The signs of a bear market are upon us.
“The failure of prices to extend gains into mid-January, which is consistent with a positive market, is symptomatic of a bearish condition,” explained Andrew Gottschalk of Hedgers Edge early last week.
“Bearish markets tend to top early and bottom late. The opposite is true for bullish markets—top late and bottom early.”
Last week the markets were decidedly in the downward turn, though they still held some surprises. The negotiated cash fed cattle got underway in a big way on Tuesday, with over 62,400 head confirmed sold for the week by the USDA’s 2 p.m. report. Clean-up trade petered on throughout the rest of the week.
The best prices of the week were seen on Wednesday at $119-123 live and $192-193 dressed, though the majority of trade happened at $119-121 live and $191-192, a weak/steady trade with the prior week. Expectations are for lower trade this week.
“Production hours are being pulled, which could make it a challenge to exceed 612,000 slaughter for the week,” said Gottschalk of this week. “This is below required levels necessary to limit front-end fed cattle supplies.”
He went on that, “Dry conditions throughout the wheat grazing area will force more cattle into feedyards, which will only add to second and third quarter fed cattle supplies. If fed cattle become backlogged (which is very likely given the level of placements), fed cattle will trade below $100/cwt.”
The beef cutouts additionally seemed to top last week, with the Choice cutout reaching and then pulling back from the prophesied $210 level. By close of trade Thursday, the Choice cutout had fallen to $209.07 and the Select cutout closed at $202.95, up from the prior week’s close but down from the mid-week high of $203.69.
“Product values have stalled at the first level of resistance—$210,” noted Gottschalk. “Similar to the action in fed cattle prices, stalling early in a period of seasonal advance is a negative signal to the product market.”
Near-term futures spent last week in continued retreat following near limit-down trade on Friday, Jan. 5. By last Thursday’s settlement, the February contract stood at $117.07 and the April contract at $118.87. These are down from the recent seasonal highs of $123.35 and $124.37 respectively set in the first days of 2018; losses of roughly $6 in a week.
“Money flow continues to dictate price action in the cattle futures market with the funds rolling out of February, index funds rebalancing and getting out of longs, and managed money funds getting short,” summarized Troy Vetterkind of Vetterkind Cattle Brokerage.
“With anticipation of another bearish Cattle on Feed report in two weeks and continued lower cash cattle markets in the weeks/months ahead there isn’t anyone around to take on the fund selling right now.”
Feeder cattle
All auctions were back on last week after the holidays, most with impressive volumes of cattle on offer. Unfortunately, prices were noticeably reduced. Most price ranges on medium and large 1-class (#1) steers weighing between 700-800 lbs. ended in the upper-$140s or lower-$150s, though some $160s prices could be found.
California: Feeder cattle at the Cattlemen’s Livestock Market last week traded steady. Benchmark steers traded between $135-150.
Colorado: The Winter Livestock auction of La Junta sold over 8,000 head last week. Since there have been no recent sales due to the holidays, no trend was given. Demand was called good, especially on the large selection of weaned, preconditioned calves. Several large groups of #1, 7-weight feeder steers ranged in price from $142.50-154.50.
Iowa: The Denison Feeder Cattle Auction held a special preconditioned calf sale where it noted a lower to steady undertone, despite active trade. Benchmark steers ranged from $147.50-161.
Internet: The Northern Livestock Video Auction held an online sale last Monday, selling over 46,000 head of feeders. Trade activity was called moderate and demand was called moderate to good with strong premiums going to NHTC calves. Thousands of #1, 7-weight value-added steer calves for January-February delivery sold between $146.50-166.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City sold over 4,000 head last week, well above the 1,762 head sold the week before, meaning there were few trends offered. A few comparative sales showed steers down $4-6 and heifers down $8. A pair of large groups of benchmark yearling steers sold between $145-153.
Missouri: The Joplin Regional Stockyards sold over 8,700 head of feeders last week. Steers were called steady to down $6, with preference going to lighter animals. Light heifers were down $3-8, but those over 650 lbs. were only down $3-5. Yearling #1, 7-weight steers ranged from $142-157, and two small groups of calves averaged $144 and $139.
Montana: The Miles City Livestock Commission almost doubled its sales volume last week compared to the week before. Cattle were too lightly tested for a trend, however steady undertones were noted on light calves, and lower undertones were noted on heavier calves. Demand for grass cattle remains good. Two loads of #1, 7-weight calves ranged narrowly in price from $150-153.25.
Nebraska: The Sheridan Livestock Auction sold 7,300 head last week, after several weeks of no sales. There was a good crowd said to be on hand for the big strings of weaned and preconditioned calves that were brought to the first sale of the year. Two large groups of #1, 7-weight steers ranged from $145.50-160.
New Mexico: Sales receipts were almost triple last week what they were the week before at the Clovis Livestock Auction. Light feeder steers were called up $1, while those over 600 lbs. were up $1-3. Holstein steers were down $7-14 compared to the last Holstein sale a month ago. Light heifers were $3-4 higher, and heavier heifers were up $1-4. Numerous strings of benchmark steers sold between $120-142.50, with calves setting and mostly occupying the lower end of the range.
Oklahoma: At the OKC West-El Reno sale, over 15,000 head of feeders sold. Compared to the prior sale’s relatively light offering, steers were down $10-15 on limited demand. Heifers were down $2-4 and calves of both sexes were poorly tested. A lot of lots sold of #1, 7-weight steers with no real difference in averages seen between calves and yearlings. All benchmark steers sold ranged from $138-149.
South Dakota: The Hub City Livestock Auction sold 7,402 head last week, though prices were sharply lower across the board. Steers were down $5-14 with the steepest discounts going to the heaviest animals. Heifers followed suit, though heavy 5-weight heifers traded steady. These prices came in spite of notes about most strings being home-raised. Two large packages of #1, 7-weight yearling steers averaged in the high-$140s/low-$150s.
Texas: The Amarillo Livestock Auction sold more cattle for lower prices last week, though there were too few comparable sales for a market trend. Trade activity was called active on good demand. Only two small packages of benchmark steers sold; the group of 731-lb. yearlings averaged $143.41, and the group of three 751-lb. calves averaged $131.
Wyoming: The Torrington Livestock Commission sold more than double the cattle last week that it did the week before. Steer calves were called steady to down $6, with preference for the lighter calves. Yearlings followed suit. Heifers sold steady to down $3 on calves, and down $3-5 on yearlings. Two large groups of benchmark yearling steers both averaged in the upper $140s.
Feeder futures also retreated rapidly from recent highs. At settlements of $143.82 for the January contract, and $141.37 for the March contract, the near-term feeder futures have also lost about $6 in the course of a week.
“January feeder cattle are approaching expiration and are probably going to chop around current price levels. March feeder cattle are likely heading down to the December lows at $138 and if that can’t hold last summer’s lows at $134,” predicted Vetterkind. — Kerry Halladay, WLJ editor
