Cash cattle and futures prices decline

Cash cattle and futures prices decline

“Nobody seems to know where the bottom of this market will be, or just what it will take to get there,” say analysts with the Agricultural Marketing Service (AMS).

Steer and heifer calves sold mostly $5-$10 lower, with discounts commonly running $20 or more for un-weaned calves, according to the Agricultural Marketing Service (AMS). Yearlings traded steady to $5 lower.

Although short covering and position squaring boosted futures prices on Friday, Feeder Cattle futures were an average of $7.16 lower week to week ($6.55-$8.00 lower).

Demand has been considerably better for the true yearlings that are still making their way to town, with many of those that were long-time weaned and in the right condition quoted as steady to firm and even dollars higher in spots,” AMS analysts say.

For instance, the AMS reporter at Billings Livestock Commission in Montana on Thursday explained, “Buyers continue to show strong demand for preconditioned calves as they offer a premium to calves with only one round of vaccinations…buyers showed good to very good demand for attractive-quality calves, particularly for calves weighing over 600 pounds. Buyers were willing to give a premium for heavier calves as they figure breakevens against the April contract, which is a $5.90 premium to the June contract.”

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On the other hand, the AMS reporter at Mitchell Livestock Auction in South Dakota noted, “The calves were preconditioned and many were weaned, but there just wasn’t much interest from buyers. As the cash fed cattle market slipped below $100 and futures contracts fell further, cattle feeders are forced to figure their breakeven prices even lower.”

“Given market fundamentals of supply and demand, it would appear cattle are being undervalued in today’s market,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “However, cattle were grossly overvalued in the market in 2014, 2015, and much of 2016. Since the animals appear undervalued, the market is right for buying instead of selling.”

Griffith notes that buying does not necessarily mean going to the market and purchasing animals, though it could. “Another example of buying would be delaying marketing of animals. Calf values are probably $100 to $150 below what their value should be in today’s market.”

Fed cattle prices are the lowest in five years

Cash fed cattle sales were generally $4-$5 lower at $95 to mostly $98 per cwt. Dressed trade was $5-$7 lower at $152-$154. In fact, Griffith points out the Five Area weekly weighted average price for finished cattle fell below $100 for the first time since December 2010.

Week to week, Live Cattle futures were an average of $4.82 lower.

Griffith says cattle feeder continue to aggressively move cattle to the packinghouse, about opposite of the situation last fall when delayed marketing and too-heavy cattle broke the market. That comes with its own medicine, though.

“With the continuation of the elevated slaughter levels, one can only surmise that finished cattle prices will decline further,” Griffith says. That shows up on the other side of the scale, too, he explains, with increased production pressuring wholesale prices, while also enabling the packer to maintain leverage over the cattle feeder, which is atypical for this time of the year.

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Choice boxed beef cutout value was $1.21 lower week to week at $181.86 per cwt Friday afternoon. Select was $2.47 lower at $172.04.

At the same time, Nevil Speer, market analyst and vice president of U.S operations for AgriClear, Inc. explains the atypically-wide spread continues between the CME Feeder Cattle Index and deferred Live Cattle futures.

“In light of current losses in the feeding sector, financial pressure could work its way back upstream even more sharply than what’s been experienced to date,” Speer explains in a recent BEEF article. “Prolonged losses, continued volatility and liquidity concerns will likely reduce the risk appetite within the feeding sector and could pressure feeder prices even more drastically than what’s been witnessed thus far.”

“Nobody seems to know where the bottom of this market will be, or just what it will take to get there,” AMS analysts say. “Many livestock auctions still are running a more summer-like schedule and others still are seeing pretty light receipts. Producers are reluctant to bring cattle to town on such a down market, and with enough grass and hay there won’t be much movement until prices rise or a banker knocks at the door.”

 

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