Press day was another brutal day in the futures markets to add to a bad week. Thursday, live cattle were all down the limit, $3.00 with April live cattle closing at $100.07 and June down to $94.25. Cattle feeders, especially hedged ones, traded cattle Wednesday at $109.82 live and $174.85 dressed. A total of 85,712 head were sold as of Thursday afternoon. It’s frustrating when cattle and beef market fundamentals are good and outside markets and futures markets think differently. Cattle are cheap but beef sales are good.
Feeder cattle futures were also down the limit, $4.50 across the board with March feeders closing at $118.82 and April at $119.02. We’re at a point in feeder cattle when feeders should start thinking they are cheap enough to replenish their pens. The latest CME Feeder Cattle index was at $131.04. Cattle feeders are looking at negative margins on today’s placements. Hopefully they will jump in on blind faith. Anticipated placements on Friday’s Cattle on Feed Report are expected to be 8 percent lower than last year. Marketings should be 5 percent larger and cattle on-feed should be even with last year for March 1.
Amid all the live cattle declines, the boxed beef market has maintained good strength, and seasonally should be moving higher and expanding packer margins. The Choice cutout was down $1.16 to close at $206.01 while Select gained $1.39 to close at $197.88. Trade volume was good at 158 loads for the day.
The daily Cattle Report commented, saying, “Cattle futures have been on a volatile decline characterized by large trading ranges but overall suffering large losses as traders hit the exit button for long positions. There is no need to examine the Commodities Futures Trading Commission reports to find speculative long positions have been closed and speculative short positions opened, all based upon analysis of the current and future impact of the novel Coronavirus.
“Separately, and more importantly, is the story of the beef market fundamentals. Last week’s slaughter was 647,000 head, a large number that witnessed the harvest of 40,000 more fed cattle this week than last year. Not only did the weekly slaughter include large increases in head count, it also included 3 percent more tonnage from increased slaughter weights over last year. Carcass weights have increased 25 pounds from last year on all the fed cattle harvested.
“An economist might expect 40,000 more cattle, and 3 percent more beef, to send box prices into the tank, but instead box prices were higher this past week. This is occurring in a period when the production of all meats is higher than last year. Record pork and poultry production competes with beef on a daily basis and all meats are in high demand. Domestically, people are spending more on meat and demand for all meat products is good. Alternative proteins have not stolen our markets,” the report continues.
“Export demand is good and getting better. The global protein shortage due in part to the African swine flu in China, is creating broad demand around the world. Our primary trade partners of Japan and Korea are maintaining robust orders for our beef. Even China, hardest hit by the coronavirus, was nosing around last week about stepped up purchases of our beef and pork. Container ships that were backlogged at Chinese ports are now being unloaded.
“While it appears the coronavirus will continue to spread and more people will be infected, people will continue to eat. Eating patterns may change. More food may be consumed at home. It also may be that as springtime weather warms, most flu cases go into decline. The rout in the markets and the tether of cattle futures to the Dow Jones will at some point uncouple and allow each market to return to fundamentals. The fundamentals of the beef market seem to be on sound ground and is marching to a different drummer from the cattle futures.”
Cassie Fish at Consolidated Beef Producers points out that cattle markets have seen bigger declines. “It’s almost impossible to digest how much and how fast the cattle market has dropped these past eight weeks. First managed fund longs bailed out, then added to shorts, while at that time, it appeared COVID-19 was something other countries were dealing with on a broad scale—not the U.S. Spot Apr LC has declined 21.1 percent since Jan. 23 or $26.82. This bear market event is now the third largest since 1980 on a percentage basis, with the 2008/2009 financial crisis at 26.6 percent the largest and dairy buy-out in 1985 being second with a 22.7 percent break. Spot feeders thus far are down 19.6 percent for the year. During the financial crisis, spot feeders dropped 26.6 percent.”
A survey of auction markets last week showed Joplin Regional Stockyards in Missouri sold 5,627 head and reported steer and heifer calves $3-8 lower, yearling steers $3-6 lower, except 800 weights with steers down $8-10 on limited comparisons last week, and yearling heifers $25 lower. Demand and supply were moderate. The coronavirus continues to dominate the news.
Oklahoma City National Stockyards sold 6,933 head and reported benchmark feeder steers $5-10 lower, feeder heifers $7-11 lower, and steer calves $14-17 lower. Heifer calves weighing 500-600 lbs. were $3-6 lower, with lighter weights $9-10 lower. Demand was light amid the plain to average quality offering. CME Feeder cattle futures closed limit down and live contracts were several dollars lower. Crude oil also sustained double digit loses. Rainfall was experienced Wednesday night and early Thursday in the trading area, creating muddy conditions.
OKC West Stockyards in El Reno, OK, reported 6,811 feeder steers and heifers sold at $4-10 lower with heavier weights as much as $12 lower. Sharp declines on the CME Feeder contracts throughout the week have buyers hesitant. Demand was light, but moderate for grazing cattle. Steer and heifer calves traded $4-8 lower amid moderate demand. Quality was characterized as average to attractive. Despite huge losses on the Dow Jones and lower CME Live and Feeder cattle contracts yesterday, rallies have occurred sparking interest into the market on Tuesday.
In New Mexico, theClovis Livestock Auction offered 2,150 head for sale with benchmark steers mostly $5-8 lower. Heifers were mostly $7-10 lower. The ripple effect of large declines in the CME Cattle contracts and other financial markets throughout the week have made their way into the auction barns as buyers seem hesitant. Trading activity and demand were moderate. — Pete Crow, WLJ publisher
