Analysts expected placements to be up in the Oct. 20 Cattle on Feed report. They did not anticipate placements being up by over 13.5 percent. In the face of that shock, however, futures markets performed impressively, gaining several dollars and likely dragging cash trade higher.
Last week’s cash fed cattle trade was exceptionally slow to get moving. Only 2,610 head had been confirmed sold by close of trade last Thursday. Despite the low volume, the prices of $108-112 live and $174-175 dressed seen through Thursday were steady with the prior week’s trade.
Market watchers and analysts however predicted cash trade would prove higher by the time the bulk of sales occurred.
Andrew Gottschalk of Hedgers Edge predicted Friday’s trade would see live prices challenge $115. Asking prices were $116 live and $180 dressed.
The predictions of higher cash trade stemmed from the jump in the live cattle futures on Tuesday. Contracts saw triple-digit gains across the board. Wednesday’s trade saw some of those gains given back, but by Thursday’s settlement, the near-term contracts had picked up another dollar.
Cassie Fish of The Beef Report credited the surge in near-term futures values to activity in the 2018 contracts.
“Despite large placements against 2018, fund buying in these months has propelled these contracts higher and higher. Open interest [Tuesday, Oct. 24] rose over 5,000 contracts on heavy volume, with the bulk of the open interest increase in 2018 contracts obviously, as the migration out of December and into February has already begun. As if it needed to become any clearer, money flow is dominating CME cattle futures trading in a significant manner, and the market no longer responds to fundamental data as it has in the past.”
Compared to the prior Friday closes, the October contract gained a net $2.48 by settling Thursday at $114.15. The December contract settled at $120.70, a net gain of $4.10.
Beef prices began increasing last week with the Choice cutout gaining a net $2.51 to close Thursday at $202.37. The Select cutout gained a net 77 cents at $191.91.
Market currentness was of greater interest to market commentators and economists than beef prices last week, however. The Cattle on Feed report showed placements into feedlots during September up over 13.5 percent compared to September 2016. Gottschalk issued warnings.
“Seasonally, October placements exceed September placements. [Month-to-date], October placements are above year-ago levels. Producers will feed toward the premium, eventually exacerbating the increase in front-end fed cattle supplies.”
He again reiterated the imperative of aggressive marketing of cattle in order to cope with the increased placements, but he also pointed out a potential concern: packer capacity and labor shortages.
“Lurking in the background, is the limitation in packer processing ability which is restricted by labor.”
Feeder cattle
Demand for feeder cattle stayed strong last week. Even in auctions which reported declines in week-to-week prices, overall cash prices are still at a premium to the feeder futures markets.
For medium and large 1-class (#1) steers weighing between 700-800 lbs., most averages were in the mid-$150s to mid-$160s. Prices quoted in the surveyed auctions ranged from $139.18-$170.
California: The Cattlemen’s Livestock Market of Galt sold over 3,100 head last week at higher prices, with light feeders being up $3-5 and heavy feeders being up $4-6. The #1, 7-weight steers sold between $140-165.
Colorado: The La Junta Livestock Commission Company Inc. sold 1,000 more cattle last week than they did the week before at mixed, but generally higher prices. Steer calves under 600 lbs. sold up $3-5 except for light 4-weights which were discounted $2. Heavy steer calves and yearling steers sold steady to up $2. Pee-wee heifer calves were steady while others were down $2-4. Yearling heifers were steady to up $1. Very few benchmark yearling steers sold, ranging narrowly from $151-154.
Kansas: At the Winter Livestock Auction of Dodge City, feeder steers were called $6-10 higher while heifers were too lightly tested for a market trend. Calves of both sexes were called firm to up $7 with instances of $13 premiums. There were no #1, 7-weight steers sold, but #1, 6-weight steers ranged from $150-169.75, and #1, 8-weight steers ranged from $153.75-158.
Nebraska: The sales volume was down at the Sheridan Livestock Auction Co. last week, and feeders were called sharply lower on Wednesday’s sale. No trend was offered on feeder steers, but feeder heifers were called mostly $5 lower. A few small groups of benchmark yearling steers sold between $154-164.75.
Oklahoma: The Oklahoma National Stockyards sold almost 7,900 head last week, down almost 1,000 from the previous week’s sale. Yearling feeders of both sexes were called steady to $3 lower, while steer calves were called steady to $3 down. Heifer calves were poorly tested but called unevenly steady. Benchmark yearling steers ranged from $152-162, and a group of 11 head of benchmark calves averaged $139.18.
South Dakota: Over 10,000 head of cattle sold last week at the Philip Livestock Auction with feeder prices mixed. In feeder steers, most calves traded $2-5 down, with the exception of calves weighing 450-550 lbs., which were steady to up $2. In heifers, 6-weights and feeders under 450 lbs. were steady to up $4, while all others were down $2-5. Benchmark steers—inclusive of calves and “fancy” yearlings—brought between $152-170.
Texas: Yearlings were not well tested at the Amarillo Livestock Auction last week. Calves were said to have a lower undertone and trade was called active on good demand. Number 1, 7-weights were the heaviest feeders reported sold. A group of 11 head of 723-lb. calves averaged $126.89 while a group of eight “full” yearlings weighing 738 lbs. averaged $141.
Wyoming: The Riverton Livestock Auction held its special calf and yearling sale last week, seeing over 5,700 feeders sell. Feeder steers were called unevenly steady with pee-wees seeing instances of $5-8 higher, 5-weights down $5, and steers over 600 lbs. being steady to up $4. Heifers were called generally steady with instances of $2-6 lower. Benchmark calves and yearlings alike sold between $150-161.
As with the live cattle futures, the feeder cattle futures made some handy gains last week, mostly on Tuesday’s surge. The up-front October contract gained a net $1.80 with a Thursday settle of $155.42. The soon-to-be front-month November contract settled at $157.17, a net gain of $4.10 compared to the prior Friday’s close.
“The live cattle and feeder cattle futures could be getting ahead of themselves a little bit and could be setting up for a correction lower at least in the winter contract months,” speculated Troy Vetterkind of Vetterkind Cattle Brokerage last Thursday. — Kerry Halladay, WLJ editor
