Thursday’s trade last week gave hope of a rally again. After most of a week of waffling, that late-week trade saw gains almost across the futures boards. But the markets have flirted with rallies one day only to correct the next.
The negotiated cash fed cattle trade was fairly subdued throughout the week. By close of trade Thursday, over 27,600 head had been confirmed sold for the week with prices at $116-118 live (average $116.86) and $192 dressed. The volume was down compared to the same time the prior week, and the prices were mixed compared to the $117.72 and $187.04 posted on April 6.
The really noteworthy move last week happened in the cattle futures, both the live and the feeder contracts. On the live cattle board, the near-term contracts traded mixed sideways early in the week. The April contract made a push higher on Tuesday and Wednesday, while the June contract fell at the same time. But on Thursday, both contracts shot up over $2 with April settling at $115.75 and June at $103.70.
“Live cattle futures opened higher thanks to a few signs of cash firm and has continued to strengthen through the morning,” recounted John Harrington, livestock analyst for DTN, on Thursday afternoon. “Indeed, once spot April punched through resistance at $115, technical buying seemed to accelerate.”
Earlier on Thursday, Andrew Gottschalk of Hedgers Edge opined that, “Technically, futures markets need to close higher today to salvage the current rebound.”
This certainly seems to have occurred. Cassie Fish of the Beef Report described it as the cattle futures breaking out of “the bull flag formation.”
“As each hour goes by, it’s becoming clearer and clearer that negotiated cash cattle prices are not going to break this week, and probably not the next two weeks either, meaning [April live cattle contract] is too cheap relative to cash,” she commented on Thursday afternoon. “Cash trade today has seen another round of $117 and $118 in the South, but the North could be higher before the week is out, let alone by the end of the month.”
“Technically futures are hitting on all cylinders, with daily and weekly indicators, retracement measurements—you name it, all indicating this market has more upside short term,” she continued. “All it needed to do was make its move, which it has today.”
Beef
In all of the ups and downs across the markets last week, the cutouts were decidedly down, though not spectacularly so. Over the course of the week, the Choice cutout only lost about $2, while the Select cutout lost about $5. The Choice cutout closed Thursday at $212.48 and the Select cutout closed at $200.67.
“April is following the pattern of recent years,” quipped Gottschalk midway through the week.
“In summary, April demand is disappointing versus expectations. Expect the beef cutout to record some additional decline. May and June will see a significant improvement in beef demand. However, weekly production above 636,000 will be sufficient to exceed seasonal demand gains.”
“The dog-days of summer will provide a significant challenge to this industry. Even during the best supply conditions, markets tend to falter,” he added.”
Even with the falling cutouts, packer margins have been doing quite well. From April 6 to April 12, the estimated per-head margin packers were making jumped by $20. On Thursday morning, it was estimated at $83/head.
While domestic beef demand is at a seasonal low point, the most recent USDA data shows that beef export demand continues to be strong.
According to the U.S. Meat Export Federation (USMEF) using USDA data, the February beef export volume grew 11 percent compared to February 2017 volumes to 100,593 metric tons. Similarly, the value of exported beef in February was up 18 percent compared to last year at $599.8 million.
“Red meat exports are off to a strong start in 2018 and continue to deliver excellent returns for U.S. producers, said USMEF CEO Dan Halstrom.
“The outstanding level of export value per head slaughtered is especially encouraging at a time in which U.S. meat production is high and the trade climate is somewhat volatile.”
Feeder cattle
Demand for feeder cattle was much improved last week as the live and feeder cattle futures improved and weather in cattle feeding country allowed for better travel.
Almost every one of the surveyed cattle auctions posted gains on feeder cattle prices. Medium and large 1-class (#1) steers weighing between 700-800 lbs. were seeing averages in the upper $140s more than they have in recent weeks.
Colorado: The La Junta Livestock Commission Company sold over 1,700 head last week, over double what sold the week before. Feeders were too lightly tested for a market trend; most of the sale was composed of bred cows and pairs. There were no #1, 7-weight steers sold, but one 17-head lot of #1 steers averaging 881 lbs. sold for $127.71.
Iowa: The Broomfield feeder cattle auction had no comparisons to offer since their most recent sale was a special yearling sale and the prior one was a feeder calf sale. Trade was called active and demand good. A pair of large lots of benchmark yearling steers averaged $160.40 for the 722-lb. lot and $148.29 for the 774-lb. lot.
Kansas: The Winter Livestock Auction sold more cattle for mixed money last week. Feeder steers under 900 lbs. were up $3-6 while heavier ones were steady to down $4. Heifers along the same weight groups were up $2-5, and too few for a trend, respectively. Benchmark steers ranged from $134.50-146.
Missouri: The sales volume doubled at the Joplin Regional Stockyards last week, making for few comparisons. Where they existed, feeder calves and yearling heifers were steady to up $3. Yearling steers were up $2-4. Two lots of #1, 7-weight yearling steers sold for $145.92 for the 737-lb. group, and $138.36 for the 773-lb. group.
Nebraska: Sale volumes were up considerably last week at the Huss Platte Valley Auction. Midweight steers and all heifers sold steady to up $3. Demand was called good for all classes with a large crowd on hand. Four lots ranging in size from 18 to 539 head ranged from $138.50-153.50.
New Mexico: Feeders were up a lot last week at the Clovis Livestock Auction. Steers under 600 lbs. were up $3-7 with 4-weights seeing $10 premiums. Heavier steers were up $5-7 with instances of up $15 on 6-weights. Heifers were mostly $5-10 higher except on 6-weights, which were only up $3-5. The #1 offering was skewed very light, with calves as light as 2-weights being offered. The few 7-weights sold between $135-139.75.
Oklahoma: The OKC West-El Reno auction sold more than double the amount of cattle last week compared to the week before, with feeder steers selling up $4-8 and heifers up $4-6. Calves were up $3-5 on steers and $2-4 on heifers. Two large groups of benchmark steers sold between $145.50-154.
South Dakota: Over four times the number of cattle sold at the Hub City Livestock Auction last week compared to the week before. As a result, there were too few comparable sales for a market trend. Demand was called good to very good on light-fleshed cattle good for grass or backgrounding. Numerous lots of benchmark steers sold between $135.50-153.50.
Wyoming: The Torrington Livestock Commission called steer calves unevenly steady, and yearling steers steady to up $5 with instances of up $12. Heifer calves were steady to $6 higher, and yearlings were up $3 with instances of $10.
Feeder futures would not be outdone by live futures last week; any gains live could make, feeders could do better.
On Thursday, the near-term contracts of April and May saw almost $3 gains. The contracts closed at $138.87 and $139.97 respectively.
“Feeders are following the bullish lead of the live market with triple-digit gains securely in place from fore to aft near the top of the noon hour. Clearly, the rising targets of deferred live issues is giving commercial buyers more attractive targets to shoot at,” said Harrington. — Kerry Halladay, WLJ editor
