Friday markets
The futures market retreated today, giving back hard-earned gains on the June live cattle contract which was $1.23 lower and closed at $100.15. August gave back $1.27 to close at $99.90.
August feeders closed at $134.87, down 62 cents, and September was down 82 cents to $135.42. Estimated slaughter was 110,000 head today, 1,000 more that yesterday.
ShayLe Stewart at DTN said, “Surprisingly, the live cattle market caught a second wind after lunch and closed mostly higher. Fat cattle prices are steady again Thursday as another round of light trade developed throughout the day.
“So far this week, cattle in the south have traded live for $110-120, and cattle in the north have traded dressed for $174-190. Seeing slaughter up above 100,000 head assured producers that progress was being made.”
Cash trade today was moderate with light demand in all regions. A total of 13,153 head were sold today. The weighted average for today’s sales were $117.97 live and $189.21 dressed. For the week, 85,511 head were sold on the negotiated cash market and averaged $115.65 live and $183.30, quite a broad trading range. There were 21,500 head priced on the formula today at an average price of $191.35 and weight of 860lbs.
DTN also reported, “Limited cash market direction is expected Friday with some additional light trade possible before the end of the week. But given that cash market trade has slowly developed through the entire week, the overall price ranges are likely already set.
“The fact that the ranges are established can give some support to the market, but with the huge ranges seen over the last month, there is little confidence that additional trade will develop Friday. Trade has been seen generally from $110-120 per cwt live basis, and $174-190 dressed.
“This is generally steady with last week, but it is hard to pinpoint where an average price may fall given a gap big enough to drive a truck through. Given the support in futures trade, it is expected that most end of the week prices will end up near the top end of the recent range, but this is speculation at this point, with no firm numbers to back that up until early next week when overall sales totals are seen.
“Futures trade is focused on defending recent gains following the holiday weekend. With spot contracts rallying $3.75 per cwt so far during the week, contracts have moved above the $100 per cwt and is trading at the highest level since February. The ability to end the month of May on a high note would carry increased momentum into June trade.”
Spot beef markets are slowly eroding with the Choice beef cutout down to $363.34, losing $6.22 for the day and Select down $4.02 to close at $340.07 on 115 loads. Strength remains in the grinding markets with fresh 90 percent trim staying above $300. Today it was at $306.72 and the 50-50 trim down to $89.35.
Cassie Fish’s remarks for today were, “CME cattle futures opened lower and have eroded all day. Perhaps the selling is being fueled by a growing awareness that bigger June kills and weaker post-Father’s Day beef demand will slam wholesale boxed beef prices the entire month.
“The bigger kills are sorely needed and very welcome—anything to begin to chip away at the growing backlog of market-ready cattle. But the bigger kills come with narrowing packer margins and improving retail margins.
“This leaves the cattle feeder wondering how much longer the packer will choose to support cash cattle prices as margins retreat to something approaching normal next month. Even if there is another week or two of good will left there will be a point when cash prices begin to decline.
“In June 2018 and 2019, cash prices averaged $110.94 and $110.76, respectively. Last year’s cash low was September at $100.65, the lowest monthly average cash price since 2010.
“The result of underkilling the entire 2020 Q2 is a bearish Q3 outlook. Beef production will be the highest in Q3 since 2010 and that is when the backlog of market-ready cattle will reach its apex. Weights will exceed any other year in history by many, many pounds. Boxed beef prices will be under tremendous pressure, competing with pork and poultry and itself.
“It is not a stretch to consider Q3 boxed beef prices will average $200-207, which occurred in 2017 and 2018. But will it take prices averaging in the mid-$190s to compete, like was seen in 2016?
“Most active Aug LC futures is still 80 higher on the week and obviously can’t close lower on the week. This week completes the third week of consolidation, futures tethered to the still-supported cash fed cattle prices. Next week’s futures trade is setting up to be a critical one. And on the break, does the market catch at the 40-day moving average or is another check of the lows in store before July 4.”
The Cattle Report had some strong words about price discovery. “Structural change within the live sector of the cattle industry is required for a full recovery. Our herd must have animal identification. Cash markets must be re-invigorated and made more transparent. Online trading must develop to allow best buyer to find best seller at the lowest possible burden to the price.
“There needs to be improvement to the immune system of our animals to provide a healthier herd requiring fewer antibiotics. This requires new research and less reliance on new expensive drugs.
The futures market needs a new contract that will cash settle each contract month allowing the speculative long to be attracted to the marketplace.
“Every commodity needs a derivative futures contract for risk management within the industry. The contract must mirror actual prices for the commodity and the data must be discoverable to produce an index that will settle the price on termination of the contract.
“Trade associations have long served the role of leadership in reform for the industry, but our organizations are serving too many masters. The disparity of interests is so vast, that frequently it becomes impossible to gather consensus on critically important action items.
“The needs of the breeder, or stocker operator, or cattle feeder are often at odds with another sector of the business and the result is paralysis. Crisis has the ability to force change and never has an industry needed it more.” —Pete Crow, WLJ publisher
