There were three big market news items last week: How early cash fed trade got underway, the impacts of the Goldman Roll on futures, and the trade agreement between Montana and China.
“The wheels for this rally have long been in motion,” commented Cassie Fish of the Beef Report last Monday. “Not since April of this year has the market experienced such a torrid advance in cash cattle and futures prices in such a short time. That rally lasted four weeks and saw cash and futures rise about $20. … Thus far this rally is close to $13 in two weeks’ time and would be considered staggering if the April rally hadn’t demonstrated what can happen in modern times.”
That rally appeared to have tapped out last week with surprisingly early cash trade.
Almost 8,000 head had been confirmed sold by Tuesday last week. By 2 p.m. on Wednesday, almost 62,000 head had been confirmed sold at $121-125 live and $190-197 dressed. These prices were generally steady with the prior week’s range, and proved to be the top of last week’s market.
“This price is still a good ticket and is higher than pretty much anyone anticipated for [the fourth quarter], so capturing the profit could be seen as a no-brainer,” Fish added.
“With front-end fed cattle supplies projected to increase [year-over-year] by Dec. 1 and the bulk of holiday product bookings being completed by the week ending Nov. 24, it may take an adverse weather event to propel prices above the recent cash high at $126,” Andrew Gottschalk of Hedgers Edge added.
After such an encouraging surge the week before, the live cattle futures contracts spent all of last week giving back the gains they had made. Over the course of the week, the December contract lost almost a net $5 with a Thursday settlement of $122.47. The February contract shed a net $3.23 with a $128.52 settlement.
Troy Vetterkind of Vetterkind Cattle Brokerage blamed the Goldman Roll for much of the damage done to the December live contract, though the stalling of the cash fed market and the futures market declines made for a negative feedback loop.
“The cattle futures market continued under pressure yesterday mainly attributed to the fund roll of December longs forward into Feb/April,” Vetterkind noted last Thursday morning. “Funds have done 38,200 Dec/Feb live cattle spreads the last two days with December open interest declining 7,678 contracts during the period. This, along with a par to instances of positive basis opportunities, prompted cattle feeders to accept $122-124 money for their fed cattle inventory yesterday.”
Beef
Futures prices weren’t the only things coming down last week. Packer margins were estimated at $62.35 per head last Thursday, compared to roughly double that the week before. Still, $60+ per head in the black is nothing to sneeze at.
“The packing industry has banked record profits this year,” noted Fish last Monday when packer margins were estimated in the $80s. “Packing plant companies once again became accustomed to running hard and most of 2017, apart from July and August, the industry has overkilled relative to market-ready supplies.”
Later in the week she added, “The most positive aspect of the coming four weeks is that packer margins look to begin expanding again, and possibly by a lot. That will continue to support more-than-ample slaughter levels to keep feedlot marketings current. And that is the primary reason, besides stellar demand, that 2017 has turned out much better than most expected.”
Gottschalk again pressed the point that keeping current is essential to this market.
“Be reminded that front-end fed cattle supplies will be compared to sharply declining supplies beginning during the fourth quarter of 2016 into the spring of this year. The supply trend this year will be opposite of that which developed into the late winter and spring of this year. Producers will feed toward the premium, eventually exacerbating the increase in front-end fed cattle supplies. It is imperative that this industry markets cattle aggressively to prevent a backlog from developing by the late winter and spring of this year.”
“Packers remain well sold in forward time slots and export business continues to be active, which overall is going to be supportive to the cash beef trade into the middle of December in my opinion,” said Vetterkind last Thursday.
Cutout prices rose last week compared to the prior week, but came down from the recent high set last Wednesday. By end of trade Thursday afternoon, the Choice cutout stood at $212.74, and the Select cutout was $198.30.
Feeder cattle
“I suspect we could see the red-hot feeder cattle trade cool off a bit next week if the fat cattle and futures market are going to back up a little,” opined Vetterkind last Thursday.
He seemed to be right as cash feeder cattle markets spent most of last week moderating from their prior-week’s surge.
In the surveyed feeder cattle auctions, volumes tended to be higher, and prices were generally mixed. Prices up into the $170s were still seen in some offerings of medium and large 1-class (#1) steers weighing between 700-800 lbs. However, prices dropping back into the $120s were also seen.
California: Everything was called steady at the Cattlemen’s Livestock Market in Galt. Number 1, 7-weight steers brought in $140-162.
Colorado: The La Junta Livestock Commission Company sold most of its feeders steady to lower. Steer calves were steady to down $5 with preference for lighter calves. Heifer calves were steady to down $3 with preference for midweights. Yearling feeders were called steady to up $1 on a light test. Despite the +4,000-head sale volume, very few benchmark steers sold, ranging from $151-157.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City saw more cattle sell last week than the week before, but sales categories were too skewed for an accurate market test. Calves were called uneven and yearling heifers, which saw the best comparable sales, saw prices increase $2-4. Demand was noted to be firm on long-weaned calves on some sort of vaccination program. Only two lots of #1, 7-weight steers were reported sold, ranging from $157-164.
Missouri: The Joplin Regional Stockyards sold almost 8,900 head of feeders last week, almost double the volume from the week before. Calves were called steady to down $3 on steers, and steady to up $3 on heifers. Yearling steers were up $2-4 and yearling heifers were up $3-8. Demand was said to be best on yearlings and long-weaned calves. Calves and fleshy yearlings in the #1, 7-weight group ranged from $147-155, and general yearlings ranged from $157-166.
Montana: Sales volumes were down last week at the Public Auction Yards of Billings, making for too few comparable sales for market trends. However, steady undertones were noticed on the numerous collections of small packages of mostly plain cattle. There were no #1, 7-weight steers sold, but a group of #1, 6-weight calves averaged $152.05 and a group of #1, 8-weight yearlings averaged $154.50.
New Mexico: The Clovis Livestock Auction sold steers uneven up and down $1, and heifers were steady to up $3. Benchmark steer calves ranged from $123.50-135.50, while a pair of benchmark yearlings averaged $143.
Oklahoma: A lot of cattle traded in Oklahoma last week with both the Oklahoma National Stockyards and the OKC West-El Reno sale seeing over 11,000 head sell. Feeders were up $2-4 at the El Reno sale, while steers were up $4-8 and heifers were up $7-10 at the National Stockyards. At both sales, unweaned feeder calves were undesirable and saw discounting, but heavier, long-weaned calves were up $2-9, with preference going to steers at both sales, and the highest prices realized at the National Stockyards. Benchmark steers at the El Reno ranged from $144-158 on calves and $162-170 for yearlings. At the National Stockyards, standard benchmark yearling steers brought $160-173, while calves and fleshy yearlings ranged from $148.50-156.
South Dakota: The Hub City Livestock Auction sold fewer cattle last week compared to the prior week, and prices were chaotic and without pattern. Steer calves were mixed $4 up and $4 down, while yearlings were mixed $3 up and $3 down. No comment was made on heifers. Two large groups of benchmark calves sold with averages in the upper-$160s.
Wyoming: Two big sales happened last week in Wyoming: the Torrington Livestock Commission that sold 5,782 head, and the Riverton Livestock Auction that sold 6,922 head. The Torrington sale called their feeders up $3-5 on yearlings and down $3-4 on calves. The Riverton sale saw spectacular gains on light steer calves at $10-13 higher and instances of up $20. Heavier steer calves and all heifer calves were called up $4-7 at the Riverton sale, with no quotes on yearlings. The Torrington sale had no #1, 7-weight steers sold, and only two small groups of benchmark steers sold at $151-152 at the Riverton sale.
Just like live cattle futures, the feeder cattle futures saw a week of declines. Last Thursday’s trade however saw a little reversal of the week’s losses, but those were not enough to regain the prior Friday’s levels of November at $160.87 and January at $161.57.
“Besides short-covering and the premium status of the cash index, prices were supported by slumping corn futures,” noted DTN’s John Harrington.
By settlement last Thursday, the November contract had lost a net $2.40 and the January contract had lost a net $3.72. — Kerry Halladay, WLJ editor
