It was a subdued first week of the 2018 cattle market last week. While beef prices continue to gain, slow-to-start cash fed cattle market trading is leaving a lot of the market up to guess work.
By close of trade Thursday, only 1,950 head had been confirmed sold for the entire week. Thursday’s prices for those few cattle had been $122-124 live and $195-200 dressed. While those prices were higher than the prior week’s sales of $122-123 live and $192-195 dressed, the volumes were nowhere near what is needed to set a trend.
Analysts and market watchers were undaunted however.
“Packers will be buying for the first full kill week of 2018, so in order to get sufficient supplies they may need to write larger checks for cattle this week,” commented Troy Vetterkind of Vetterkind Cattle Brokerage last Thursday.
“The cash call for this week is steady to higher,” Andrew Gottschalk of Hedgers Edge predicted earlier in the week. “The trend bias into mid-January remains ‘up.’ Initial resistance is at $125-126 followed by $130, support is at $115.”
He additionally noted that it “is not uncommon for fed cattle prices to top in mid-January,” however.
The December live cattle futures contract left the board on Friday, Dec. 29, 2017 at $123. The new near-term contacts of February and April settled last Thursday at $122.25 and $123.82 respectively.
Cassie Fish of the Beef Report noted that the Goldman Roll took a swing at the February live contract. Gottschalk also noted that “although the trend remains up, futures are approaching an ‘overbought’ condition.” Both of these conditions have the potential to limit growth in the near-term contracts.
Last week, shortened by the New Year holiday, was expected to be a 548,000-head production week. This followed the last week of 2017, which was estimated as a 502,000-head production week.
This shortened production run has helped with the cutouts gaining value. Over the course of last week, the Choice cutout gained almost $6 with a Thursday close of $208.67. The Select cutout almost gained $8 at $200.86 on Thursday.
“The initial upside price target is $210 for the Choice cutout followed by $215,” said Gottschalk.
Surprisingly strong and sustained domestic and export demand for beef has also had a big hand in keeping cutouts up.
“Consumer demand for beef held up well in 2017, considering slow growth in the economy, intensifying competition from more supplies of competing meats, and the developments in consumer tastes and preferences for new food products or dietary diversity,” commented the CME Daily Livestock Report last Thursday.
“Through the first 11 months of 2017, the retail price of Choice beef declined by 1 percent from a year earlier, according to USDA-ERS (Economic Research Service). With general price inflation in the economy running at 2 percent, this translates into a 3 percent decline in prices in inflation-adjusted terms.”
The overall economy is doing well and that is projected to continue into 2018. Gottschalk reported Thursday morning that a total of 40 companies have announced bonuses and/or increased wages as a result of the new tax plan.
“Wages are growing the fastest for lower income groups, a fact that is a positive stimulus for meat and beef demand. Beef demand should become the major beneficiary of these income gains. History is very clear that consumers will move their purchases up the protein ladder with rising incomes.”
Feeder cattle
In the first sales of the year, prices on feeder cattle seemed to be doing well. Prices on medium and large 1-class (#1) steers weighing between 700-800 lbs. ranged steadily from the mid-$140s to the upper-$160s.
Iowa: The Bloomfield Feeder Cattle sale had no trend to quote with its last sale being its special I.M.B.I.O. calf sale. Trade was called active on very good demand. Two large groups of #1, 7-weight steer calves averaged $162.31 for the 705-lb. group, and $154.27 for the 770-lb. group.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City saw over 1,700 head sell in the year’s first sale. Feeders over 650 lbs. were said to have a higher undertone, same on feeder calves, though there was a limited test. A 28-head group of standard benchmark yearling steers averaged $154.38, while a 127-head group of value-added benchmark yearlings averaged $161.77.
Missouri: Almost 5,900 head of feeders sold in the Joplin Regional Stockyards’ first sale of the year. Light steer and heifer calves were up $2-6 compared to the prior sale. Demand was called good on the moderate supply, curtailed by the frigid temperatures in the area. Benchmark steers ranged from $149-154.
Nebraska: The Huss Platte Valley Auction sold slightly fewer cattle last week compared to the prior sale held two weeks earlier. Feeders were called mostly steady on good demand. Several large groups of #1, 7-weight steers sold between $147.50-169.
Oklahoma: The OKC West-El Reno auction sold over 3,100 head of feeders last week in its first sale of the new year. It reported that all classes of feeder cattle sold with very good demand, and calves on moderate demand. Benchmark cattle sold between $147.50-158, inclusive of calves.
South Dakota: The Hub City Livestock Auction sold over 6,700 head last week, over double the volume of the most recent previous sale. Most steers were down $1-3 with the exception of heavy 6-weights which were up $1-3. Heifers were mostly steady with the exception of 6-weights which were up $4-5. Benchmark steers sold between $145-169.50.
Wyoming: There was no trend at the Torrington Livestock Commission Co. last week because of the holidays. The offering was described as a nice showing with a good crowd on hand who bid actively. Benchmark yearling steers ranged from $143-167.
Near-term feeder cattle futures gained about $3 each over the course of last week. The January contract settled Thursday at $149.02, and the March contract settled at $145.55.
“Funny money continues to liquidate their position,” Gottschalk said of the feeder cattle futures.
John Harrington, DTN’s livestock analyst, pointed out that the January contract is being supported by “the substantial premium of the cash index.” Liquidation pressures the more deferred contracts. — Kerry Halladay, WLJ editor
