Last week’s market was either a dog-wags-tail situation or a tail-wags-dog situation with the cash and live cattle futures market. Whether it was higher cash leading the futures higher, or higher futures leading the way for higher cash is hard to tell. Regardless, it was a market worth wagging over.
The live cattle futures burst through long-standing resistance levels last Wednesday. Some economists and market watchers attributed this action to gains in the precious little cash fed cattle trades that happened on Wednesday.
“The cattle futures market exploded higher yesterday on ideas packers were going to end up paying higher money for cash fat cattle this week,” reported Troy Vetterkind of Vetterkind Cattle Brokerage last Thursday.
“Even though the gains on yesterday’s Fed Cattle Exchange auction were minimal, the fact that they did pay higher money for cattle on the Southern Plains and showlists are much smaller this week is giving the futures market enough confidence that the cash will be at least $1-2 higher this week if not more.”
By close of trade last Thursday, barely 2,000 head had been confirmed sold, far too low a volume for relevant price trends to be set. The trades on the Fed Cattle Exchange—three lots for 1-9-day delivery sold at $106.50-106.75—made up most of the volume and pricing to that point in the week. The prices it set would be up from the prior week’s live trade level.
“I think we’ve got a chance to sell some $107 or $108 cash fat cattle this week,” opined Vetterkind. He added that such cash levels would allow “October live cattle have a shot at getting up to $109-110 before the week is out.”
Those levels happened and then some without the benefit of the predicted cash trade. In a stunning performance last Wednesday, near-term contracts traded almost limit-up, and all contracts on the board gained at least $1.
“Futures rebounded sharply following yesterday’s Fed Exchange live cattle auction,” reported Andrew Gottschalk of Hedgers Edge last Thursday morning. He noted that the close over $110 on Wednesday violated its downtrend.
“That said, technically, cattle and feeder futures are approaching an ‘overbought’ condition; caution is warranted on early gains today.”
Thursday’s trade saw some declines, but the gains made earlier in the week were not surrendered.
By Thursday’s settlement of $110.10, the October contract had gained a net $2.35 compared to the prior Friday’s settle. The December contract gained a net $3.38 to settle at $116.20. Vetterkind had words of caution despite the excitement.
“We’ve been stuck in a $105-110 sideways range in October live cattle for a month-and-a-half and we’re trying to break out of that range right now. [We] need to be careful with trade here because we need to remember all the times we tried to break out of this range to the downside the last several weeks under $105 only to come snapping right back above it. So, does the same thing happen above $110? Only time will tell.”
Beef
Beef markets—as measured by the Choice cutout movement—were relatively flat last week. The Choice cutout made all of a net 9 cents between close of trade on Friday, Sept. 15 and last Thursday with its $191.51 close. The Select cutout was a little more mobile, gaining a net $2.56 to close Thursday at $188.41.
But while this was next-to-nonexistent growth in one area of the beef market, it meant good things for another area.
“This price stability underlies the value seen and the positive margin achieved by the retail sector at those prices. Plus, a non-volatile wholesale pricing allows retail beef features to be planned and aggressively promoted,” commented Gottschalk, predicting positive things for beef features and movement into the winter holidays.
He also pointed out that economic conditions outside of the cattle and beef markets remain positive.
“Consumers returned to the meat counter and to the stores in general. Beef sales led protein markets and ground beef posted a noticeable advance. The income advances noted in these comments over the past 18 months are providing the impetus to spend and the product of choice is beef.”
Feeder cattle
Demand remained strong for cash feeder cattle last week and prices continued up.
“The price protection offered by the deferred futures contracts is not enough to cover the breakeven levels at this time,” cautioned Gottschalk early last week. “Plus, current feedlot closeout levels are breakeven at best.”
Medium and large 1-class (#1) cattle weighing 700-800 lbs. were in ample supply. In some of the surveyed auctions, almost the entire offering was made up of mid- to heavyweight feeders. Yearlings were more plentiful than calves, and calves were pointedly discounted compared to yearlings. Un-weaned calves or even calves receiving only a short/cursory round of preconditioning were further discounted to properly preconditioned calves.
Colorado: The Winter Livestock Inc. sold 1,262 head last week after having no sale the week before. There were no price comparisons as a result. Trade and demand were called moderate to good, with 85 percent of the offering being feeders. Benchmark yearling steers ranged from $151.50-159.50.
Iowa: The Bloomfield Feeder Cattle Auction held its first auction in three months, selling 853 head of yearling feeders. Almost all the offering was over 600 lbs. A large group of 230 head of #1, 7-weight steers averaged $167.19.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City sold more cattle last week at higher prices. Midweight feeder steers traded $2-3 higher. Midweight heifers were up $5-8 while heavier heifers were up $3-6. Calves were said to have a higher undertone, though fresh-off calves or bawler calves were said to have a lower undertone. Several groups of benchmark steers sold between $153-162, with a small group of calves averaging $136.
Missouri: The Joplin Regional Stockyards sold over 7,000 head of feeder cattle last week. Steer calves were called steady to $3 lower, while heifer calves were $3-7 lower. Yearling steers were steady to up $3, and yearling heifers were just steady. Several groups of #1, 7-weight yearling steers sold between $146-161.
Montana: Volumes were steady and prices were up at the Miles City Livestock Commission last week. Light steers were up $5-10 while heavier steers were called steady. Heifers and yearling steers were too lightly traded for an accurate market trend. Demand was called good to very good on calves, particularly those that had two rounds of preconditioning shots. Three head of 743-lb. #1 yearling steers averaged $157.
Nebraska: The Bassett Livestock Auction Market held one of its first auctions in a while, meaning there were no accurate comparisons for market trends. Demand was called very good, however, with the entire offering being feeder cattle. Benchmark yearling steers sold between $162-169.
New Mexico: There were more cattle sold at the Clovis Livestock Auction last week than the week before, and prices on feeders were up $7-10. Trade was called very active on very good demand. A pair of large benchmark calf offerings had averages in the mid-$130s, while a single #1 yearling steer weighing 735 lbs. brought $150.50 and a trio of heavier yearlings averaged $140.50.
Oklahoma: The OKC West-El Reno sale sold over 8,900 head of feeder cattle last week. Steers under 800 lbs. were up $2-5 while heavier steers were steady to up $1. Heifers were up $3-5, while calves of both sexes were down $2-4. There were many large groups of #1, 7-weight yearling steers sold, ranging between $153.25-161.75.
South Dakota: Sales volume at the Mitchell Livestock Auction almost doubled last week, meaning there were no comparisons made on feeder calves and only on a very few yearlings. The best yearling test was on 7- and 8-weight steers, which were called sharply higher. Heavy heifers were called $3-8 higher. A large group of 775-lb. #1 yearling steers averaged $161.70.
Texas: The Amarillo Livestock Auction sold 886 head of cattle last week, with feeders selling steady to up $2 on active trade on moderate to good demand. Fifteen head of #1, 7-weight steer calves averaged $134.28.
Wyoming: The Torrington Livestock Commission Co. sold 1,000 head more cattle last week than it did the week before. Despite this, yearling steers were up $5-10, with instances of up $13. Heifers were up $2-5 while calves of both sexes were up $5-8 on a light test. Benchmark yearling steers ranged from $153-167, with averages in the low-$160s.
Like the live cattle futures, feeder cattle futures posted gains last week. Most of the action happened on Wednesday, with near limit-up trade happening in near-term contracts. By Thursday’s settlement of $153.17, the September contract had gained a net $2.95. The October contract gained a net $5.22 with a Thursday settle of $155.87.
“October feeder cattle have already achieved their first price objective at $153.95 yesterday and now appear to be taking aim on their second price count and contract highs at $159.40-159.82,” advised Vetterkind. — Kerry Halladay, WLJ editor
