September 21, 2019
Continued strength in Feeder Cattle futures and firmer cash fed cattle prices sparked more buyer willingness to pay for calves and feeder cattle this week.
Nationwide, steers and heifers sold $2-$7 per cwt higher, according to the Agricultural Marketing Service (AMS). Analysts there note that demand for yearlings and calves improved throughout the week.
Week to week on Friday, Feeder Cattle futures closed an average of $2.65 higher ($1.12 to $3.82 higher in spot Sep). That’s an average of $5.94 higher over the last two weeks. The September futures contract finally moved to a higher level this week than before the Tyson fire.
Also week to week, the CME Feeder Cattle Index price increased $2.44 to $138.53
Although current futures prices likely include at least a portion of the expectations heading into the Cattle on Feed report (see “Feedlot placements…”), those numbers should be friendly enough to be at least neutral.
“Most lots of yearlings are coming off copious amounts of summer grass that have been available all summer,” say AMS analysts. “Several consignments were selling lighter than last year due to washy grass causing cattle to weigh up with lighter flesh….As grass has been abundant, with no frost yet, there has been no need to pull yearlings off grass and get them sold before they start to lose pounds without supplemental feed. Feeder cattle producers aren't anxious to sell cattle yet as they hope for a continued rally that will leave them with a positive return on their investment.”
Banking on a continued rally could be a tall order, though.
“Weakness in fed cattle prices will likely affect feedlots’ pricing of feeder cattle,” say analysts with USDA’s Economic Research Service (ERS), in the monthly Livestock, Dairy and Poultry Outlook released this week. “On Sept. 9 at Oklahoma National Stockyards, feeder steers weighing 750-800 pounds were reported at $134.80 per cwt, down about $6 from the week before the fire.
“Based on recent price data, the third-quarter 2019 feeder steer price was lowered by $4 to $138 per cwt. Because of the expected continuation of weaker fed cattle prices and a slower pace of marketing, the 2019 fourth-quarter feeder steer price forecast was lowered $5 from the prior month to $133,” ERS analysts report.
“The impact of lower fed cattle prices is likely to carry into 2020. The price forecasts for feeder steer prices in the first and second quarter of 2020 were reduced by $5 to $135 and $140, respectively. As a result, the 2020 annual price forecast for feeder steers was $140.50 per cwt.”
As it is, AMS analysts say, “Surprisingly, the feeder cattle market is active at the auctions as outgoing fed cattle continue to lose money as fed cattle hover on both sides of the $100 mark.”
Keep in mind that estimated feedlot returns from various sources are typically calculated on a cash to cash basis, assuming no price risk management. That’s not saying that feeder cattle returns are in the black. It is suggesting that some cattle feeders should be positioned more positively, such as those who hedged cattle, take advantage of the positive basis and receive formula-price premiums.
Fed cattle prices recover
Negotiated cash fed cattle trade through Friday afternoon was firmer to higher than the previous week with live sales steady to $1 higher in the Southern Plains at $101 per cwt., $1-$2 higher in the Northern Plains at $102 and steady to $2 higher in the western Corn Belt at $100-$104. Dressed trade was $2-$7 higher in Nebraska at mostly $162. It was steady to $5 higher in the western Corn Belt at $160-$165.
Week to week on Friday, except for 37 cents lower in away Dec, Live Cattle futures closed an average of 58 cents higher (10 cents to $1.27 higher in spot Oct). With the spot month up $1.27, there are plenty of hopes the post-fire ebb is established.
“With the expected return of the Holcomb plant in first-quarter 2020, the additional capacity would suggest some price support for fed cattle in early 2020,” say ERS analysts. “However, to the extent feedlots may have held cattle over from fourth quarter 2019 into early 2020, increased availability of cattle may mitigate some of the upward pressure on prices from increased packer demand.
“Accordingly, the first and second quarter price forecasts for 2020 were reduced by $5 to $119 and $117, respectively. As a result, the 2020 annual price forecast for fed steers was lower by $4 to $115 per cwt.”
Wholesale values continue lower
“The August 9 fire at the beef cattle slaughter facility in Kansas remains the story line, which factors into boxed beef prices,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments.
“During the two weeks following the fire, Choice boxed beef prices increased 11%, which was a price increase of nearly $16 per cwt over pre-fire prices. In the four weeks since that price increase, Choice boxed beef prices have declined about 9%, which has erased about $14 of the gain,” according to Griffith.
“When all is said and done, the fire has done very little to negatively influence beef production. The only thing that can be said is that beef buyers were panicked by the news, which resulted in a firestorm of beef buying to meet immediate needs and, potentially, future needs,” he says.
“Boxed beef prices should continue to be tempered through October before any beef buyers begin to aggressively purchase for holiday needs. The Choice-Select spread should narrow over the next several weeks during seasonally soft beef demand, but no prediction or expectation is guaranteed as has been shown by this market.”
Choice boxed beef cutout value was $3.91 lower week to week on Friday at $216.97 per cwt. Select was $6.88 lower at $191.72. That’s $10.34 less than the previous Friday for Choice and $10.22 less for Select.
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