Last week’s markets were a study in attempted recovery that didn’t quite pan out.
When the negotiated cash fed cattle trade came in at any relevant level last week, the prices were disappointing. At $105-109 (average $106.50) live and $165-175 ($170.81) dressed, prices were a weak steady on live and down roughly $5 on dressed compared to the prior week’s prices. This was despite market analysts expecting a mostly steady trade.
“Producers selling hedged cattle will continue to be aggressive sellers, limiting any price rebound,” reported Andrew Gottschalk of Hedgers Edge on Thursday.
“Unhedged cattle are mostly in the loss column by $100+ per head. The largest cash premium to the October live cattle futures during September in the previous five years is $4.55/cwt basis W KS. At last night’s close, the October live cattle futures are discounting a $104-105 cash trade. During the month of October, the best average cash premium during the previous five years, versus the October live cattle futures is +$1.65/cwt. This implies a $101 cash price during October, at yesterday’s closing futures level.”
The near-term live cattle futures were up on a week-to-week comparison, but not by much. Compared to the settlements set on Friday, Aug. 23, the settlements on Thursday, Aug. 29 were up $1 on the August contract with $105.65, and 40 cents on October with $99.80. This followed a week of mostly failed efforts to recover from the steep declines on Aug. 23.
DTN Analyst Rick Kment called the higher close on Thursday a “moral victory.”
“Live cattle futures slowly pulled away from midday gains, but the ability to close higher following late-day market pressure earlier in the week which eroded strong morning gains is significant as it indicates market volatility is easing,” he said Thursday afternoon.
“October futures still remain under the $100 per cwt threshold at closing bell, but price shifts through the session that moved above that level created technical support and hope that additional commercial support may soon develop through the entire complex. Trade volume and movement is expected to remain subdued Friday ahead of the holiday weekend as many traders appear comfortable with current market positions and are willing to wait until September before stepping back into the complex.”
The August contract closed for the last time on Friday, Aug. 30, after press time.
Beef
The cutouts closed mixed last week, with the Choice cutout losing over $5 over the course of the week with $232.19 on Thursday, and the Select cutout gaining a net 7 cents with $212.78.
“With the shortfall in wholesale beef supplies covered by two big kill weeks, boxed beef values are falling hard, down $10 off last week’s high with more downside coming,” commented Cassie Fish of the Beef Report on Thursday.
“Boxed beef prices are seasonally under pressure in September and now that availability of product offerings has begun to normalize in earnest, expect lower prices. Generally, most cuts trade sideways through the end of the year after bottoming in late September. It is the rib that has the most upside in Q4.”
The declines in the Choice cutout and relative stability of cash cattle prices has meant the packer margins have come down too. On Thursday morning, Hedgers Edge estimated them at $383/head. Though not the record-setting high seen the week before, that is still a respectable margin that will keep packers buying cattle. Which the industry needs.
“Market-ready fed cattle project to increase during the mid-September through mid-October time period,” warned Gottschalk. “It is imperative that producers maintain an aggressive selling position to prevent a fed cattle carryover from developing into the Nov-Dec period. The latter action would be necessary to maximize the benefit of a modest reduction in marketable fed cattle supplies during the Nov-Dec period.”
The supply fundamentals are looking good for now, however.
“Carcass weight data remains positive, with steers three pounds below the prior year and seven pounds below the previous five-year average,” Gottschalk continued. “Heifer weights are five pounds below the prior year and unchanged from the previous five-year average. Average carcass weights (inclusive of cows) are five pounds below year-ago levels and nine pounds below the previous five-year average.”
But, both Gottschalk and Fish stressed that carcass weights—i.e., available beef supplies—are expected to trend above prior years in the coming quarter, “as the cool nights in the north are resulting in lots of cattle weighing up above expectations,” according to Fish.
Feeder cattle
More feeder cattle auctions held sales last week, with most of the sales boasting more cattle sold than the week before. Some auctions held their first sale in a while. The prices for medium and large #1 steers weighing 700-800 lbs. were still generally averaging in the $140s.
California: The Cattlemen’s Livestock Auction of Galt reported its first sale since mid-July, with 1,877 head reported sold. The benchmark steers sold between $122-137.
Iowa: The Creston Livestock auction sold 1,735 head in its first sale in a long time. There were no comparisons on the sales, but the offering was said to have met with good demand. Two lots of #1, 7-weight yearling steers sold between $135-148, averaging in the low $140s.
Kansas: Preliminary receipt estimates at the Winter Livestock auction of Pratt showed over a 1,000 head more cattle sold last week than the week before. Seven-, 8-, and 9-weight steers were down $3-5, while heifers in the same weight range were called unevenly steady. Calves were too few for a market trend. There was one 129-head lot of #1, 767-lb. steers reported sold, averaging $141.36.
Missouri: The Joplin Regional Stockyards sold over 3,800 head of feeders last week, over double what it sold the week before. Yearling feeders were called steady while calves were steady to up $3. Two lots of benchmark yearling steers sold, trading narrowly between $142.75-145.50.
Montana: The Miles City Livestock Commission sold over 1,300 head of feeders last week, far outstripping the 69 head the week before. Needless to say, there were no market comparisons offered. Demand for yearlings was called moderate to good, with many yearlings coming off of grass in light flesh and average to attractive quality. Several lots of #1, 7-weight steers were sold with prices ranging from $136-149.25.
Nebraska: Compared to the prior sale two weeks earlier, the Sheridan Livestock Auction sold about 500 head more cattle. Eight-weight steers were up $7-8, but over 900 lbs. and they were $2 lower. One 82-head lot of 740-lb. yearling steers averaged $154.45.
New Mexico: The sales volume over at the Clovis Livestock Auction last week was pretty steady, though prices were mostly lower. Light steer calves were mostly $5 lower, though some 4-weight calves were up $2. Steers over 600 lbs. were down $2-4 with the exception of 7-weights, which were up $1. Heifer calves under 600 lbs. were down $2-6, but heavier calves and yearlings were up $1 on comparable sales. The prices on #1, 7-weight steers had a noticeable two-tiered nature to them. The one lot of 715-lb. yearlings averaged $134.34, while the two lots of heavier, unweaned calves ranged from $119-124, a $10-15 discount.
Oklahoma: The OKC West-El Reno sale sold 7,616 head of feeders last week, but considerably more from the prior week’s 2,448 head. Where comparable, steers traded down $1-2, while heifers were up $2-3. Calves were too lightly tested for an accurate market trend. Demand was called moderate to good on the plain- to average-quality feeder offering. Two very large lots of benchmark yearling steers sold between $134-147.50.
South Dakota: The Hub City Livestock Auction held its first sale in several weeks, meaning there were no comparable sales to establish a market trend. That said, the report noted good to very good demand for the week’s offering of large strings of average- to attractive-quality feeders coming off of grass. Two lots of benchmark yearling steers averaged in the mid-140s.
Like live futures, feeder futures saw fairly muted gains last week. The August contract settled for the last time on Thursday at $138.75 (+40 cents) and the September contract gained 15 cents at $133.40.
“Although nearby feeder cattle futures remain near the bottom of the short-term range, the ability to close above $133 per cwt in the September contract is significant in sparking late-week gains and additional commercial buyer interest ahead of the holiday weekend,” commented Kment. — Kerry Halladay, WLJ editor
