Last week saw the markets start out with fire followed by bloodletting. The fire that shut down the Tyson fed beef plant in Holcomb, KS spooked the markets and sent the futures markets into two days of limit-down trade.
But all the while beef prices were surging on fears of lost production. By close of trade Thursday, the Choice cutout had gained almost a net $20 by closing at $236.12 and the Select cutout gained just under a net $17 with $210.67.
“Cutout values will continue to advance toward the $240 level for Choice beef. Reduced weekly production, coupled with some short-bought end users is propelling cutout values higher,” commented Andrew Gottschalk of Hedgers Edge on Thursday morning.
He noted that the likely timeline for the Holcomb plant to reopen is measured in months. The plant had an upper-level production rate of 6,000 head per day, roughly 6 percent of total daily fed cattle kill capacity. The other fed cattle plants in the area are certainly going to try to recoup some of those production losses with extended Saturday kills, but Gottschalk still anticipates losses to overall production.
“On a net basis, this industry may lose as many as 10,000 head per week in production capacity, a result of lost production at Tyson’s Holcomb plant,” he estimated. “Production this week is estimated at 625,000-630,000 head, with Saturday slaughter likely to challenge the 70,000 level.”
Cash cattle prices meanwhile showed the scars of the futures bloodbath. By close of trade Thursday, just under 27,500 head of negotiated cash fed cattle had been confirmed sold for the week, with almost all of that happening on Wednesday. Prices on Wednesday were $105-106.50 (average $105.36) live and $169-172 ($170.71) dressed. This was down roughly $6 live and $10 dressed compared to the prior week’s averages.
With negotiated cash fed cattle trading much lower, and beef trading much higher, the ballooning of packer margins shouldn’t surprise anyone. Hedgers Edge estimated packer margins on Thursday morning at $297.55/head. Compare this to the estimated $153.20/head on Friday, Aug. 9.
“Look for boxed beef values to increase going forward with no seasonal decline whatsoever in September,” predicted Cassie Fish of the Beef Report.
“Boxed beef prices will be dramatically higher as all parts of the carcass will be in high demand, not just middles. Trim prices could rally sharply. Packer margins will increase to new highs for 2019 and possibly eclipse all-time highs. This will incentivize packers to run Saturdays.”
The futures, however, were not dramatically higher. Not even close. Every single active contract on both futures boards set contract lows last week.
In the live cattle contracts, the near-term contracts of August and October lost about $8 over the course of the week with Thursday settlements of $100.20 and $98.53 respectively. Both saw limit- and extended limit-down trade on both Monday and Tuesday, with more minor losses continuing Wednesday. Thursday’s trade was functionally nonexistent.
“As the initial shock begins to wear off of the temporary loss of a major beef plant, there is a growing sense that worst is behind this market, at least for now,” Fish noted of the oversold live cattle futures.
Feeder cattle futures also took a beating last week. The board locked limit down on Monday, which opened up extended limits for Tuesday, of which August feeders took advantage. Then things suddenly reversed on Wednesday, when August feeders traded extended limit up. By Thursday, the August contract had lost a net $3.20 with a $135.78 settlement. The September contract lost a net $5.15 with $133.30.
Cash feeders didn’t fare well after the losses on Monday and Tuesday. The surveyed feeder cattle auctions cited the futures moves for lower prices, though medium and large #1 steers weighing 700-800 lbs. still mostly averaged in the $140s.
Iowa: The Clarinda Livestock auction sold 1,445 head of feeder cattle last week, almost double the volume that sold during the prior sale. There were no market comparisons, but the sale was called active on the feeder offering that was mostly over 600 lbs. The one 98-head lot of #1, 7-weight steers averaged $146.72.
Kansas: The Farmers and Ranchers Livestock Commission sold a little over half the number of feeder cattle last week compared to the week before. Heavy steers were called $2-4 lower and there were too few steers under 800 lbs. for anything more than the observation of a lower undertone. It was roughly the same with heifers, with too few under 750 lbs. for anything more than a “lower undertone” note, and heavier heifers were down $1-5. Benchmark steers sold between $147-151, with one small lot of unweaned steers averaging $131.75.
Missouri: The sales volumes at the Joplin Regional Stockyards were almost halved last week as well. Steer calves were called $5-10 lower and yearlings were down $4-7. Heifers were down $3-6. Demand was said to be moderate to light and the lower prices were credited to the limit-down trade in the feeder futures. Two lots of #1, 7-weight yearling steers sold between $131-147.
Nebraska: Sales were up and prices were down at the Huss Livestock Market last week. Compared to the most recent sale held two weeks prior, prices were down $3-5 on steers and $2-5 on heifers. Majority of the offering was said to have just come off summer grass and demand was moderate to good. The offering skewed heavy. The 36-head lot of #1, 7-weight steers was the lightest lot offering in the #1 category. They averaged $151.10.
Oklahoma: The volume of the offering was halved at the OKC West-El Reno sale last week. Compared to the prior week’s sale, steers were $4-6 lower and heifers were $6-8 lower. Demand was called light to moderate on yearlings. Calves were too lightly tested for a market trend, but a lower undertone was noted. Benchmark steers sold between $136-140. — Kerry Halladay, WLJ editor
