A glimmer of hope?
Futures, beef, feeders all gained
There was another optimistic spark last week in what has become a long list of dashed hopes.
Economists and market watchers were again asking if we’ve set the seasonal low, and many market segments saw gains.
Not the cash fed cattle market though. By the end of trade on Thursday, barely 3,000 head had been confirmed sold on the negotiated cash market. The early-week call was for a steady market with the prior week’s $104-105 live and $163-167 dressed.
“It’s early September and cattle traders are wondering if the 27 percent break in cash cattle prices achieved last week since the Q2 high is enough,” commented Cassie Fish of the Beef Report.
“Cash cattle prices last week [Aug. 28-Sept. 1] were the lowest for that week since 2010. Last fall, cash prices bottomed in October at $97 and there is concern that price will be revisited this year. But unlike the last 2 years, it is cash leading the market lower, not futures.”
She added later that the October live cattle contract was holding the important support level of $104-105, “long an important support area and the deferred contracts are adding to their premium. Optimism isn’t commonplace yet, but some at least are wondering if perhaps the worst is over.”
There was some cause for optimism on Thursday’s near-term live cattle futures trade. After holding onto the aforementioned level most of the week, Thursday’s trade saw triple-digit gains in most contracts.
The October contract settled at $106.22, up a net $1.07 over the course of the holiday-shortened week. The December contract gained just under a net $2 with a Thursday settlement of $111.12.
“Cattle futures are back to testing the top end of a well-defined $104-108 range in October live, $107-112 range in December live,” Troy Vetterkind of Vetterkind Cattle Brokerage said last week. “I think we’re in the process of carving out a bottom in both the cash fat cattle and boxed beef markets, so I don’t think we need to get much below the bottom end of the aforementioned trading range in the coming weeks.”
He added that he sees some “bullish things” out in the deferred February and April contracts. “I think we are setting up for a nice rally in cash cattle and beef in the first quarter of 2018.” Beef The margins, leverage, and position of packers was a particular focus last week.
As fed cattle prices remain low, Choice cutout values eked upwards. Thursday trade closed at $192.13 Choice (up 78 cents from the prior Friday). This was a favorable situation for packers.
“Packer margins are accelerating higher this week, showing a positive $155 this morning,” noted Andrew Gottschalk of Hedgers Edge last Thursday. This has generally been achieved through seasonally-good demand for beef, low cattle prices, and supply cycles.
The supply of beef in terms of the weekly slaughter rates have been a control valve that packers have used to good effect. Last week’s estimated kill count for the short week was 550,000-569,000 total head, higher than the same time last year at 529,000. But keeping too tight a hand on the valve could cause problems.
“Since the cattle feeding industry is amid its largest market-ready supply, any week the fed kill drops below 510,000 is killing too few to fully maintain front-end currentness,” warned Fish.
“This is not good news as the next 60 days sees topnotch cattle feeding performance and a seasonal increase in carcass weights and the number of yield grade 4s and 5s.”
Vetterkind opined that cattle feeders should turn up the pressure on packers, however.
“Beef packers have a massive forward sold position in beef they have to start covering and they have a big export program going on so they need cattle to kill. I think the cattle feeder needs to realize this and hold his ground on price negotiations.”
Domestic demand continues to be described as promising, and the export demand was again called the “bright spot” in the overall cattle and beef markets. Feeder cattle The cash feeder cattle markets were up across the surveyed auctions. Though many sales noted lower volumes of offered cattle, all saw prices that were steady at worst. Prices on medium and large 1-class (#1) steers weighing between 700-800 lbs. ranged from the low- $130s to the upper-$160s.
Kansas: The Winter Livestock Feeder Cattle Auction of Dodge City sold about 1,000 fewer cattle last week than they did the week before, but sale prices were higher. Midweight feeder steers were up $3-6 and $1- 4 for heavier steers. Heifers were said to have a higher undertone. One group of 23 #1 yearling steers averaging 783 lbs. brought $150.
Montana: There were a few more cattle sold last week at the Public Auction Yards of Billings than in the week before. Despite this, they were too lightly tested for a proper market trend. Spring calves with only one round of shots were said to have met with light demand. Buyers were hesitant on un-weaned calves. There were no #1, 7-weight feeders, but a small group of #1, 6-weight calves sold for $143.67 and a small group of #1, 8-weight yearlings sold for $147.50.
Nebraska: The Huss Platte Valley Auction sold 1,682 cattle last week. Compared to the sale two weeks before, feeders were up $3- 10 on good demand. Prices on benchmark yearling steers ranged from $155- 161.
New Mexico: The sales volume almost doubled at the Clovis Livestock Auction last week. Light feeders were up $6-10 while feeders over 600 lbs. were steady to up $3. A group of benchmark steer calves averaged $130.94 while a group of yearlings brought $142.91.
Oklahoma: At the OKC West-El Reno sale, fewer cattle sold, but they sold for better prices than the week before. Feeder steers were up $1-3 while heifers were steady to $1 up. Calves were too lightly tested for an accurate market trend. It was noted that light-weight, weaned calves sold at a higher undertone. Several large groups of benchmark yearling steers sold between $143-154, with a group pf “fleshy” yearlings setting the base, and a group of “thin fleshed” yearlings topping the sale.
South Dakota: Volumes were steady at the Hub City Livestock Auction but prices were up compared to the sale two weeks prior. Heavy steers were up $6-10 with instances of $16 increases, and represented the best price tests. Two groups of #1, 7-weight cattle sold between $157.50-169.25, with averages in the mid-$160s.
Wyoming: The Riverton Livestock Auction held its first special yearling sale for the fall sale season, making no comparisons possible. Demand was called moderate to good. Two groups of #1, 7-weight yearling steers sold, ranging from $144-156.75, with both averaging in the low- $150s.
Like the live cattle futures, near-term feeder futures saw some welcomed gains last week. The September contract gained a net $3.50 over the course of last week to settle Thursday at $145.55. The October contract gained a net $3.65 to settle at $146.15.“Even though no new fundamental support is developing, the ability to move front-month contracts above highs set in late August has created technical support, and is sparking follow through buyer interest that may bring additional momentum at the end of the week,” commented DTN Analyst, Rick Kment. — Kerry Halladay, WLJ editor