It’s quite a situation when you have packers supporting the fed cattle cash market at $115-120 while the June and August contracts struggled to get up to $100—it’s quite a basis and a way to support their formula customers’ prices. With huge cutout values, packers seem to have all the leverage. They are working to increase processing capacity, but will it ever be the same? Daily slaughter moved up to 110,000 head last week.
Live cattle futures moved higher. August moved 67 cents higher to close at $101.47 and August live cattle were 45 cents higher to $101.17; at least they’re moving in the right direction. August feeders were $1.47 higher to $135.50 and September was $1.17 higher to close at $136.25. Feeder cattle have been able to keep some interest after Tuesday’s limit-up rally. It seems like we’re getting close to topside resistance on feeder cattle. Analysts are saying that $145 may be about as good as it gets.
As expected, boxed beef values will continue to fall for the next several weeks as packing capacity becomes more reliable. The Choice box dropped $8.21 to $369.58 and Select fell $6.11 to $344.09 on 149 loads. The ground beef markets are stronger, however, with 90 percent lean trading at $304.54 while the 50/50 fat trim has dropped like a rock down to $90.64. It was trading at $300 two weeks ago. The grading report shows over 85 percent of last week’s slaughter was Choice and Prime. This is telling me that we’re processing way more Yield Grade 4 and 5 cattle, which is no longer reported.
Through last Thursday, there were 31,801 cash cattle traded. In the Southern Plains, negotiated cash trading and demand have been moderate. In the Texas Panhandle, when compared to last week, live trades moved steady to $5 lower, ranging from $115-120. In Kansas, when compared to the last reported market last Wednesday, the bulk of live trades moved $5 lower at $115, with a few up to $120. Thus far, for Thursday in Nebraska and the Western Corn Belt, negotiated cash trading has been slow on light demand. In Nebraska, when compared to the last live trade market on Tuesday, live trades moved $5-7 higher, ranging from $119-120, while a few dressed trades moved at $190, however, not enough for a market trend. In Nebraska, Wednesday was the last reported dressed market with trades ranging from $178-190. In the Western Corn Belt, a few dressed trades moved at $190, however, not enough for a market trend.
The last reported live and dressed market was on Wednesday with live trades mostly at $115 and dressed trades mostly ranging from $178-185. There were 13,300 formula grid cattle priced at $188.21 weighing 929 lbs. So far, the weighted average on steers was $115.78 and dressed $188.23.
In her report, The Beef, Cassie Fish seems a bit perplexed at how cash and futures will respond over the next few weeks: “With open interest at a mere 31k contracts this morning and liquidating quickly and cash prices still being supported as high as $120 while wholesale beef prices fall, it would seem anything goes for spot Jun LC which expires four weeks from next Tuesday. First notice day falls late on June 8. The first day for delivery is June 18 and the last day is July 16. It is likely the fundamentals will look different in three weeks than they do today. How much different?
“The cutout could easily be sub-$300 as production levels rise above 600k head. Will cash still be supported at $120? Will the discount prevail? Will cattle feeders experiencing a growing backlog of market-ready cattle choose to deliver against the CME contract to dispense of inventory? Just how will convergence occur in these very strange times?
“Does Jun LC rally or just trade near its 100-day moving average as it is now while the remaining live cattle contracts begin to sell off in anticipation of lower cash prices due to the backlog in inventory and compromised beef demand? Unemployment continues to rise, and retail beef prices are record high. The desperately needed increase in beef production to move cattle through the supply chain will also take wholesale prices low enough to find robust, rather than forced demand.”
“In this business and in life, timing is everything. It is taking much longer to bring cattle slaughter back up than anyone anticipated. Absenteeism is still a problem at a couple of major plants. June weekly slaughters above 600k head are widely anticipated but the 665k-673k head needed aren’t attainable for now. By July, the over-supply of market-ready cattle will be much more obvious than today. How does that reality play out for spot Jun LC, caught between today’s market forces and what’s to come by mid-summer?”
Last Thursday, Winter Livestock in Pratt, KS, saw a much stronger market. They offered 2,173 head and compared to last week: Feeder steers 750-850 lbs. sold steady to $3 higher, above 850 lbs. sold $2-3 lower. Feeder heifers 650-700 lbs. and 850-900 lbs. sold $1-2 higher, 750-800 lbs. sold steady to $1 lower. For all other feeder heifers and steers, there were not enough comparable weights for an accurate market trend. Slaughter cows and bulls sold $1-2 higher.
Sioux Falls Regional Livestock in Worthing, SD, offered 2,823 head, and reported feeder steers under 800 lbs. $5-10 higher with instances of $12 higher, and over 800 lbs. mostly steady. Feeder heifers were $7-13 higher. Demand was considered good to very good for this nice offering of feeder cattle. There were many smaller strings of lightweight cattle that were met by many eager buyers who were willing to chase the market. Many long strings of backgrounded steers and heifers—with flesh condition mostly moderate—sold readily, however the greatest demand was seen for the heifers weighing 600-850 lbs. and steers that weighed around 700 lbs. The feeder cattle that will reach finished weights later in the year, or early next year, were much more highly sought after. As news surfaced a week ago Friday that cash sales of fed cattle had reached $120—albeit a very limited amount—cattle feeders were feeling much better about the prospect of the coming months in the fed cattle market and came to town to get some cattle bought. — Pete Crow, WLJ publisher
