The last market week of 2017 decided to be a mystery in terms of negotiated cash fed cattle. By close of trade Dec. 28, only 1,164 head had been confirmed sold for the week, most of it happening on Thursday.
Those few cattle that did trade went for $120 live for a group of steers over 80 percent Choice, and $192 dressed for a mixed lot of steers and heifers grading over 80 percent Choice. With the low trade volume, these prices could not be called definitive for the week. Analysts predicted the week would see prices up $1-2 from the prior week’s $120-122 live and $190-192 dressed.
If the expected live cattle prices were achieved, the cash and December live cattle futures contract converged. The December contract expired Dec. 29 after press time.
“If [the December live cattle futures contract] expires above $120 on Friday, it will be the highest quarterly settlement since Q1 2016, and an impressive finish to 2017,” commented Cassie Fish of the Beef Report last Monday.
By close of trade last Thursday, the December contract seemed poised to more than meet that level, settling at $124.55. This represented a net gain of $4.73 over Dec. 22’s settlement. The February contract was also impressive, settling at $122.25, a net gain of $3.68.
Beef prices also increased last week. By close of trade Thursday, the Choice cutout had gained a net $2.72 at $202.28. Select also gained, closing at $190.91, up a net $3.03 compared to the close on Dec. 22. Expectations persist and have spread among analysts of a Choice cutout rally to $210 by mid-January.
Much of this expected gain comes from short production runs and strong beef demand.
“The production levels for the past three weeks of the season continue to keep supplies tight,” noted Andrew Gottschalk of Hedgers Edge on Thursday. He estimated that last week’s production rate would be challenged to meet 525,000 total and that this week would also be light.
But production rates cannot stay this low for long. Placements have been continuously high, so marketings must keep pace. This topic dominated a lot of market discussion last week in the wake of the most recent Cattle on Feed report.
“What recent cattle marketing trends have showed is that seasonal beef demand remains very critical for the beef market,” cautioned the CME Daily Livestock Report (DLR) on Dec. 28. It retold recent history, reminding readers that fed cattle prices spiked in May and June as retailers started to feature beef with abandon ahead of summer grilling holidays.
“By aggressively placing light cattle on feed in October and November, feedlots should be able to support those spring retail promotions with no issues,” the DLR continued. “As long as beef demand is strong, the retailer should have not issues sourcing and promoting beef next spring.
“But feedlot operators need to be careful. They cannot become complacent and fall behind in their marketings during February through April. While they do not need to run fed slaughter at 528,000 head, we think fed slaughter should continue to run at around 490,000-495,000 head per week to allow feedlots to stay current.”
The DLR cautioned that if fed slaughter averages around 480,000 head a week during that period, “eventually the incremental loss of marketings will catch up with feedlots and force their hand, more likely in June and July.”
Gottschalk also pointed out that carcass weight data is discouraging; heifer carcass weights are at a seasonal record high, and steer carcass weights are only 4 pounds below year-ago levels.
“Steer and heifer weights are at least three weeks behind in scoring their seasonal top. This increases the likelihood that during the seasonal downturn into the late-April and early-May period, carcass weights will decline less than normal. The enticement to add weight will be too difficult to resist.”
When it came to more immediate cattle feeder behavior, most auction yards did not hold sales last week due to the holidays. One that did was the Bloomfield Livestock Market in Iowa. It held one of its special IMBIO Calf Sales last Wednesday. IMBIO calves are home-raised, weaned at least 45 days prior to sale, have had at least two rounds of shots, and had time to heal from all procedures such as castration and dehorning.
Over 1,700 head of these value-added calves sold, 207 of which were medium and large, 1-class steers weighing 766 lbs. They sold for an average of $155.26. The auction described the sale as seeing active trade on good demand.
Feeder cattle futures followed suit with live cattle futures and gained about $4 in near-term contracts. The January contract settled Dec. 28 at $145.60 and the March contract settled at $142.22. Most of these gains were made in Thursday’s trade.
Speaking of the strength in the Dec. 28 feeder cattle futures, DTN Analyst Rick Kment said hopefully, “The ability to pull traders back into the market ahead of the holiday weekend could spark some increased strong buyer activity to develop during early January.”
Happy New Year! — Kerry Halladay, WLJ editor