It was another disappointing week in the markets; cash prices down for fed cattle, profitability in cattle feeding evaporating, cutout values continuing to decline, and continuing concerns over future currentness. Everything wasn’t in the red—some futures gained— but the tone was decidedly depressed.
“A violation of cash support at $110 establishes the $105 level as the next level of price support followed by $98-$100,” warned Andrew Gottschalk of Hedgers Edge early last week. That price was violated early on in the week’s slow-to-start cash fed cattle trade.
By close of trade Thursday, over 75,000 head had been confirmed sold on the negotiated cash market. Steers averaged $106.16 live and $168.51 dressed, both well below the prior week’s price ranges of $108-111 and $172-176 respectively.
These cash fed cattle price levels are at the cusp of reversing the positive basis cash has held over futures. By Thursday’s settlement, the near-term live cattle futures contracts stood at $105.95 for August (down a net 42 cents from the prior Friday) and $106.82 for October (up a net 92 cents).
“The flip from a positive basis to an even or discount basis will likely slow hedgers’ offerings of fed cattle,” warned Gottschalk. “The premium in deferred futures will encourage producers to feed to this premium.”
This could be a problem. Gottschalk and others have frequently warned of the danger of not pushing cattle forward and of increasing carcass weights.
“It is imperative that carcass weights do not exceed prior-year levels as this industry navigates through the larger front-fed cattle supplies,” Gottschalk reiterated his warning last Thursday.
“A combination of increased supply and carcass weights is never good news for prices. It is imperative to maintain an aggressive marketing rate to prevent a serious backlog of fed cattle from developing that would take cattle significantly below the $100 mark next year.”
The declining prices in fed cattle is also a problem on the feeder cattle side.
“Fed cattle prices this week have traded at the average projected breakeven for August,” Gottschalk said Thursday. “Going forward, breakevens will increase through the end of this year, reaching the midto-upper teens during December. With replacement breakevens above the current selling price of fed cattle, producers will likely reduce placements, as it is cheaper to add weight to existing on-feed inventory.”
Beef prices continued to be a back-handed benefit. With a Thursday close of $191.75 for Choice (down a net $2.54 from the prior Friday) and $188.66 for Select (down $3.84), the cutouts have entered a “good support zone” that will likely stabilize, according to Gottschalk.
“Just as the loss of retail beef margins halts a cutout advance, so too can the restoration of retail beef margins end the current price decline.”
Beef prices also help along export sales, called “the only bright spot in the cash beef trade” by Troy Vetterkind of Vetterkind Cattle Brokerage last week.
Feeder cattle
Demand and prices paid for feeder cattle were geographically mixed last week.
Averages paid for medium and large 1-class (#1) feeder steers weighing between 700-800 lbs. were mostly in the low $140s, but the range shifted lower with more sale lows reaching the $120s and $130s than seen in past weeks.
California: Feeders went for lower prices last week at the Cattlemen’s Livestock Market of Galt. Feeders under 600 lbs. were called down $5-10, while heavier feeders were down $3-5. Benchmark steers did not see the low end of their price range move, but the top end did come down considerably to $127-138.
Kansas: Sales volumes doubled last week at the Winter Livestock Feeder Cattle Auction of Dodge City and prices were mixed. Steers were called steady to firm, with instances of $2 gains, while heifers were down $3-4. Feeder calves were too lightly traded for a trend, but said to have a higher undertone. Two large groups of #1, 7-weight, yearling steers sold, with the light (731-lb.) group averaging $151.80 and the heavy (769-lb.) group averaging $146.42.
Missouri: Volumes were mostly steady at the Joplin Regional Stockyards last week and prices were steady to up. Feeder steers were called steady to up $3, and heifers were called steady. The improved demand was credited to the recent rains, cooler temperatures, and improved pasture conditions. A few benchmark yearling steers ranged from $140-147.
Montana: Lower undertones were noted on the smaller offering last week at the Public Auction Yards. There were too few comparable sales for a market trend on feeder cattle, and demand was called light to moderate. Four head of #1 yearling steers weighing 725 lbs. averaged $151.
Nebraska: Compared to the previous sale two weeks prior, the Bassett Livestock Auction Market last week doubled its offering and saw feeders trading up slightly. Heavy steers—the only comparable sales—brought in $3 more. Demand was called good for this heavy, heiferheavy sale. A large group of 131 head of 735-lb. #1 yearling steers averaged $162.63.
New Mexico: Volumes were down and prices were mixed at the Clovis Livestock Auction last week. Steers under 600 lbs. were called unevenly steady, steers over 700 lbs. were down $3-4, and those in between were up $3. Heifers on the other hand were called steady to up $1, with instances of up $3 on heavy 6-weights. A trio of small packages of #1, 7-weight steers sold between $131- 139 with calves setting the low.
Oklahoma: The OKC West-El Reno sale sold almost 5,300 head during its two-day sale last week. In its final report, it described yearling feeder cattle as trading mostly $1-3 lower than the prior week while steer calves (heifer calves were too lightly tested) traded up as much as $7. Demand was called good for calves. Prices on #1, 7-weight yearling steers ranged from $140.85-150.
Washington: The Stockland Livestock Auction doubled its sale volume last week, making trends impossible. Trade was called active on good demand. Twenty head of medium and large 1-2 class, 7-weight yearlings sold between $122-131.
Near-term feeder futures were a decently bright spot in the markets as well. Over the course of last week, the August contract gained a net $1.10 to settle last Thursday at $141.60, and the September contract gained a net $2.15 to settle at $142.17. All of these gains came during Tuesday’s trade, following the release of the most recent Cold Storage report.
