The negotiated cash fed cattle market seemed to be suffering from a tryptophan slow-down after Thanksgiving week; it did absolutely nothing for three days. Or perhaps it was a game of chicken between cattle feeders and packers after the week of “Turkey Day.”
Regardless the reason, by close of trade Wednesday, only 66 head had been confirmed sold. For the two days before, the USDA had listed the number as “none.”
Analysts were confident throughout the week that the cash fed cattle market would be up $1-2 from the prior week’s $117-120 live and $188-190 dressed. They pointed to packer’s recent behavior and strong beef demand as their rationale.
“Fundamentally, the big kills—572,000 [head during Thanksgiving week] and 636,000-640,000 [head] estimated for this week—are fueling the need of packers to replenish fed cattle inventories,” said Cassie Fish of the Beef Report last week, adding that most all the cattle and beef markets were in a holding pattern, waiting on cash fed trade.
Trade got started Thursday afternoon slowly. USDA reported that 33,018 head had been confirmed sold at $120.37 live and $190.00 dressed. With a trading range between $117-122 live and $190 on the dressed trade. This was consistent with analysts’ early-week expectations.
“This week has all the earmarks of classic week-after-Thanksgiving rally, with the biggest question being: How much and how many?” Fish noted, commenting that new contract highs might not be out of the question for the live cattle futures markets.
Over the course of last week, live cattle futures gained handily compared to the post-Thanksgiving closes on Nov. 24. By Thursday’s settlement, the December contract gained a net $1.24 since Thanksgiving as the contract closed Thursday at $119.82. The February contract settlement was up just 40 cents for the week, closing at $124.95 and still giving cattle feeders hedging opportunity. But cattle feeders are looking at the deferred months and that is guiding their feeder cattle buying decisions now. For instance, April live cattle futures are trading at $125.92 and June is trading at $118.55.
Troy Vetterkind of Vetterkind Cattle Brokerage commented last week that he thinks the December live contract could still get up to $121-122, “possibly $124 depending on how strong the cash market can get in the next week or two.”
The timeline on this potential rally would be limited, however.
“Experienced traders know that December is very likely to experience a normal seasonal sell-off as end user and packer needs diminish and market-ready fed cattle supplies begin to grow late in the year. The trick is to not get short too quick,” Fish advised.
The matter of market-ready cattle supplies is a growing concern—literally.
“Front-end fed cattle supplies are beginning to exceed prior-year levels and will continue to build relative to this year into the third quarter of 2018,” Andrew Gottschalk of Hedgers Edge reported last week. However, not everything is growing, and that is something to be thankful for.
“Seasonally, carcass weights are in the process of topping and set to begin a decline into the spring,” Gottschalk added. “Aggressive marketing must be maintained to limit any negative impact from consecutive months of larger placements. The price greatest risk to the market is during the late-winter and spring period.”
Fish was of the opinion the recent pace of cattle slaughter has been quite up to the task of keeping the market current.
“Fed kills have stayed elevated and aggressive as the final weeks of 2017 tick by. There hasn’t been a sub-490,000 head, non-holiday fed kills since April, as good domestic and international demand and record packer profitability have combined to support week after week of more-than-adequate slaughter levels. That is plenty to maintain and even extend front-end correctness.”
She did note that there was a lot of talk of boxed beef prices having topped seasonally and rumors of packers planning to cut kill schedules to shore up the declining prices.
Over the course of last week, the Choice cutout lost a net $6.35 over the week with a close of $204.65, and the Select cutout lost a net lost $3.64 for the week to close at $184.21. Volume was good with 195 loads trading and the Choice-Select spread is at $20.43.
“We would expect post-holiday unit sales to increase for the meat complex,” Gottschalk opined last week. “The trend in employment and wages remains positive. Economic growth at 4 percent this quarter is very likely.”
Feeder cattle
Cash feeder cattle priced remains strong after Thanksgiving. The CME feeder cattle index gained a few cents at $156.81 and auction markets are reporting stable and increasing prices as well, however market receipts have been lower due to Thanksgiving. Gottschalk said, “Profitable fed cattle closeouts will reignite buyer interest at the first sign of recovery in the fed sector.”
But Vetterkind was a bit more pessimistic towards the feeder cattle markets, saying, “I don’t think the cash feeder cattle market is going to perform very well for the next month or so because feedlots are getting full of cattle because of higher year-over-year placements of cattle. Certainly, because we have placed so many cattle this year the available feeder cattle pool is going to get a little tight and that will eventually be positive for price but that may not occur until late winter/early spring.” However, a couple days later he said, “Despite pen space getting limited, replacement feedlot buyers were back in the market procuring cattle after last week’s light marketings. Optimism towards higher cash fat cattle and futures markets is supporting the market early this week.”
By Thursday Medium and Large 1-class (#1) steers weighing 700 to 750 lbs. saw prices in the $152-167 range.
Colorado: Receipts at last Tuesday’s sale at the Winter Livestock Auction in LaJunta were 3,543, up from the previous week’s 2,232. Yearling feeder steers and heifers over 700 lbs. were too lightly tested last for a comparison, but one lot of 700-lb. medium and large #1 class steers averaged $158. Slaughter cows and bulls were steady. Heifer calves were steady to $2 higher except for a load of 590-lb. fancy, weaned, preconditioned calves selling $10 higher. Supply included 75 percent feeders with the balance mostly slaughter cows and bulls. In the feeder supply steers made up approximately 55 percent of the run with heifers making up the remaining 5 percent.
Kansas: The Winter Livestock Feeder Cattle Auction in Dodge City reported its feeder cattle weighted average receipts at 2,877, down from the last sale on Nov. 15 which saw 3,138 recipes. Compared to the previous auction feeder steer prices were called firm to $5 higher. In the Medium and Large #1 steer class, a group of 20 calves in the 700-750 lbs. class averaged $152.01. Not enough Medium and Large #1 feeder heifers sold to establish a market test. Trade was active for yearlings, and called light to mostly moderate for calves.
Missouri: The Joplin Regional Stockyards in Carthage saw steer calves selling $2-5 higher with instances $6-7 higher than the previous week on 500- to 600-lb. calves. Heifer calves and yearlings sold steady to $3 higher. In the Medium and Large #1 feeder steer category, prices ranged from $152-163. Demand and supply were both called moderate. Feeder cattle supply included 55 percent steers, 0 percent dairy steers, 41 percent heifers, and 3 percent bulls.
Nebraska: Receipts at the Huss Platte Valley Auction were down about 600 from the previous sale, two weeks earlier. Compared to the previous sale, 500-700-lb. steers sold steady and 500-700-lb. heifers sold steady to $4 higher. Medium and Large #1 feeder steers in the 700-750-lb. range sold between $160-167. Feeder heifers in the same weight range saw prices from $156-159.
Oklahoma: The Oklahoma National Stockyards in Oklahoma City saw fewer receipts than the previous week but feeder steers averaged $1-4 higher. Meanwhile feeder heifers were also trading $3-6 higher. Trade was called active with good demand for all classes. The auction report noted that after the lighter receipts in the trading area last week, feedlots are ready to fill pens again. Looking at the Medium and Large #1 7-weight steers, prices ranged from $142.50-146. Meanwhile heifers of the same weight and class averaged $141-142.
Vetterkind speculated the January feeder cattle contract is going to have some problems getting much above $156. “I would say that whatever futures strength we see this week and next should be used as a hedging opportunity on cattle inventory going into the first quarter of 2018,” he suggested. — Kerry Halladay and Pete Crow
