“The malaise that dominated the cattle market last week is still casting its shadow today,” wrote Cassie Fish of the Beef Report last Monday morning. Her description was as accurate on Monday as it was on Thursday.
Everything was down. Every portion of the cattle and beef market was in decline and new lows were set. The futures markets tried to rally early in the week, but lost what meager gains had been made in late-week trade.
“The positive cash basis and liquidation from managed money continues to dominate the trend for fed cattle prices,” noted Andrew Gottschalk of Hedgers Edge last Thursday morning. By the end of the day, almost 81,000 head of cattle had been confirmed sold on the cash negotiated market. Live cattle sold at $108-111 (down $4-8) and dressed cattle at $173-176 (down about $10).
The price declines in the cash market narrowed the basis with the live cattle futures, which set new lows early in the week. They were said to be oversold, with the August contract settling Thursday at $107.12 (down a net $2.60) and the October contract settling at $106.22 (down a net $1.18). All of these net losses were suffered in Thursday’s trade.
“Cattle traders remember well the fall bear debacles of the last two years and the fact that the market is oversold and discount to the cash fed cattle market are neither good enough reasons to buy futures,” Fish opined. “If a trader can’t sell it here, the safe move is to retreat to the sidelines and wait.”
Troy Vetterkind of Vetterkind Cattle Brokerage also offered his opinion on the futures markets.
“As we see price pressure down into $105, I would be rolling short futures hedges into puts. If I am buying anything in the live cattle, I am doing it in the Feb and April. I think we eventually set this market up for a nice rally once we get into the first quarter of next year and we get past our peak late summer/early fall fed cattle supplies.”
Beef
Last week saw anticipations of the largest cattle slaughter week of the year at 645,000 head. This expectation followed the prior week’s 641,000-head slaughter week, the highest of the year at that point.
With so much beef coming in, the continued decline in the cutout should come as no surprise. As of Thursday’s afternoon close, the Choice cutout had lost a net $3.97 to close at $195.63 compared to the prior Friday’s close. The Select cutout lost a net $1.92 to close at $194.20. But this, as always, has a silver lining.
“Retailers will respond quickly to their current maximized margin structure by lowering their average price and increasing the beef features,” said Gottschalk. He referenced an ad for the Denver area King Soopers grocery stores which featured Choice bonein strip for $4.97/lb.
“Only weeks ago, this item was featured at $5.77/ lb. It would not be surprising to see this item featured for Labor Day at $4.47/lb. Once again, one should not confuse declining product values with weak demand. The process of lowering retail beef prices is underway at the present time. Beef remains a major draw for foot traffic.”
He also expounded on the good indicators for demand by criticizing recent reports that claimed, “household debt is record high.” He points out such headlines “fail to state that ‘consumer debt versus disposable income is near a record low.’ Economic growth this quarter could exceed 3 percent annual growth. Point: Factors underlying demand for beef and the meat complex are positive.”
Feeder cattle
“Feedlot closeouts remain profitable with average August fed cattle break evens estimated at $105-108,” noted Gottschalk in spite of the recent dips in cash fed cattle prices.
Vetterkind also noted that, “Demand for feeder cattle to fill empty bunk space continues to be very strong and numbers of feeder cattle are tightening up for the late summer time frame so I guess that would explain why the market doesn’t break very hard.”
Across the observed feeder cattle auctions, volumes and prices were mostly down. Prices for medium and large 1-class (#1) steers still remain in the $140s for the most part, with ranges reaching the $120s on the low end and the $150s on the upper end. Calves are still notably discounted to yearlings. Short- or unweaned calves are additionally discounted.
California: At the Cattlemen’s Livestock Market of Galt, feeders were called $2-5 higher with preference going to lighter feeders. The price range on #1, 7-weight steers was $127-148.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City sold a third of the cattle last week as it did the week before. Despite this, the prices for feeders were steady to up $2. For benchmark feeder steers, prices ranged narrowly from $144.50-148.50.
Missouri: The volume of cattle sold at the Joplin Regional Stockyards last week continued to fall, and so did prices. Feeders were down $5-10. Prices on #1, 7-weight yearling steers ranged from $141-145.
Montana: The Public Auction Yards of Billings was one of the few auctions to see increased sales volume last week. At 1,017 head sold, last week’s volume was close to double that of the week before. This meant feeder categories were too lightly tested for a market trend however. A group of 39 head of 738-lb. #1 yearling steers averaged $151.50.
Nebraska: The Sheridan Livestock Auction was another of the few auctions which saw increased sales. However, feeders sold lower than they had the week before on the few comparable sales. Nine-weight steers were steady to down $5. A large group of 772-lb. #1 yearling steers averaged $157.74.
New Mexico: Volumes were down at the Clovis Livestock Auction, but prices were up. Feeder steers under 600 lbs. were up $2-4 and heavier steers were steady. Most heifers were steady, but 5-weights and 7-weights were up $2. A group of benchmark yearling steers averaged $140.98 and a group of calves averaged $136.
Oklahoma: The prices and volumes at the Oklahoma National Stockyards were down last week. Yearling feeders were down $6- 10 and long-weaned calves were steady. Short- or unweaned calves were down $10. Several groups of yearling benchmark steers between $142-149 and a pair of benchmark calves sold with averages in the mid- $130s.
Texas: The San Angelo Cattle Auction doubled its offering last week, meaning there were few reported trends. Feeder steer calves were said to be steady to up $2. A group of 20 head of 734-lb. #1 yearling steers sold for an average of $136.90.
Feeder futures staged an unsuccessful rally right along with live cattle futures. The August contract lost a net $1.30 to settle last Thursday at $140.47 and the September contract lost a net $1.50 to settle at $140.72.
“Cattle futures gave back some of the strong gains we saw on Tuesday, feeder cattle particular,” commented Vetterkind on Wednesday morning. “I don’t have a good explanation for why the feeders broke so hard but there is a lot of [high-frequency trade] trading in that market with not many humans trading it anymore so goofy things can happen over there.”
