March 24, 2018
Between the significant increase in harvest-ready cattle supplies looming on the near horizon and skittishness heading into Friday’s monthly Cattle on Feed report, bears mostly had their way with cattle markets.
Steers and heifers sold $3-$10 per cwt lower, according to the Agricultural Marketing Service (AMS). The exception was mostly $2-$5 lower in the Southeast where there were instances of $7-$10 lower.
AMS analysts noted that demand was light to moderate for all weight classes, with auction receipts less week to week. A combination of factors likely delayed some marketing, from sloppy feedlot conditions in the western Corn Belt, to limited feedlot pen space overall, to the lower prices.
“Declining cash prices are to be expected, considering the losses in Feeder Cattle futures contracts that have ranged between $11 and $14 since Feb. 20 in most contracts,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “The price decline has resulted in prices falling below existing support levels, which makes it difficult to know where the bottom is in the market.
“Though a cash price decline should be expected, given losses in the futures market, lightweight calf prices are beginning to move lower when the seasonal tendency would be for a few more weeks of stronger prices. This could mean the spring price peak for lightweight calves has already been witnessed and softness can be expected through the remainder of the spring months as well as the summer and fall months. If the apex of calf prices has been reached, there will likely be a long arduous path to the fall lows.”
Although demand slackened for calves and feeder cattle, AMS analysts note that premiums continued to be paid for thin-fleshed cattle suited to summer grazing.
Feeder Cattle futures closed an average of $3.57 lower week to week on Friday, from $2.07 lower at the back of the board to $4.27 lower in spot March. That makes for an average of $6.59 lower over the last two weeks. By Wednesday, the CME Feeder Cattle Index dropped below $140 for the first time since last April.
Potential trade war adds market uncertainty
Although cattle futures found some traction Thursday, presumably tied to technical buying and short covering, strong pressure resurfaced Friday in the wake of the Chinese government placing pork on a list of U.S. products that could be subject to increased import duties. That followed President Trump signing an Executive Memo to levy tariffs on up to $60 billion worth of Chinese imports, in retaliation for intellectual property theft by that nation.
As U.S. total red meat and poultry production continues to grow, reduced exports would have obvious price implications for beef.
Worries about recently announced tariffs by the U.S. on steel and aluminum imports continued to create uncertainty in equity markets, too. The Dow Jones Industrial Average was 1,413 points lower week to week. The broader S&P 500 was 163 points lower.
Friday’s Cattle on Feed report with more placements than expected again (see below) will likely add more pressure to start next week.
Fed cattle prices soften
Negotiated cash fed cattle prices were $1 lower in the Southern Plains at $126 per cwt. Live prices in the Northern Plains were $2-$3 lower at mostly $126. Prices were also $2-$3 lower in the western Corn Belt at $126-$128. Dressed trade was $2-$5 lower at $200-$203.
“Seasonally tight fed cattle supplies have ratcheted tighter, leaving limited availability for immediate needs,” says Isaac Olvera, livestock and meat market analyst for Informa Economics IEG. “The smaller than expected harvest levels support the notion that supplies are tight, as cattlemen would rather keep their marketing aggressive, but are limited by how far ahead they can pull green cattle. Additionally, packer margins have approached the $150 area, but slaughter rates have been averaging just 2% over a year ago.
Live Cattle futures closed an average of $4.96 lower through the front three contracts, week to week, on Friday. Live Cattle futures were an average of $2.59 lower in the middle contracts and then an average of $1.46 lower.
“Based on this week’s market, live cattle traded $6 to $7 higher than the April futures contract,” Griffith says. “The expectation is for the cash price and futures price to converge as the market moves toward the expiration of the April contract. With that being said, serious price movement will have to occur from futures, cash, or both to see convergence.”
Expectations for more steers in the slaughter mix is also adding market angst.
In the latest issue of In the Cattle Markets, David Anderson, Extension livestock economist at Texas A&M University, notes that reduced year-over-year steer slaughter last month helped fuel the rally in cash fed cattle prices.
Anderson explains steer slaughter in February was 2.1% less than the previous year, while heifer slaughter increased 7.8%. Through the first half of March, steer slaughter was running about even with last year.
“The mix of animals going to market is an important part of this spring rally in prices,” Anderson says. “Relatively more heifers and cows than steers is working to moderate beef production, which is only up 2.5% so far this year…The expectation of growing steer and heifer supplies is contributing to falling Live Cattle prices on the futures market.”
Steer carcasses weigh more, of course. Although heifer dressed weights are 7.2 pounds more this year, compared to an increase of 2.5 pounds for steers, Anderson notes that steer dressed weights are 56 pounds heavier than heifers.
Choice boxed beef cutout value was $2.50 lower week to week on Friday at $223.09 per cwt. Select was 46¢ lower at $216.40.
“As beef demand increases into the spring, cattle costs are expected to erode, and packers will likely continue to hold favorable margins, which should further advance aggressive harvest rates,” Olvera says.
One bright spot for the week came with USDA’s monthly Cold Storage report indicating that frozen beef supplies remain less year over year.
Total pounds of beef in freezers Feb. 28 were 8% less than the previous month and 8% less than the previous year.
Frozen pork supplies were up 6% from the previous month and up 8% from last year.
Total red meat supplies in freezers were down slightly from the previous month but up 1% from last year.
Total frozen poultry supplies on Feb. 28, 2018, were up 6% from the previous month and up 14% from a year ago.
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