Compared to past weeks, last week saw the cash fed cattle trade start early. However, compared to the no-trade-’til-Friday standard that’s been established, that doesn’t mean much.
By close of trade Thursday, over 12,000 head of negotiated cash fed cattle had been confirmed sold. Prices ranged from $109-110 (average $109.39) live and $175 dressed. This was down about $1-2 from the prior week’s averages.
“I suspect the cattle that sold yesterday for $110/$174 will be the cheapest of the week as I feel packers are short bought on inventory and will need to write bigger checks in order to get meaningful business done,” commented Troy Vetterkind of Vetterkind Cattle Brokerage on Thursday morning.
This prediction was right in line with Hedgers Edge’s Andrew Gottschalk’s prediction of a “steady-at-best” week compared to the prior week’s live average of $112.
Near-term futures chopped about last week, seeing triple-digit gains and losses that ultimately left the contracts little moved from where they had started. By Thursday’s settlement, the August live contract lost a net 2 cents with $108.60, and the September contract lost a net 52 cents with $109.95.
“The market is frustrating bulls and bears alike and is clearly killing time but not much else,” quipped Cassie Fish of the Beef Report on Thursday. “Yesterday’s late and unexpected rally has given way to yet another retrenchment today.”
She also noted that Friday saw options expire, meaning today will likely see a “big drop in open interest that likely marks the [open interest] low for the summer.
Beef
The cutouts continued their slow bleed downwards last week. The Choice cutout lost a net $1.34 to close Thursday at $203.80 and the Select cutout closed at $197.10, down a net $1.17.
“The beef cutout remains under selling pressure as there are various items backed-up at the packer level,” commented Gottschalk. “When these item trade, the beef cutout should slip another $2-3/cwt. That said, this is not a level to remain bearish on the beef cutout, as the summer lows are being established.
“Demand factors remain positive,” he continued. “The employment cost index rose 2.8 percent [year to date through] June. This is the largest gain in 10 years. Expect wages to accelerate in the future.
“It remains my opinion that real wage gains are in the early stages of a secular uptrend after declining for several decades. Corporations that fail to recognize this development do so at their own peril.”
That encouraging demand environment, plus the relatively stable, slow decline of cutout prices over the past months, has allowed packers to maintain extremely respectable margins. Estimated at about $120 per head last week, packer margins are both the lowest seen in months, yet also very healthy. Plus, there’s the potential they will get bigger soon.
“A modest seasonal uptrend is expected over the next three weeks, allowing packers to push margins back out, possibly over $200 per head,” noted Fish last week.
Though the fed cattle supplies are growing—and some say backing up—packers being triple digits in the black with the prospect of good ongoing demand may help the industry get through these supplies of cattle without as much price pain as could be felt.
“Front-end fed cattle supplies are second only to the record set in 2015,” noted Gottschalk. “In contrast to last July, when there was a net drawdown in July front-end fed cattle supplies, a carryover into August will result this year.
“The month of August will also result in a carryover of front-end fed cattle supplies into September. Replacement break-even levels for 700-800-lb. feeders exceeded $120 for a second consecutive week, using a January marketing date. Profitable hedges are hard to find. Thus, the enticement is to add weight to market-ready cattle and this action lends support to the market near term.”
Feeder cattle
The cash feeder cattle markets seem to be paying little attention to the futures markets, which chopped around last week right along with the live cattle contracts. Prices were steady to up in almost all cases and medium and large #1 steers weighing between 700-800 lbs. reached up into the $170s for the first time in a while.
California: Prices and sales volumes were lower at the Cattlemen’s Livestock Market last week. Prices on #1, 7-weight steers dipped to $130-148.
Kansas: The Pratt Livestock Auction sold more cattle last week than the week before with prices on steers being steady to higher. Seven-weight heifers were called up $5-7. There were too few comparable sales of calves for a market trend. Yearling benchmark steers sold between $147-154, while a group of #1, 719-lb. steer calves averaged $141.
Missouri: Prices on all calves and yearling steers were called steady at the Joplin Regional Stockyards. Heifers were called up $2-4. Two large lots of benchmark yearling steers sold between $143-159. A lot of six #1, 710-lb. calves sold for $146.
Nebraska: The Sheridan Livestock Auction held its first sale for several weeks last week, selling 1,737 head. There were no market trends, but demand was called good for the strings of yearlings coming off of grass. Most of the #1 offering was over 800 lbs. with only one small lot of 7-weights that brought $152.
New Mexico: The Clovis Livestock Auction sold far more cattle last week than the week before. Steers were called steady to $3 higher, while heifers were called steady to $1 higher. One 13-head lot of #1, 711-lb. value-added calves averaged $140.63 while a 63-head lot of #1, 760-lb. yearlings averaged $147.
Oklahoma: Sales volumes were up at the OKC West-El Reno sale last week. Steers were called steady to firm, while heifers were up $2-4. Calves of both sexes were called steady on comparable sales. Two large lots of benchmark yearling steers sold between $150-159.
South Dakota: The Philip Livestock Auction had the first reported sale in a while last week. Due to receipt volumes too low to report in the recent past, there were no trends given. Demand was called very good. Several large lots of benchmark yearling steers sold, ranging from $156-177.
As mentioned, the feeder cattle futures traded gains for losses just like the live cattle contracts. By settlements on Thursday, both near-term contracts were just about $1 shy of the July 27 settle, with $151.20 for August and $151.35 for September.
“Technically the futures got down to their respective 45-day moving averages, in particular $149 in the August, and stabilized. More importantly though I think market participants started to pay attention to what these cash feeders are bringing on these video sales and in the auction markets this week,” Vetterkind commented.
“The next big challenge for August feeder cattle will be getting back through [July 26’s] reversal high at $154.22.” — Kerry Halladay, WLJ editor
