Few are confident enough to say this week’s price rally signals an established market bottom, but relief from the relentless market pressure was palpable.
Buoyed by stronger futures prices and steamier cash fed cattle prices, steers and heifers sold mostly $4-$8 per cwt higher this week, according to the Agricultural Marketing Services (AMS). There were plenty of instances of prices $10 higher, especially for preconditioned calves, but quality held sway, too.
“Unlike last week, buyers' desire to purchase very high quality calves outweighed their desire to have them fully preconditioned,” said the AMS reporter at Billings Livestock Commission in Montana. “As deferred CME contract prices improved late last week and early this week, desire to feed lightweight calves improved.” Steers weighing 500-700 pounds sold $7-$11 higher there on Thursday. Heifers weighing 400-700 pounds sold mostly $6-$10 higher.
“Demand was much improved for all weights, but still best for the true yearlings with a health history that will finish out before summer,” AMS analysts explain. “Trade was noted as active to very active at most major auctions barns with buyers more willing to chase cattle to fill their orders. In some cases, the buyer’s desire to own them outweighed their desire for the cattle to be weaned and preconditioned.”
Not counting recently expired spot Oct or newly minted away Oct, Feeder Cattle futures closed $1.85 and $1.55 higher on either end of the board, and mostly marginally mixed in between. That was after an average of $2.07 lower to end the week.
“At least until late in the trading session on Friday, when Feeder Cattle contracts moved suddenly and sharply lower, we did not see the big, daily, volatile triple-digit gains and losses we’ve become accustomed to,” AMS analysts say.
Keep in mind that starting with the November contract, the weight parameters for CME Feeder Cattle contracts and the CME Feeder Cattle Index used to settle them increases 50 pounds on both ends of the range—from 650-849 pounds to 700-899 pounds.
Earlier this fall, Glynn Tonsor, agricultural economist at Kansas State University, cautioned producers to be aware of the resulting wider basis when making projections. Based on analysis earlier this fall by Kansas State University and Custom Ag Solutions—partners in the beefbasis.com website which provides an array of decision support tools—Tonsor says it looks like basis will widen about $3.
“It is not common for calf and feeder cattle prices to escalate during October and November, but there is potential for prices to increase this year because the lighter-weight animals have been undervalued for several weeks,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “Deferred contracts remain severely discounted to the nearby November feeder cattle contract, but the expectation is for those contract prices to converge to the cash price as the marketing time period is reached. Producers should not expect any tremendous price recovery over the next month, though the expectation is for cattle prices to inch up with the biggest gains expected after the first of the year.”
Fed cattle prices jump
Finally, cash fed cattle prices shot higher on Friday. In fact, AMS described trade as active and demand as very good in all major cattle feeding regions. Hard to remember the last time those words were uttered. Prices ended the week with significant gains: $3-$7 higher on a live basis at $103 to mostly $105 per cwt. Dressed sales were $4-$10 higher at $164.
Superior’s online Fed Cattle Exchange sale provided the launching pad for late-week gains as prices there on Wednesday were $3-$5 higher than the previous week.
“The price of finished cattle then strengthened through the end of the week as live cattle futures found support for the first time since the middle of August,” Griffith explains. “This is most likely the turnaround that the market has been waiting on since summer. Thus, prices are expected to be steady to slightly stronger the next couple of months.”
Week to week, Live Cattle futures were an average of $2.22 higher through the front five contracts and then an average of 66¢ higher.
Wholesale beef values suggest a seasonal uptick, too. Choice boxed beef cutout value was $3.33 higher week to week at $183.11 per cwt Friday afternoon. Select was $3.43 higher at $170.16.
“As the market moves through November and December, the expectation is for cutout prices to strengthen due to the holiday market. This means cutout prices will be supported by middle meats over the next couple of months,” Griffith says.
“Kills usually turn smaller in November, but packers and retailers are both still enjoying enormous margins and will continue to support big kills,” AMS analysts say. “There are those in the industry who believe fed cattle supplies are growing tight, and with packers known to be in need of cattle this week, cattle feeders may finally have a bit of leverage.”
Deciding when to pull the market trigger
Even with the price surge and favorable forage conditions, the narrow price spread between calf weights has some producers lingering over their decision to sell calves now or later.
Heading into this week, Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, pointed out prices were about equal for calves weighing 550-850 pounds, translating into a value of gain commensurate with the price of the cattle.
“In short, the market is encouraging cattle to stay in the country and come to the feedlots later rather than sooner,” Peel says in his weekly market comments. “That creates stocker opportunities. Calf and stocker prices this fall have been sharply undervalued relative to heavy feeder cattle because stocker demand has not yet kicked in to replace weak feedlot demand for these lighter cattle.
“For cow-calf producers with calves to sell, the same signals suggest that retaining calves for stocker or backgrounding should be evaluated,” Peel says. “Certainly, pushing lots of calves into a yearling market next year has risks and means that conditions have to be monitored carefully going forward, but the big market signal is clear: there is a need to slow cattle down and spread them out over time and that provides opportunities in the country.”
For producers contemplating delayed marketing and adding weight to calves, Warren Rusche, Extension beef feedlot management associate at South Dakota State University (SDSU), says the decision to background calves should be part of an overall business strategy.
“Feeders can make money selling their feed through cattle, taking advantage of superior genetics or health status of their calves, or some combination of both, but there needs to be a plan in place in order to capture those efficiencies,” Rusche says in this week’s SDSU Extension livestock newsletter. “There is also the possibility of improved cattle prices between when the calves go on feed and their sale date. However, attempting to time or predict the cattle market can be challenging; even more so in a down-trending market similar to this year.”
Rusche emphasizes, “Implementing a risk management strategy to at least minimize the likelihood of crippling losses should be considered. These could include Livestock Risk Protection (LRP) insurance products or futures or options contracts.”
Although there is plenty of debate, various data continue to suggest herd expansion may be wobbling to an end.
“The number of heifers on feed continues to be higher than 2015 numbers, reflective of a slowing in the expansionary phase of the U.S. beef herd.” says Katelyn McCullock, an economist with the American Farm Bureau Federation, in the most recent In the Cattle Markets. “Heifers on feed (latest Cattle on Feed report) totaled 3.4 million animals compared to 3.5 million in July 2016, and 3.3 million in October of last year. The U.S. beef herd is still expected to show a year-over-year increase on the January 1 Cattle Inventory report, but will likely be less than 2% rather than the 3.5% we saw at the beginning of this year.”
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