Futures struggle, export demand troubled
The cash fed cattle trade was slow to develop last week as packers—again suffering losses over $50/head—tried to hold out for improved leverage later in the week. The potential for the World Agricultural Supply and Demand Estimates (WASDE) report to affect trade was what they were waiting for… and what they eventually got, in the form of lower live cattle prices.
Minimal cash trade had developed on Wednesday at $127 live in the South Plains and rumors of $202 dressed trade in Iowa, which would be down $1-2 compared to the prior week. By Thursday afternoon light trade on light demand had developed in most regions with live prices ranging from $127- 128 and no dressed trade, though volumes were too low to set a trend. Analysts expected late week trade to see live trade at $127-128 and dressed trade at $200-202.
As DTN’s livestock analyst John Harrington put it, cattle futures “imploded” midweek following the release of the WASDE report. April and June contracts posted new contract lows of $125.28 and $120.08 respectively. This plunge was attributed to beef demandrelated fears and a lack of confidence in various elements of the cattle business by Harrington, as well as Andrew Gottschalk of Hedgers Edge and Troy Vetterkind of Vetterkind Cattle Brokerage.
“Technically, some cattle contracts scored new contract lows yesterday which calls for caution and could lead to some additional liquidation near term,” advised Gottschalk. “Cattle futures are approaching an ‘oversold’ level which could lay the foundation for some rebound [this] week.”
Speaking on Thursday, Vetterkind predicted the relevant trade lows.
“Cattle futures took it on the chin again yesterday settling sharply lower in all live and feeder contracts. I guess the line in the sand is right here at $125 in April and $120 in June.”
By close of trade on Thursday afternoon, the near term contracts of April and June had settled at $125.63 and $120.50 respectively. These levels represented a loss of just around 50 cents for each contract, but were up by about the same compared to the contract lows set on Wednesday.
An early Easter coupled with longer stretches of uncharacteristic cold—not to mention some significant spring storms—in many areas of the country had a chilling effect on beef demand. Pun intended.
“The major concern amongst the major packers is that margins continue to slip further in the red as spring beef demand has yet to perk up,” explained Vetterkind. “The biggest reason for this is weather throughout much of the country hasn’t really been conducive for grilling yet and it may take a couple weeks before that transpires.”
Cutout values last week fell with Choice declining $1.17 compared to its prior Friday close of $191.32. Select saw steeper declines at a loss of $3.02, settling at $183.99 by Thursday afternoon.
Cut-specific movement was mixed geographically because of the storms around the country, but mostly steady to down.
Ribs and chucks saw discounting throughout the week, while rounds saw some days of discounting and some days of holding steady. Loins (with the exception of Select loins) were the strongest with fully steady all week. Ground beef also was mostly steady with some weakness.
Trim markets were mixed again with 90 percent trim having slumped late the prior week and never really recovering while 50 percent did the complete opposite, maintaining its prior week gains and even adding to them modestly to close at $96.94 Thursday afternoon. Demand for 50 percent has been a happy surprise in recent weeks.
“The price of fat beef trimmings (which account for as much as 10 percent of the carcass) has moved higher and it currently is close to the levels achieved in 2011,” reminded Steve Meyer and Len Steiner of CME’s Daily Livestock Report.
“The surge in the price of fat beef trim is not unusual for this time of year but it is still surprising as it was assumed the loss of LFTB demand would permanently shift the demand curve lower for this product. The cutbacks in steer and heifer slaughter certainly are part of the reason for the surge in fat trim values but we also think that end users came into the spring with lighter than usual inventories.”
The issue of exports has been a problem of late. Last week’s export numbers of net sales of 10,200 metric tons of beef represented a 3 percent decline compared to the prior week’s number, and a 45 percent decline compared to the four-week average. In addition to the now several-months-long de facto banning of U.S. beef and pork by China and Russia, Canada is making moves toward retaliation over MCOOL.
“Canada has indicated the possibility of retaliatory tariffs approaching $984 million U.S. if current MCOOL regulations are implemented,” reported Gottschalk. “It is their belief that the proposed revisions to our MCOOL regulations are still in violation of WTO rules.”
As Canada is one of the largest buyers of U.S. beef, the tariffs will likely impact U.S. beef shipments to the Canadian market.
Cash feeder cattle sales were hard-hit by the declines in futures prices. Overall, markets were down compared to the prior week. Admittedly, the prior week was on fire for feeder sales, so take comparisons with a saltlick.
California: The Turlock Livestock Auction Yard held their special replacement female sale last week so there was nothing to compare in the feeder area. Pairs brought from $1,550-1,925 and light calves were reportedly well received. At the Escalon Livestock Market little had changed with beef steers between 600-800 pounds or Holstein steers over 600 pounds, which traded at $115-135 and $80-100 respectively. Highyielding slaughter cows sold for $70-78, a gain of $1 on the upper end. In the Cattlemen’s Livestock Market of Galt, feeder cattle under 700 pounds were called steady to $5 lower, while heavier animals were called $6-10 on a light test.
Colorado: Feeder steers and heifers under 700 pounds sold steady but with a weak undertone last week at the La Junta Livestock Commission Company. There were too few animals over 700 pounds for a comparison. Slaughter cows were called $2-3 lower while slaughter bulls were steady.
Kansas: At the Pratt Livestock Feeder Cattle Auction, feeder steers over 600 pounds and feeder heifers over 700 pounds sold for $3-5 lower. Lighter weight animals were not well tested. Nineteen head of 739-pound #1 steers sold for $140. In Dodge City, the Winter Livestock Cattle Auction saw light to midweight steers steady in a limited supply while heavier animals sold $2-6 lower. All but the heaviest heifers sold weakly steady to down $2, with heavyweight heifers selling solidly steady. Thirty head of 762-pound #1 steers sold at $138.25.
Missouri: In the numerous regional livestock auctions of Missouri, yearling feeder steers and heifers were down $1-10 compared to the prior week, with most discounting going to the very light and the very heavy animals. Midweights sold for mixed but generally steady to weak. Calves were not wellliked with discounts ranging from $3-10 and instances of down $20 for pee-wees. Slaughter cows were steady at best, but mostly down $2-4, while slaughter bulls were infrequently mentioned, being steady and down $4 in the two reports citing them. Smallish packages of near- 750-pound #1 steers were found around the Missouri sales, with prices ranging from $131.87-136.33.
Oklahoma: In El Reno’s Livestock Market, feeder steers down $2-6 with heifers down $2-4. Calf sales were too few to establish a market trend, though a weaker undertone was noted. Weather impacted sale turnouts with freezing temperatures and rainfall sweeping through the area. Almost three-dozen 760-pound #1 steers sold for an average of $133.79.
Feeder futures didn’t do well last week either, taking lumps right along with live cattle futures. Over the course of the week, comparative to the prior week’s close, April feeder contracts lost $3.09 to settle at $139.48 Thursday afternoon. The May contract lost $2.12 to settle at $142.18.
“Feeders couldn’t hold their daily support yesterday,” said Vetterkind Thursday. “Which means we likely go back down to $140 in the May and $147 in the August or at least that would be the next level of support. With corn continuing to trend higher May feeders are going to have a tough time at $143 and August at $150 unless something drastically turns around in the live cattle market.” — WLJ