Cattle market erosion continues

Cash cattle and futures prices decline

Steer and heifer calves sold mostly $5-$10 lower, with discounts commonly running $20 or more for un-weaned calves, according to the Agricultural Marketing Service (AMS). Yearlings traded steady to $5 lower.
Although short covering and position squaring boosted futures prices on Friday, Feeder Cattle futures were an average of $7.16 lower week to week ($6.55-$8.00 lower).
“Demand has been considerably better for the true yearlings that are still making their way to town, with many of those that were long-time weaned and in the right condition quoted as steady to firm and even dollars higher in spots,” AMS analysts say.
For instance, the AMS reporter at Billings Livestock Commission in Montana on Thursday explained, “Buyers continue to show strong demand for preconditioned calves as they offer a premium to calves with only one round of vaccinations…buyers showed good to very good demand for attractive-quality calves, particularly for calves weighing over 600 pounds. Buyers were willing to give a premium for heavier calves as they figure break-evens against the April contract, which is a $5.90 premium to the June contract.”
On the other hand, the AMS reporter at Mitchell Livestock Auction in South Dakota noted, “The calves were preconditioned and many were weaned, but there just wasn’t much interest from buyers. As the cash fed cattle market slipped below $100 and futures contracts fell further, cattle feeders are forced to figure their breakeven prices even lower.”
“Given market fundamentals of supply and demand, it would appear cattle are being undervalued in today’s market,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “However, cattle were grossly overvalued in the market in 2014, 2015, and much of 2016. Since the animals appear undervalued, the market is right for buying instead of selling.”
Griffith notes that buying does not necessarily mean going to the market and purchasing animals, though it could. “Another example of buying would be delaying marketing of animals (see “Exploring marketing alternatives”). Calf values are probably $100 to $150 below what their value should be in today’s market.”
Fed cattle prices are the lowest in five years
Cash fed cattle sales were generally $4-$5 lower at $95 to mostly $98 per cwt. Dressed trade was $5-$7 lower at $152-$154. In fact, Griffith points out the Five Area weekly weighted average price for finished cattle fell below $100 for the first time since December 2010.
Week to week, Live Cattle futures were an average of $4.82 lower.
Griffith says cattle feeder continue to aggressively move cattle to the packinghouse, about opposite of the situation last fall when delayed marketing and too-heavy cattle broke the market. That comes with its own medicine, though.
“With the continuation of the elevated slaughter levels, one can only surmise that finished cattle prices will decline further,” Griffith says. That shows up on the other side of the scale, too, he explains, with increased production pressuring wholesale prices, while also enabling the packer to maintain leverage over the cattle feeder, which is atypical for this time of the year.
Choice boxed beef cutout value was $1.21 lower week to week at $181.86 per cwt Friday afternoon. Select was $2.47 lower at $172.04.
At the same time, Nevil Speer, market analyst and vice president of U.S operations for AgriClear, Inc. explains the atypically-wide spread continues between the CME Feeder Cattle Index and deferred Live Cattle futures.
“In light of current losses in the feeding sector, financial pressure could work its way back upstream even more sharply than what’s been experienced to date,” Speer explains in a recent BEEF article. “Prolonged losses, continued volatility and liquidity concerns will likely reduce the risk appetite within the feeding sector and could pressure feeder prices even more drastically than what’s been witnessed thus far.”
“Nobody seems to know where the bottom of this market will be, or just what it will take to get there,” AMS analysts say. “Many livestock auctions still are running a more summer-like schedule and others still are seeing pretty light receipts. Producers are reluctant to bring cattle to town on such a down market, and with enough grass and hay there won’t be much movement until prices rise or a banker knocks at the door.”

Exploring marketing alternatives

“Many cow-calf producers are understandably disappointed with their current calf price prospects, which may lead them to retain ownership longer than originally planned,” says Glynn Tonsor, agricultural economist at Kansas State University, in the latest issue of In the Cattle Markets. “Only time will tell if that strategy proves profitable. In the meantime, all producers are encouraged to conduct analyses to compare market-based value of gain (VOG) projections to guide more informed decisions.”
Similarly, livestock economist Harlan Hughes, in his recent Market Advisor for BEEF magazine, suggests producers consider the potential returns of backgrounding calves as an alternative to marketing and/or retaining ownership through the feedlot.
Tonsor shares an example of calf weighing 550 pounds, with a projected mid-October sale price of $137.28 per cwt (Salina, KS). He calculates the value of gain for the four most likely scenarios facing folks with a spring calf crop to sell.
First is preconditioning the calf for 35 days and adding 50 pounds, which offers VOG of $17.52 per cwt.
The other scenarios Tonsor demonstrates include:

U.S. meat production is more and less

Total red meat and poultry production continues to rise, but expectations are less in this month’s World Agricultural Supply and Demand Estimates—including a surprising decrease in broiler production.
“Total U.S. red meat and poultry production in 2016 is projected to increase 2.7% over 2015 levels,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “However, nearly half of that increase is expected to move off-shore with net meat exports projected to increase 11.5% compared to 2015. This will hold domestic meat consumption to a projected 1.3% year-over-year increase.”
Beef production continues to expand with increased carcass weights and slaughter numbers, but export potential appears more promising, with WASDE increasing beef import and export forecasts for 2016 and 2017.
WASDE pegs the fourth-quarter fed steer price at $110-$114 per cwt. The forecast average price for this year is estimated at $121.94, compared to the previous month’s prediction of $123-$125.
The projected fed steer price for the first quarter of 2017 is $109-$117. Next year’s average ranged is forecast at $112-$121.
Pigs up but broiler weights are down
According to analysts with the Livestock Marketing Information Center (LMIC), the number of U.S. market hogs at the beginning of September was record-large at 64.8 million head. The June-August pig crop was also record-large at nearly 32 million head, which was 2% more year over year.
Since mid-summer, though, broiler production is lower year over year.
“This would be the first year-over-year quarterly decline in production since the summer of 2012,” LMIC analysts say in the most recent Livestock Monitor. “Average bird weights at time of processing have been lighter by as much as 3% during some weeks of September. Average bird weights during August were half a percent lighter than 2015’s. Lighter bird weights caused the drop in production.”

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

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