The Fourth of July fell right in the middle of last week’s markets. The holiday almost entirely shut down feeder cattle auctions and cash fed cattle trade was slow to get underway.
John Harrington, livestock analyst at DTN, called the cash market “about as exciting as a wet sack of fireworks.”
By close of trade on Thursday, July 5, not even 2,000 head of negotiated cash fed cattle had been confirmed sold for the week. Prices on live cattle on Tuesday and Thursday stood at $110, but no dressed trade was reported.
“Cash sales this week will be no less than $110, with a reasonable opportunity to attain $112,” asserted Andrew Gottschalk of Hedgers Edge on Thursday. “The cash call next week is steady to higher but followed by lower prices the balance of July.”
As the “dog-days of summer” set in following July 4, prices in both fed cattle and beef are primed for decline.
“History is not on the side of prices averaging higher at the end of July than at the beginning of July,” Gottschalk continued. “Price declines are often very rapid. The average price decline from early to late July during the previous 10 years is $7/cwt.”
“…[C]attle feeders seem to realize time is on their side this week as packers need to replenish inventory and captive supplies have and will continue to tighten,” commented Cassie Fish of the Beef Report last week.
“Packers are enduring seasonal weakness in the cutout values and a very mild contraction in still very profitable margins. It will be another two to three weeks of sloppy boxes before a seasonal bottom is reached.”
The Choice cutout fell about $3.50 over the course of the week, closing at $208.43 on Thursday afternoon. The Select cutout saw a net gain of 13 cents over the week, but had traded much higher earlier in the week only to lose significant ground during Thursday’s trade.
“The Choice cutout has attained our initial objective of $210,” noted Gottschalk on Thursday.
“Look for $198-100 to be challenged during late July. The holiday-shortened production schedule this week may allow for a temporary (and limited) bounce in the cutout, prior to declining into the teeth of the ‘dog-days’ of summer.”
Even though the “dog-days of summer” translate to declining seasonal demand for beef (and fed cattle as a result), from a year-to-year perspective demand is still amazing. This larger-scale demand increase has been, and has the potential to continue, moderating usual seasonal declines.
“Beef features have been excellent until this point and large forward sales for the summer months point to continued good featuring in July and August,” noted the CME Daily Livestock Report.
“Having said that, it is normal for beef demand to ease from May levels. Additionally, there will be more competition from lower priced proteins and retailers will look to shift away from higher priced steak items featured for Memorial Day and Father’s Day.”
“Still, packer margins remain in excellent shape and robust sales should continue to support high slaughter numbers through the summer,” the report continued.
“Excellent shape” translates to per-head margins of well over $200. Estimates began the week at $230/head and fell slightly throughout the week to $223/head on Thursday morning.
Near-term live cattle futures zig-zagged up and down over the course of the week with very little net change by Thursday’s settlement. The August contract lost a net 35 cents with a settle of $106.37 compared to the June 29 settlement. The October contract gained a net 10 cents with $110.12.
“Truth is, there is already a lot of bad news priced in this market and it’s clear the focus is gradually shifting to a more positive, longer-term outlook,” commented Fish.
“July typically is a month of seasonal sluggishness and this year will be no different, but that will not be the only dominate market factor—and the market knows this.”
There were very few feeder cattle auctions conducted last week due entirely to the July 4 holiday. Almost all of the surveyed auctions had notices on their most recent reports about no sale being held last week due to the holiday. The one exception was the Joplin Regional Stockyards, which sold 6,123 head of feeders on Monday, July 2. According to the report, steers under 800 lbs. and heifers under 600 lbs. were up $3-7, while heavier feeders were up $7-10. The report said demand was good to very good.
Two large lots of medium and large #1 steers weighing between 700-800 lbs. sold. The 92-head lot of 709-lb. yearlings ranged from $149-157, averaging $153.08. The other lot was comprised of 225 head of yearling steers averaging 771 lbs. They sold between $144-147 and averaged $146.20.
Feeder cattle futures did better than did the live cattle futures last week, with near-term contracts gaining $1-1.50 over the course of the week. By Thursday’s settlement, both the August and September contracts had settled at $152.57. — Kerry Halladay, WLJ editor
“July typically is a month of seasonal sluggishness and this year will be no different, but that will not be the only dominate market factor—and the market knows this.” — Cassie Fish
