It was another quiet week for the markets last week with a major holiday (New Year) falling on Tuesday. Many feeder auctions announced back in mid-December they would be closed until later this week, and it seems likely many potential buyers and sellers stayed home from the few that were open.
All of the attention last week was on the interplay between cash fed cattle, weather, carcass weights, and boxed beef cutouts.
The simple version of this interplay is carcass weights are falling seasonally. This reduces the volume of available beef, which props ups cutout prices. Bad weather in cattle feeding country causing cold, mud, and other conditions that make this falling average carcass weight fall faster, thereby increasing the resulting effects.
Good cutout prices tend to translate into better prices on negotiated cash fed cattle. Cattle feeders, who would rather sell than maintain cattle through poor weather that might increase the risk of livestock turning into dead stock, are willing sellers to willing buyers and the whole thing clips along nicely.
“If aggressive marketings are maintained, prices could grind higher clear into early-March,” projected Andrew Gottschalk of Hedgers Edge.
By close of trade on Thursday, over 20,000 head of negotiated cash fed cattle had been confirmed sold. Prices on Thursday’s cattle ranged from $121-123 (avg. $122.93) live and $193-195 ($193.30) dressed. This was mixed compared to the average of the week before, but the consensus of market watchers was that Friday would see far more voluminous trade.
“Packers have fewer January forward contracts than a year ago and the small buy of 83k head last week means they must load up and prepare for a normal slaughter schedule,” observed Cassie Fish of the Beef Report. Expectations for last week’s slaughter rate was “challenged to attain 515,000 head,” according to Gottschalk.
“The price relationship between the cutout and fed cattle prices certainly leaves room for fed cattle prices to advance, even amidst sluggish cutout values,” Gottschalk additionally observed.
“Product values should continue to advance towards $222, basis Choice.”
By close of trade Thursday, the cutouts were up about $2 compared to their final close of 2018 at $216.49 Choice and $209.38 Select.
On Wednesday, Fish observed that, “Boxes have already started to make their move,” in response to the weather and the holidays-curtailed slaughter weeks.
“The Choice cutout was up $1.96 at $217.31, gaining on select and not far from the Q4 daily high of $218.86 made Nov. 6. The cutout almost always makes a higher high in Q1 than Q4 and a top just over $220 for the first high seasonally made in January is not out of the question.”
Near-term futures were the poor performers, with some analysts describing them in a mild correction from an overbought status. December live, which settled for the last time on Monday, Dec. 31 at $124.80 before leaving the board, was the only near-term contract that saw gains last week.
Near-term live cattle contracts otherwise lost about $1 over the course of the week with the February contract settling Thursday at $123.23 and the April contract settling at $125.40. The near-term feeder futures on the other hand lost about $2.50 over the course of the week with $146.53 for the January contract and $144.45 for the March contract. Most of those losses came during Thursday’s trade.
DTN’s John Harrington attributed this loss to pressure from solid gains made in the corn markets
“Prices settled $1.02 to $1.50 lower, further checked by the discount of the cash index and long liquidation.” — Kerry Halladay, WLJ editor
