Live cattle futures were getting battered at press time last Thursday, dashing the hopes of cattle feeders’ ideas of adding $2-3.00 on live fed prices. February live cattle closed at $120.10, which is where negotiated cash trade was finding its place. The Mandatory Price Reporting Thursday afternoon showed that only 25,000 head had traded at $120 live and $190 dressed. There were thoughts floating around that packers were short of cattle and were going to buy big for next week’s full week processing schedule, which may not be that large anyway. It looked like packers were only going to process 610,000 to close out the week.
Again, we’re in the lowest demand month for beef and the Boxed Beef cutout has shown it. Choice traded down again to close at $204.50 and Select traded at $201.60 but the day’s volume was good at 181 loads.
Cassie Fish at Consolidated Beef Producers always has some colorful commentary on the markets. Last Thursday she said, “The entire CME livestock complex is back on the defensive today, posting triple-digit losses in some contract months and failing to come up for air intra-day.
Yesterday’s negotiated cash cattle trade occurred $1 higher on the week at $120 in Texas and Kansas, a relief to some and a disappointment to others. Packers continue to command control, as most needed to replenish inventory and were able to do so without giving up much. Packing margins continue black in a month that traditionally is red, despite boxed beef values taking their sweet time in reaching the February low this year.
“Until the massive open interest exodus in cattle futures occurred over a three-week period resulting in a 0.618 retracement in most active Apr LC, attitudes were decent. Oddly, cash steer prices averaged $123.69 in January, compared to $123.50 last year and $123.44 in 2018.
“Now cash cattle prices are struggling in the low-$120s, the cheapest price for fed cattle in February since 2011,” continues Fish.
“Attitudes turned very bearish on the futures break and look to stay that way. Packers know there are as many cattle to kill between now and the end of Q2 as last year and thanks to no winter, more pounds per animal. The packer is enjoying the greatest leverage in any spring since the herd expansion began.
“At least the industry can be grateful the kill pace remains elevated. Expectations are for a 610k kill this week, compared to 581k a year ago. That is the largest F.I. slaughter for this week in February since 2011.”
Feeder cattle markets may be the only real bright spot. The march feeder cattle contract closed at $140.80, which is the lowest contract for the year. All the deferred contracts are at a premium to March giving cow-calf and stocker operators an optimistic outlook, providing we get spring rains.
“The one characteristic of feeder cattle futures is volatility,” said the daily Cattle Report. “They are a true example of a contract lacking liquidity and prone to move too far down when the market turns bearish and too far up when the market turns bullish. Auction markets and private treaty trades are following futures prices higher without matching support from the distant live cattle board. Feedlots have been dragging their feet on replacement bids believing prices were going to continue downward but now are wanting to fill empty pens. Limited supplies of wheat cattle are pressuring the market this year. Feedlots are now complaining about breakevens that are running dollars above the futures for summer months. With corn prices at current levels the rise in feeder prices seen across many markets this week is a large loser for cattle feeders with some losses forecast at $100/head.
“Moisture will be key to demand for lighter grazing cattle,” the report continues. “The Southern Plains have received generous moisture. Flooding in the extreme south will slow cattle movements and impair some cropland. Grazing demand for light cattle will be improved in all regions of the country.
“The Oklahoma City auction market report reported sharply higher prices for all classes of cattle. Recent rains stimulated demand for light cattle and heavier feeder cattle found good demand from feedlots looking for a bounce in the market.” — Pete Crow, WLJ Publisher
