September 30, 2017
Given how markets started, many will chalk this week up in the victory column.
As suspected, cattle futures took a dim view of last Friday’s Cattle on Feed report, which indicated significantly more August placements than expected, at least on a percentage basis (see “Further cattle on feed perspective” below). However, a day following limit-down and near-limit-down moves, stability returned. On Wednesday, futures closed sharply higher. The dip on Friday likely had plenty to do with month-end and quarter-end position squaring.
Along the way, cash feeder cattle sold mostly uneven from $4 per cwt lower to $4 higher, according to the Agricultural Marketing Service (AMS). The swing was wide, as much as $8 per cwt lower early in the week and as much as $7-$8 higher later. Heavy rain and mud hampered receipts at some weekly auctions in the Southern Plains.
Bawlers continued to face pressure as the weather transitions to wide daily temperature gyrations; demand was described as steady at best.
Keep in mind that calf and feeder cattle prices continue significantly higher year over year. In the North Central region, prices are about 17-23% higher across the different weight classifications in USDA’s most recent National Weekly Feeder and Stocker Cattle Summary. They’re 16-18% higher in the South Central; 23-26% higher in the Southeast.
“Demand for feeder cattle and yearlings was moderate to very good, with many headed home to farmer feeders,” AMS analysts say. “Corn harvest is in full swing, with farmers looking to feed part of their corn crop to livestock, especially with the lower grain prices across the country.”
Friday’s Grain Stocks report from the National Agricultural Statistics Service provides some insight to corn’s reality. Although less than the trade expected, old-crop corn stocks are 32% more than last September at 2.29 billion bushels. Of those, 787 million bushels are stored on farms, which is 25% more than a year earlier.
Likewise, old-crop soybean stocks are 53% more than last September at 301 million bushels. Soybean stocks stored on farms is 112% more at 87.9 million bushels.
Feeder Cattle futures closed an average of $2.32 lower week to week on Friday ($1.45 to $3.87 lower), counting expiring Sep.
“Feeder cattle futures continue to be well supported through the first of 2018 with very few chinks in the armor, which means prices for cattle ready to enter the feedlot will be supported the next several months,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments.
“However, support in the yearling market does not translate into perfect support in the freshly-weaned calf market. It appears strong demand will continue for calves that will be placed on grass in stocker operations, but that will not keep prices from softening in October and November.”
With seasonal price softness at hand, Griffith encourages cow-calf producers to consider marketing alternatives, such as running the pencil on cost of gain versus the value of gain to evaluate the potential of keeping calves and adding weight.
Fed cattle prices hold steady
Cash fed cattle trade remained undeveloped until late in the week as packers tried to exploit the early-week negativity. On the other hand, cattle feeders were eyeing the wide discount in Live Cattle futures between spot October and the winter contracts. Confidence was bolstered by the belief that marketings remain current and packers will have to add inventory soon.
“Packers remain profitable and consumer demand for beef continues to drive packer operating margins in the black,” AMS analysts say. “This corroborates the live cash prices received the past couple weeks.”
Cash fed cattle trade ended the week primarily steady with the previous week on a live basis at $108 per cwt ($1 lower in Nebraska). Dressed trade was steady to $2 higher at $172.
Live Cattle futures closed an average of $1.82 lower week to week on Friday ($1.30 to $4.47 lower).
“There is no guarantee prices (fed cattle) will not decline over the next couple of months, but the expectation is for prices to have a steadiness and slowly gain ground heading through the fourth quarter of 2017,” Griffith explains. “There remain a large number of cattle on feed, but timely marketing the past 12 months has kept cattle current and the risk of a wall of cattle pushed to the sidelines. Cattle feeders have continued to purchase feeder cattle aggressively with the expectation of prices improving moving forward.”
Wholesale beef values show nascent signs of helping, too.
Choice boxed beef cutout value was $5.02 higher week to week on Friday afternoon at $196.62 per cwt. Select was 23¢ lower at $188.50. The Choice-Select spread widened by $5.25 to $8.12.
“September and October are two months when beef prices do more wallowing than moving in a defined direction,” Griffith says. “This wallowing is largely due to moving from the grilling holidays of summer to a time period of relatively strong beef supplies and indifference by consumers for beef products prior to the year-end holidays.
“Another factor impacting beef prices in early fall is competing meats such as pork. Pork production year to date is running 2.8% higher than last year and further increases in production are expected.”
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