Cash fed trade developed early last week in a start and stop sort of fashion. About 1,500 head were confirmed sold on Monday at $152- 153 live in Kansas, then by Wednesday afternoon, over 3,500 head were sold in addition at prices ranging from $155-158 live and $245-246 dressed. Though the volumes were still low by press time relative to standard full weeks, the voracity and relative activity of the markets was in line with analyst predictions. The speed of the market activity last week wasn’t a surprise. Packers needed to procure cattle for a full production week in last week’s holiday-shortened purchase week.
“Packers remain very profitable and show no sign of restraint when securing fed cattle supplies,” commented Andrew Gottschalk of Hedgers Edge early in the week. Estimates on what packers perhead profits were ranged from $52- 112 last week, the lower number coming later in the week as packers were willing to fork over higher money to acquire cattle.
Last week was estimated as a 500,000-head or lower production week, with this week fielding early estimates of 610,000 head.
“Post July 4, weekly production exceeding 610,000 head per week will be sufficient to prevent any backlog of fed cattle from developing this summer,” estimated Gottschalk.
And what the market holds now that the July 4 holiday is over was on everyone’s minds last week. Demand-wise, this portion of the summer we are now entering is traditionally the lowest demand period.
“Now that the dog days of summer are upon us, the burden of proof is on the demand side,” noted Gottschalk after expounding upon the surprisingly better-than-expected movement of beef during the June 28-29 weekend. Mid-week, Troy Vetterkind of Vetterkind Cattle Brokerage commented that wholesale beef business was likely in the process of slowing down as the July 4 products had already been booked.
“Record cattle prices and record cutout values will result in additional advances in retail beef prices.
The latter will occur as retailers strive to restore their margins,” added Gottschalk.
Both Vetterkind and Gottschalk predicted that the slowdown in retail demand will result in reduced cutout values, and the market started seeing the likely beginning of that downfall last week. From the previous Friday to last Wednesday, the Choice cutout gained only $1.68 to close Wednesday’s trade at $247.66. Select similarly gained, but modestly in comparison to fed and feeder cattle prices and the recent demand strength. Over the course of the short week, Select gained $2.37 to close Wednesday at $240.12.
“As full production resumes next week and beef features are reduced, one should expect a retreat in beef cutout values,” warned Gottschalk last Wednesday. “The first level of price support is at $242 followed by $230-$232.”
Live cattle futures were a bit shaky last week after their prior week rally to the tune of up over $6. Over the course of the short trading week, near-term live futures took and gave advances, ultimately remaining positive.
The June contract left the board on Monday at $153 after a last minute rally from the losses it had taken during trading on the prior Friday. August gained $1.21 to settle Wednesday afternoon at $152.33, and the October contract closed Wednesday at $155.68, a weekly gain of $1.33.
Gottschalk reported that the trendline remains up for near-term live cattle futures, but a close below $150.38 for August or $153.55 for October in the near future would likely constitute a trend reversal.
Vetterkind opined that some of the downward motion seen on the prior Friday and early last week, which tempered the gains, represented some end of the month/end of the quarter profit taking.
“Still no end in sight for just how high the cash feeder cattle market can go as much improved pasture conditions and heifer retention keeps available supplies coming to market historically tight,” commented Vetterkind.
It is an odd week in the markets when limit up trade in the futures and cash feeder cattle sales deeply into the $200 range is not a new bit of news. But such was the case last week. Fewer sales reported sales were up certain dollar ranges last week compared with prior weeks, but that was generally because so many sales had too few comparable sales from which to offer trend changes. Supplies of benchmark, medium and large 1-class (#1) steers weighing between 700-800 lbs. were notably tighter.
California: In the Turlock Livestock Auction Yard, feeders were called steady on a lighter test ahead of the July 4 holiday. There was no test on 7-weight, #1 steers, though Holstein steers of the same weight class brought $125-155.
Iowa: The most recent Weekly Weighted average feeder cattle report showed that the few benchmark #1, 7-weight steers in the state were steady to up slightly, ranging between $204-218. Sale volumes were roughly a third of what they usually are, making a generalized trend hard to determine.
Kansas: At the Winter Livestock Feeder Cattle Auction, feeders were too few for a market test, even though sale volumes were in line with recent receipt counts. Most of the offering was under 600 lbs. Seventy-two head of 799-pound #1 yearling steers brought an average of $209.50.
Missouri: The Joplin Regional Stockyards saw prices for feeders of both sexes up $4-8 on very good demand. Recent rains in the area have stoked interest in cattle for grazing. Seven-weight, #1 steers brought anywhere from $206 for a half-dozen fleshy yearlings to $227.50 for gaunt yearlings weighing an average of 734 lbs.
New Mexico: The Cattleman’s Livestock Auction sold feeders $4-6 higher than the prior sale, while slaughter cows and bulls were up $3-5. The small packages of 7-weight, #1 steers went from $189-209 on active trade and good demand.
Oklahoma: At the Oklahoma National Stockyards, feeders were called firm to up $5, while calves were up $5-10 with instances of up $15-20 on light-weight, grass-quality steers. Demand was extremely good.
Prices for #1, 7-weight steers—which made up a good portion of the offering in that class—ranged from $211.50-224. Many of the packages on the lower end of the range were described as fancy calves.
South Dakota: The Sioux Falls Regional Stockyards had no trend to offer, given that last week’s sale was 10 times the volume of the prior sale. Despite that, the undertone was called sharply higher and demand and activity were both called “very good.” The sizable volume of #1, 7-weight steers fetched between $215- 233.25 for averages in the high $220s.
Texas: At the Amarillo Livestock Auction last week, receipts were light in both volume and weight. No trend was offered, but the undertone was called higher for both steers and heifers. Almost no feeders over 650 lbs. in any class or sex were offered.
Washington: At the Stockland Livestock Auction of Davenport, receipts were very light, making for no trend. Trade was called active on good demand, though no #1 feeders were offered. A group of 10 medium and large 1-2 class yearling steers weighing an average of 750 lbs. sold for $200.
“Feeder cattle are still in their own world with the next set of final price counts sitting up at $225,” noted Vetterkind mid-week. “This is where some of the technicians talk about the market going to before seeing any kind of major correction.”
And indeed feeder futures are off in a world of their own; apparently somewhere where breathable air isn’t a necessity. Over the course of the short week last week, near-term feeder contracts gained modestly compared to some of their daily movements. The August contract ultimately gained $1.88 over the week with a Wednesday settle of $216.20. The September contract gained only $1.65 with a Wednesday settle of $217.55.
These weekly gains belie the wide swings seen between Monday and Tuesday.
Monday saw triple-digit losses across most contracts on the board, whereas Tuesday answered back with at or near limit up gains across the entire board.
Speaking on Tuesday, Steve Meyer and Len Steiner of the CME Daily Livestock Report had this to say about the swings:
“As for feeder cattle futures breaking lower, it appears that the pullback was just a temporary setback in a market that has been on a historic bull run for the past few years. Feeders were higher in overnight trading as the sharp break in grain prices comes more into focus. Weather reports also remain quite benign for pasture conditions and strong beef prices continue to underpin the outlook for fed cattle going forward.” — Kerry Halladay, WLJ Editor