Friday markets
It was a tough week in the cattle markets negotiated cash trade slid down $4 on the week and feeder cattle have been $6-8 lower over the past two weeks. This is a seasonal price shift after the Labor Day rally. Safeway stores are featuring T- bone steaks for under $5 lb. As of Friday afternoon, report 664,791 head had been sold and traded between $102-104 live and $162-164 dressed. There were 25,200 head priced on the formula grid that averaged $169.50 weighing 864 lbs.
Futures markets were slipping downward all week but gave a little back today. October live cattle gained .52 cents to $104.50 and December gained .65 cents to close at $108.47. October feeder cattle were .05 cents higher to $137.65 and September was .17 cents higher to close at $138.50, expressing not a lot of enthusiasm in today’s CME trade.
Slaughter levers remain good estimates for this week’s slaughter are 640,000 head as of Friday 589,671 head have passed through processing plants which is 1,000 more than last week. We wouldn’t expect a strong Saturday slaughter over Labor Day. Packer margins remain strong even though the Boxed Beef cutout has been falling, but not that much, the Choice beef was quoted at $225.85 and Select had slipped to $209.30.
Cattle Report said, “The week kept cattle owners on the defensive each day and each day bought declining prices. Week’s end brought back some optimism for next week and price stability and possibly advancement. Prices bottomed last year at this time and several conditions point to more favorable conditions ahead.
Regional differences were reported at the week winds down. Iowa traded a few cattle at $105 live and $163 dressed. Both Nebraska and Texas found willing sellers at $102 while Kansas sellers traded cattle for $103. Each day has brought weaker prices and willing sellers, but volumes have been light. Packers will be willing to add inventory at these lower prices given most analysts are pegging processing margins at $350/head.
The number of cattle on feed for 150 days or longer continues to decline. Carcass weights are moving sideways while last year, carcass weights were increasing. Forecasting when and if the cattle owners will regain trade leverage is difficult. It will take larger slaughter numbers and strong beef demand this fall to allow the live sector to participate in the generous margins captured at the nation’s beef plants.”
Rick Kment at DTN had a good forecast of the feeder cattle market “Taking a look at the current market price trend (red line) without perspective of what is going on in the market or historical data, one would think that the 24 percent rally in feeder cattle index prices over the past four months is impressive. And really, the scope and ability to regain support in this market structure is generally impressive and should not be taken too lightly.
Feeder cattle prices have moved back to pre-COVID levels with uncertainty of beef demand growth over the coming weeks and months, making the price resiliency generally noteworthy. It is important to note that current index price levels have moved above year-ago levels (green line) and could continue to trend in that direction over the short term, given current support seen in the market.
But this is the point where “good” market prices become relative. Current price levels are still well-below production costs for cow-calf producers and are nearly $20 below the previous three-year average price levels (blue line). This will continue to add underlying pressure to the industry, as current supply levels and concerns that beef supplies will outpace demand through the end of the year may keep feeder cattle prices well-below the longer-term market trend.
Traditionally, seasonal pressure develops during the fall months with prices typically hitting seasonal highs in late July and early August. It appears that in 2020, seasonal highs have developed in late August, signaling a possible moderate pullback over the next several weeks.
Uncertainty about further cattle placements and feeder cattle sales continues to create additional caution to the industry, limiting the potential for prices to break out of this current market trend.
Higher feed prices and hay shortages in drought-affected areas of the country has quickly led to selling decisions for many cattle producers based on weather factors and not prices available. As of the latest cattle on feed report, at the end of July, cattle placements in 2020 (14.2 million head) are at the lowest levels since 2016. At this point in the year, 63 percent (past 10-year average) of yearly cattle have been placed in feedlots by the end of July, indicating that, if this trend continues to develop, overall placements would come in nearly 900,000 head less than 2019 levels.
These tighter supplies should help to support live cattle and beef price levels during 2021, but for now, there remains so many unanswered questions about potential beef demand that make the road ahead foggy at best. Over the last decade, placement numbers have peaked every year in October. There is no indication that this will change, despite the active feeder cattle sales activity over the last few weeks and disrupted pattern of placements through the entire year.
The end result of beef hitting the market when these cattle reach market-ready weights will likely create significant price variability through much of 2021.
Although feeder cattle prices are much better than they have been, the fact that they are significantly below where they could, or potentially should be, will continue to add volatility and uncertainty through the cattle market as fall sales increase within the coming weeks. This could create short- and long-term implications as cattle producers could begin conversations regarding their herd size and/or if they even want to remain in the cattle business at all. So, for many, “good” is likely not to be “good enough” given the current conditions and uncertainty in the market.”
Mitchell Livestock Auctions Mitchel SD. Sold 2.010 head Thursday and reported Compared to last week: Steers 800-850 lbs. were 3 higher, a lower undertone was noted on the rest of the steers. A lower undertone was noted on feeder heifers. A few loads lots in today’s offering. Demand was fair. Starting to get a few spring calves in now. Benchmark steers averaged $145.89 weighing 830 lbs. — Pete Crow, WLJ publisher
