Two big things happened last week. One was Wednesday’s “flash crash” in the futures. The other was major negotiated cash fed trade action by midweek and a recent high in those prices.
Negotiated cash fed cattle trade started in earnest on Wednesday, with almost 30,000 head being confirmed sold for the week. By Thursday, that number had jumped to 69,000 head. Prices on these big volume days ranged from $126-131 live and $203-205 dressed. The upper end of this range represented the highest cash price attained this year.
“Feedyards are full. Cattle are making money. Short hedgers had the opportunity to pull shorts and sell cattle with no regard for anything except their basis,” summarized Cassie Fish of the Beef Report on Feb. 22.
“What happened yesterday is not new,” she continued, speaking of the triple-digit crash in the futures markets on Wednesday, Feb. 21.
“The industry has done it repeatedly in 2017 and 2018. The ravages of the down experienced in 2015 and 2016 combined with the enormous amount of capital at risk to feed cattle nowadays are one part of the thought process. Combine that with the knowledge of greater supply placed against May and June than the market has seen since 2011, and cattle feeders will continue to be aggressive sellers pretty much no matter what.”
“The fat cattle market likely backs up for a week or two because of what happened yesterday, because beef packers do have access to larger captive supplies of fat cattle coming up, kills are getting cut back near term, and late to the party weak longs new to the futures market are probably going to want out of the market,” commented Troy Vetterkind of Vetterkind Cattle Brokerage, also speaking of Wednesday’s activities in the futures. He wished market longs good luck.
The declines in the live cattle futures that started Wednesday continued into Thursday. By settlement, the February contract had lost a net $1.75 at $128.35 compared to Feb. 16’s settlement. The April contract lost a net $2.28 at $125.37.
“The ugly price action at the CME yesterday reinforces overhead resistance in April live cattle at $128, June live cattle at $119, March feeder cattle at $150, and April feeder cattle at $153,” Vetterkind summarized. “Near-term support for all these contracts comes into play under the market at $123 in April live cattle, $114-115 in June live cattle, $144-145 in March feeder cattle, and $145-146 in April feeder cattle.”
Fish called the declines in the live cattle futures markets a combination of “pre-roll out” of the April contract and outright liquidation action in the February contract. She predicted that the cattle futures will be the followers in the market for the next few weeks.
“As the demand and cutout led-rally heats up more and packer margins widen, that may translate to bigger kills and competition for still limited fed cattle supplies. If so, then this sell-off in futures is another buying opportunity.”
For now, kills have remained muted, and this has helped rocket beef cutouts higher than was thought likely only a few weeks ago. Last week’s expectation was for a 590,000-head production week, following the prior week’s 596,000-head rate.
“With last week’s secondary low in cutout values, the cutout is on fire this week, gaining $10.89 since a week ago Monday,” noted Fish on Thursday, speaking of Monday, Feb. 12.
“Beef traders remember well the blistering rally last March, which took the cutout $35 in about four weeks. In fact, some items began the spring rally three weeks early this year and show no signs of stopping yet.”
By close of trade Thursday, the Choice cutout closed at $218.40 and the Select cutout closed at $212.06. Last week saw the Choice cutout blow through two resistance levels—first $210 and then $215—with ease.
Feeder cattle
“Obviously the break in the futures as well as cattle feeders’ willingness to accept lower money for their inventory has led to cash feeder markets sagging late yesterday,” Vetterkind reported on Thursday.
Indeed, many feeder cattle auctions cited the declines in the feeder futures, which were far more severe than in the live cattle futures, for depressed prices.
Overall, volumes tended to be higher, but prices were mixed depending mostly on when in the week the sale was held. Those taking place earlier in the week generally saw prices increase, while those held on Wednesday or Thursday were generally down. The prospect of beneficial rains in some areas also boosted demand and interest if not prices.
Medium and large 1-class (#1) steers weighing between 700-800 lbs. were readily available with more yearlings being reported sold than calves. The bulk of the prices continued to trend in the $140-160 area.
California: Things stayed steady at the Cattlemen’s Livestock Market in Galt. All classes of cattle sold were called steady. There were again no #1, 7-weight steers sold, but the #1, 6-weight steers were up slightly at $145-160.
Colorado: More cattle sold last week at the Winter Livestock auction of La Junta, and prices were mostly up. Light steers sold up $2, 5-7-weight steers were up $3-5, and heavier steers were steady to up $2. The heifers were uneven in the lightest calves but mostly up $2, 5-weights were steady, 6-weights were down $2-3, and over 700-lb. heifers were steady to down $2. Two groups of benchmark steers averaged $157.37 for the 707-lb. group and $148.37 for the 770-lb. group.
Iowa: The Bloomfield Feeder Cattle sale saw over 2,000 head sell. Compared to the most recent sale two weeks prior, light feeder steers were down $1-2, while steers over 650 lbs. were up $3-6. Heifers under 600 lbs. were called mostly $2-3 higher and heavier heifers were up $4-7. Two groups of benchmark steer calves averaged $159.99 for the 732-lb. group and $153.71 for the 769-lb. group.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City sold almost double the number of cattle last week as it did the week before. Steers were called firm to up $2, and heifers were mostly steady to up $4. Calves were said to have an extremely higher undertone, but on a very light test. Two groups of #1 yearling steers averaged $153.04 for the 721-lb. group, and $147.02 for the 782-lb. group.
Missouri: The Joplin Regional Stockyards sold over 9,000 head last week, over three times the number sold the week before. Steers under 700 lbs. were up $2-7 higher, while heavier steers were steady to up $2. All heifers were steady to up $3. Demand was called good as beneficial rain is expected. Two large groups of yearling steers ranged from $140-156.
Nebraska: The Bassett Livestock Auction Market sold about 500 more head last week than the week before. Steers traded steady to up $3 while most heifers sold steady to up $2. Six-weight heifers were the exception, trading $6 higher. The report noted that the highest demand was on replacement-quality animals, which might be the why behind the spike in heifer prices.
New Mexico: The Clovis Livestock Auction saw steady volumes last week and mostly lower prices. Feeder steers were down $3-6, light heifers were called a weak steady, and heifers over 600 lbs. were up $2-3. Benchmark yearling feeder steers ranged from $138-149.25.
Oklahoma: The Oklahoma National Stockyards sold almost 11,000 head last week, up significantly from the prior week’s 6,545 head. Feeders sold up $1-5 and heifers were steady to up $2. Steer calves were $3 higher and heifer calves were $4-8 higher. Several groups of benchmark cattle sold between $148-162.50 for standard yearlings and between $142-148 for calves and fleshy yearlings.
South Dakota: The Hub City Livestock Auction sold over 6,000 head of feeders last week. Mid- to heavyweight steers sold down $1-3 with instances of down $6 on 8-weights. Heifers were called mostly steady. The offering was called very attractive and said to have attracted very good demand despite the lower prices, which were attributed to the futures actions on Wednesday. Benchmark yearling steers sold between $145.50-162.75.
The feeder cattle futures took the crash on the nose far more than did the live cattle futures. On Wednesday, all contracts had lost at least $2 with some seeing over $3 in single-day losses. The declines continued on Thursday, but not to the same extent. By settlement on Thursday, the March contract had lost $3.80 from the intraweek high made on Tuesday with $146, and the April contract had lost $4.38 in two days to settle at $148.07 on Thursday.
“Even the expected stability in overall feeder cattle placements in January that likely will be seen in the Cattle on Feed report was unable to draw buyers back to the market,” commented DTN Analyst Rick Kment on Thursday afternoon, referencing the Cattle on Feed report that was released on Friday, Feb. 23. — Kerry Halladay, WLJ editor
