Last week’s markets started with such promise—the cutouts were climbing, Easter weekend beef demand was good and expecting better days to come, and cash cattle were climbing. But that early-week hope was dashed starting Tuesday.
By close of trade Thursday, every area of the market had lost several dollars compared to a week earlier. Cash fed cattle trade came roaring in on Wednesday and Thursday by volume (89,960 head confirmed sold), but prices paid were a whimper compared to the prior week at $122-128 (avg. $126.28) live and $200-206 ($204.19) dressed.
Near-term futures took the worst losses, with some contracts losing over $7. The June live contract was one of those with a Thursday settlement of $115.38. April live lost a net $4.48 to settle at $124.05.
Cassie Fish of the Beef Report summed it up, saying “lots of chart damage was done,” while reminding market watchers that the futures markets were not oversold prior to the sell-off.
After calculating that damage—June live taking out its March low and 100-day moving average, more deferred contracts flirted with recent lows, and general liquidation underway—Fish warned of future vulnerabilities: growing availability of beef while wholesale and retail prices are higher now than in the past two years.
“The important question is what price will be necessary to clear the increased production over the next two quarters? Beef demand came back with a vengeance after prices reached very low prices in Q4 2016. Beef demand expanded in 2017 and 2018. This year, export demand has slowed, and domestic demand has stopped expanding. Packers will need incentive to up slaughter levels for an extended period of time in order to work through the fed cattle supply in a timely manner.”
Andrew Gottschalk of Hedgers Edge also acknowledged the faltering of the cutouts, which closed Thursday at $232.93 for Choice and $219.75 for Select.
“Beef cutout values stalled, but all is not lost. It is not uncommon for initial weakness during the first week following Easter. However, this cutout needs to recover next week and trend higher into mid-May. The next target is $239.”
Gottschalk also warned that after the best demand period comes the worst.
“The ‘dog-days’ of summer, which seldom bode well for cattle prices—even in the most ‘current’ of fed cattle situations,” he said. “How ‘current’ the industry enters this period most often determines the duration and depth of any seasonal price decline.”
Feeder cattle cash trade and futures mirrored their live cattle counterparts with losses. The surveyed feeder auctions noted feeders selling mostly steady to down $7 (mostly steady to down $3) though there were smattered instances of up to $6 higher, particularly on heifers. Benchmark steers were still averaging in the $140s.
The feeder futures were down last Thursday compared to the prior Thursday, however. The April feeder contract left the board on an up note on Monday at $145.98, but near-term contracts of May and August lost about $7 at $143.55 and $153.25 respectively.
DTN’s Analyst, Rick Kment, attributed the feeder losses to technical pressure.
“Without hesitation or even a hint of short-covering interest in the complex Thursday, traders quickly and aggressively liquidated positions following midweek losses. Contracts breaking through short-term support levels this week have changed the structure of the market and have given sellers the opportunity they were looking for.” — Kerry Halladay,WLJ editor
