity classes, like corn and soybeans,” Otte notes. “Cattle futures have moved higher on the view that a year-long run-up in cattle and beef prices will continue, mostly due to historically tight U.S. cattle supplies after prolonged drought in the southern Plains.”
Through Friday afternoon, though, cash fed cattle trade continued to be extremely limited, as it was the previous week. In fact, according to AMS analysts, “Last Week’s 5-Area negotiated cash trade was the lowest level (volume) since Mandatory Price Reporting started in 2001.”
“Packers have been pressured on both sides of their margin in recent weeks with fed cattle prices trying to move higher and beef cutout prices faltering,” explains Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “Margins have been fairly thin for the packing industry without the most recent price movements, but the recent strength in the fed cattle price and the decline in beef cutout price have caused the bottom line to result in red ink. Packers will likely have the opportunity to move prices higher late in the fall just prior to the holidays, but a lot of beef will be traded between now and then at not-so-profitable price levels.”
Though still languishing, wholesale beef values at least held their ground this week. Choice boxed-beef cutout value closed the week at $238.32/cwt., while Select was $226.36.
“Some traders think the effervescence in recent cattle futures trading defies logic. They ask ‘Who will pay $5 or $6/lb. for ground beef,’” Otte says. “Other proteins like pork and chicken, which are dramatically cheaper, beg for an answer to that question.”
In this week’s issue of BEEF Cow-Calf Weekly, economist Nevil Speer notes that retail ground beef prices in August were more than $4/lb. for the first time, according to Bureau of Labor Statistics. “…The move isn’t surprising nor out of the ordinary considering the long-run historical pattern in which retail price averages consistently have marched $2 ahead of ground beef prices,” Speer explains.
Bottom line, Otte says, “Tight supplies keep bulling cattle, particularly feeders. Cutouts are $10-$12 or so off their summer peaks. If consumers were willing to keep buying beef when Choice was near $250, market bulls think they'll keep buying $238.”
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