Packers have slaughter volume back on track. They are up to 120,000 head per day and 80,000 on Saturdays. With the additional volume of beef on the market, boxed beef values have fallen to the point that packer margins are evaporating.
Normally, they would reduce production to raise the cutout values. Analysts were expecting last week’s slaughter to be 665,000 head, which would start to clear some of the backlog of slaughter-ready cattle.
Futures markets have been trading sideways most of the week. June live cattle have settled into a
$93 to $96 trading range, Thursday’s close was $96.07, and August live cattle closed at $96.10. Negotiated cash trade is down a couple dollars from last week between $98-102 live and $157-162 dressed. As of Thursday, 77,128 head had traded hands. Packers bought cattle every day last week.
DTN reported that “Live cattle contracts have bowed to the pressure looming amongst the industry, but the feeder cattle contracts are still trading higher. Wednesday’s feeder cattle sales averaged $2-5 higher, and so long as the support remains strong throughout the countryside, feeder cattle contracts should be able to trade somewhat higher until the pressure from weakening live cattle contracts outweighs the good.”
Beef values continue their free fall with the Choice cutout down to $213.64 and Select down to $206.06. The Choice-Select spread has narrowed quite a bit at $7.58. The grading report showed that 83.7 percent of slaughter was grading Choice and Prime, and Select was 13.3 percent of the slaughter mix, which is about 5 percent higher than the week before.
The ground beef market remains robust with 90 percent fresh trim trading at $261.80 and the 50 percent lean at $79.80. The slaughter cow market has picked up quite a bit. The cow beef cutout was at $219.16, which is remarkable because it’s higher than the Choice cutout.
Cassie Fish in The Beef gave her opinion of the markets: “As the fundamental outlook for further downside in cattle and beef prices persists, CME cattle futures’ response is to slowly leak lower. Aug LC is still well above Monday’s low, but it’s pretty clear the algos have left this playground for another, considering volume yesterday was a mere 29k contracts, a level common 30 to 40 years ago when humans, not a computer, filled orders. Perhaps cattle futures trading is now left mostly to those in the industry for the first time in a very long time.
“This is a market that will be determined by its own fundamentals the remainder of the year most likely,” Fish continued. “And that outlook is sobering. Boxed beef prices are tumbling in price, pressured by record beef and pork production, and slowed movement to the consumer due to record high retail beef prices. This out-of-synch supply/demand dynamic will be painful and time-consuming to correct.
“Fed cattle prices this week were generally another $3 lower and next week or certainly the week after, the average price will slip below $100 for the fifth time since 2011. For the first time since 2010, the quarterly average for Q3 fed cattle prices will be sub-$100 due to the massive backlog of fed cattle supplies and floundering wholesale boxed beef prices. The last time Q3 prices for fed cattle were that cheap was 2010 when they averaged $95.
“If that is what it takes—prices to get their cheapest in a decade and stay cheap for three to four months—what are the implications for the rest of the cattle industry? Stocker and rancher?
“Cleaning up an oversupply of front-end cattle and recovering lost consumer demand are the two most bearish fundamental factors the cattle industry can face. Those two factors are front and center for the remainder of 2020.”
Feeder cattle futures also traded sideways last week. August feeders were trading in the low $130s last week; Thursdays close was $132.79; and August was at $134.25. The latest Feeder Cattle Index was $128.51.
The folks at the Cattle Report point out “The volume of cattle outside feedyards is big. There has been a sharp and steady improvement in replacement prices and cattle movements to auction markets. The same back-up occurring in the nation’s feedlots is replicated in the country where replacement cattle have also increased in number. The number of cattle outside feedyards is sharply higher and those cattle will be placed in the next few months before the extra-large fall run.”
There was a wide range of analyst guesses as to the Cattle on Feed report due out last Friday. The average guess is that cattle on feed was down 1 percent from last year, June 1. Marketings were dismal, down 26.4 percent from a year ago, with two fewer marketing days than last year. The average guess on May placements was down 2.4 percent but ranged between 81.2 to 102.2 percent of last year’s May placements.
However, The Daily Livestock Report said weekly feeder and stocker sales for the period May 2-29 jumped 57.5 percent compared to the same four-week period a year ago. Sales of cattle over 600 lbs. were up 76 percent from last year. Auction sales for all cattle accounted for a large share of the increase, up 38 percent from the same period a year ago.
“Feedlot operators may have opted to remain cautious rather than roll the dice and ramp up placements,” the report said. “Feeder cattle prices did steadily increase in May, however, suggesting better demand.
“October fed prices started in May in the $96-97 range but were as high as $105 by mid-May. Feeder cattle imports from Mexico were higher in May but much of that was offset by the decline in imports from Canada.”
In Superior Livestock Auction’s Tall Grass Sale last Thursday, they sold 464 feeder steers weighing 835 lbs. for $121.50 for August delivery, and for contrast, they sold 385 steers weighing 850 lbs. that were all-natural, NHTC-verified with all the attributes for $156.50 .— Pete Crow, WLJ publisher
