The markets were mixed last week, mostly as a result of Thursday’s activities. Prior to that, most things had been pretty sideways.
Most of last week’s cash cattle news came from the week before. After doing almost nothing all week, Friday, July 20 saw almost all of a total 147,900 head of negotiated cash fed cattle sell. This came as a surprise, coming so close on the heels of the 181,000-head buy during the first week of July.
“It took until Friday afternoon before the negotiated fed cattle trade got fully underway and it turns out, it was huge,” commented Cassie Fish of the Beef Report. “For whatever reason while it was taking place the trade didn’t feel like it was that big, so this news is a surprise to many.”
Regarding last week’s cash fed cattle market, she said: “Another week, another stand-off that will likely go until Friday afternoon.”
“The talk of being past peak supplies is incorrect. There will be a significant carryout from July into August and from August into September.” — Andrew Gottschalk
Andrew Gottschalk of Hedgers Edge echoed that sentiment and added the warning that cash trade would be a “steady-at-best” situation with the prior week’s averages of $112.61 live and $179 dressed.
By close of trade Thursday, these predictions had proved accurate; only 2,204 head of cattle had been confirmed sold for the week at $110-112 (average $111.31) live and $176 dressed.
Gottschalk had stern words of warning for industry observers regarding fed cattle supplies going forward.
“The talk of being past peak supplies is incorrect. There will be a significant carryout from July into August and from August into September,” he said. “This industry is increasingly less current going from the south to the north—Texas being the most current.”
He pointed to losing breakevens, negative replacement costs, and gain costs being below the price of fed cattle, making for a strong incentive to hold back marketings, as evidence of the growing problem.
“Resistance to selling market-ready cattle is particularly evident in the Corn Belt. Farmer-feeders are set on walking their corn to market. It is this supply of cattle that is mostly invisible to the casual observer. They appear in the late summer and early fall. Withholding some offerings creates the appearance (in the short term) that these cattle do not exist. History has proven otherwise. This industry needs to accelerate marketings going forward.”
The near-term futures markets had been ranging narrowly throughout the week, but then Thursday’s trade saw triple-digit losses, which put the week’s net movements in the red. DTN Analyst Rick Kment attributed the weakness in the live cattle futures to concerns of “eroding export levels.”
“The early buyer support was focused on the potential of a trade deal reached with the EU, but the concern that the overall trade deficit continues to widen in June has more immediate implications to all markets,” he said midday Thursday.
“It is uncertain just how much trade is developing due to the recent market turn lower, but the concern that traders may continue to liquidate positions is causing widespread concern Thursday.”
By close of trade, the August contract had settled at $107.95 and the October contract settled at $109.35, both down about a net $1 from July 20’s settlement.
A mitigating factor on fed cattle supply-side concerns is packer profitability and, ultimately, continued strong demand for beef.
“Beef packers are still making good money killing cattle, they have sizeable forward sold beef commitments to cover, large export orders to take care of, and now it feels like spot demand for beef is improving the incentive to own cattle is certainly there,” commented Troy Vetterkind of Vetterkind Cattle Brokerage.
Packer margins have continued to fall, but the rate of decline has slowed and conservative estimates are still around $130/head.
Of all the sections of the market, the cutouts came out on top in terms of gains. The Choice cutout gained about 70 cents over the course of the week with a Thursday close of $204.91, and the Select cutout gained a net $1.27 with a close of $198.27.
Despite these gains, Gottschalk called the cutout undertone weak.
“That said, prices are nearing support at $198-200. This level should provide aggressive retail pricing, followed by good beef features into the early-fall. The latter will continue to keep beef as king of the meat counter.”
Feeder cattle
Feeder cattle auctions saw strong increases in most cases last week. Prices on medium and large #1 feeder steers weighing between 700-800 lbs. reached the $170s last week, and few price ranges started in the $130s.
Kansas: The Winter Livestock Auction of Dodge City sold a few more cattle last week than it did the week before with prices up $2-4 on limited offerings of steers. There were too few heifers or calves of either sex for a proper market trend, but demand was called moderate to good on the average to attractive offering. Several lots of benchmark steers sold between $145-154, inclusive of calves.
Missouri: The Joplin Regional Stockyards sold a couple thousand head fewer last week than it did the week before, but prices were up $3-6 on calves and $2-4 on yearlings. Demand was called good. Two large lots (both 119 head) of #1, 7-weight yearling steers sold for an average of $151.64 for the light (724 lbs.) lot and for $152.96 for the heavy (779 lbs.) lot.
Nebraska: Midweight steers traded up $10 last week at the Bassett Livestock Auction Market. Heavier steers traded up $5-6. Midweight heifers traded steady to up $6. Steer offerings tended towards the heavy side, but there were a couple lots of #1, 7-weights. They traded between $160.75-177.25.
New Mexico: There were few comparisons last week at the Roswell Livestock Auction. The best test was on feeders under 500 lbs., which were down $1 for both sexes. There were no #1 or #1-2, 7-weight steers sold, but a single #1, 6-weight steer sold, bringing $147.
Oklahoma: Just over 6,000 head of feeders sold at the OKC West-El Reno sale last week. Feeders were called mostly steady to up $2. Benchmark yearling steers traded between $148-157, with averages in the low- to mid-$150s.
South Dakota: There were no market trends offered at the Hub City Livestock Auction because of an imbalance in the sex ratios of the feeder offering in last week’s sale versus the week before. Demand was described as good to very good on the strings of attractive heifers offered at last week’s sale. Two small lots of #1, 7-weight steers sold with the light (717 lbs.) lot averaging $166.50 and the heavy (784 lbs.) lot averaging $156.41.
Texas: There were too few cattle sold last week at the Amarillo Livestock Auction for a good market test, but feeders were called steady to firm. The one lot of #1, 7-weight steers that sold were described as “full” and sold for $136.50.
Like live cattle futures, near-term feeder cattle futures were mostly steady throughout the week until triple-digit losses on Thursday tanked the whole week’s net movement. Losing about $2 in both contracts compared to July 20, the August contract settled at $151.42 and the September contract settled at $151.82.
“Traders are concerned with follow-through pressure following the Commerce Department’s report which posted the U.S. trade deficit widened through the month of June following reduced overall exports,” reported Kment. “This has caused most commodities to quickly back away from session highs seen early Thursday but is creating additional caution through the livestock complex.” — Kerry Halladay, WLJ editor
