Cattle markets waver with seasonal decline

Calf and feeder prices show wear

Prices across the cattle market this week suggest that the spring top is in the books.
Calves traded from $3 per cwt lower to $3 higher, according to the Agricultural Marketing Service (AMS), amid continued strong demand for grass cattle.
Regional weekly average stocker and feeder prices were nearly steady, too, but trade felt lots iffier later in the week as wholesale beef values tumbled and cash fed cattle lost ground.
Choice boxed beef cutout value was $7.50 lower week to week at $214.12 per cwt on Friday. Select was $11.55 lower at $204.
The weighted average price at the Fed Cattle Exchange on Wednesday was $131.17 per cwt on 1,898 head sold. That was $2.18 less than the previous week’s weighted average on about 300 fewer head sold. Unlike the past few weeks, though, herky-jerky country trade moved in the opposite direction.
Negotiated cash fed cattle prices drooped across a wide range for current delivery: $2-$9 lower on a live basis at $124-$133 per cwt; $5-$9 lower on a dressed basis at $205-$208.
Live Cattle futures were an average of $1.72 lower week to week on Friday through the front three contracts and then an average of 53¢ lower, except for 12¢ higher at the very back.
Corn futures were an average of 8¢ higher week to week on Friday through the front six contracts. Most of the gain came on Friday, boosted by USDA’s Prospective Plantings report (see “Corn acres estimated lower…” below), which projects about 1 million fewer acres of corn than the trade was expecting.
Judging by cattle futures after midweek, along with month-end position squaring, traders continue putting more stock in cash prices meeting futures prices on the way down, rather than the other way around.
Certainly, prices should move cyclically and seasonally lower. In the shorter term, though, the argument can be made that front-month contracts are undervalued considering fundamental strengths like feedlot currentness, lighter carcass weights year to year and domestic demand that is stronger so far than many expected.
“Analysts have been reporting positive feedyard margins for over four months now with anecdotes of recent closeouts of some pens receiving over $400 per head profit,” AMS analysts explain. “With the increase in boxed beef cutouts recently, and with some of those cattle bought during the October-November lows, the potential for such substantial profit is very real.”
Seasonality returning to cull cow market
Cull cow prices began to lose steam in March and will continue to decline year over year, but they’re returning to more seasonal tendencies, according to the Livestock Marketing Information Center (LMIC).
“In the last two years, increasing U.S. cattle supplies pressured prices of all types of cattle lower year-over-year. For cull cows, an additional factor at play was huge imports of lean and manufacturing beef from drought-devastated Australia,” LMIC analysts say in a recent Livestock Monitor. “Imported beef from Australia and South America competes most directly in the cow-beef market rather than in the fed animal arena.”
Rather than the typical 18% increase (Southern Plains) in cull cow prices from November to March (2005-2014 average), increasing cattle supplies and imported beef dampened and at times overwhelmed the seasonal pattern the past two years.
“Looking ahead, cull cow price increases normally begin to run out of steam during March, but do not drop dramatically for several more months,” LMIC analysts say. “Year-over-year price declines are forecast to continue throughout 2017, but if lower imports persist as expected, that’s one less factor dragging on prices.”
Cutter cow prices increased $1.21 per cwt in February 2017, signaling an increase in demand for lean beef. ERS analysts forecast first quarter cutter cow prices at $60-$61 per cwt.

Corn acres estimated lower but stocks remain high

Grain producers are gearing up to plant 90 million acres of corn—4 million fewer than last year—according to the much-anticipated USDA Prospective Plantings report issued on Friday.
That mirrors USDA’s acreage estimate at the late-February Agricultural Outlook Forum (AOF). Estimates at AOF were for corn production this year to be at 14.065 billion bushels, based on fewer acres and a return to trend-line yields (170.7 bushels per acre). That would be 7% less than a year earlier. At the time, the season-average farm price for 2017-18 was projected at $3.50 per bushel, 10¢ more than the mid-point of this year’s range.
Incidentally, the acreage report is also in line with the Producer Acreage Survey conducted by Allendale, Inc. Feb. 27-Mar. 10. However, with estimated harvested acres at 82.529 million and estimated yield of 168.17 bushels per acres, the implied production by Allendale is 13.879 billion bushels, which is less than USDA’s estimate and would be 1.3 billion bushels less than last year’s record.
If production is within the aforementioned ballpark, all else being equal, production this year, on top of elevated stocks, will likely hold corn prices in check.
Keep in mind that USDA’s estimate on Friday was about 1 million acres less than the average trade guess, which helped boost futures prices.
According to USDA’s Grain Stocks report, also released Friday, corn stocks in all positions totaled 8.62 billion bushels at the beginning of this month, 10% more than the same time last year. Of those, 4.91 billion bushels were stored on farms, which was 13% more than last year.
Strong exports help hold corn prices higher so far
“So far this quarter, the corn market has been reflecting the effects of last fall’s huge harvest matched up with good overseas buying interest and accelerating usage from the U.S. corn ethanol industry,” say analysts with the Livestock Marketing Information Center (LMIC), in that organization’s most recent Livestock Monitor. “The 15.1 billion bushel corn harvest of 2016—an 11.3% increase from the prior year—kept corn prices on the defensive during the last half of last year.”
Using Omaha corn prices as a proxy for corn values in the western Corn Belt, LMIC analysts explain the price hit bottom last August at an average monthly price of $2.98 per bushel. Since then, value increased about 40¢, compared to last year when the price between November and February declined 8¢.
Compared to last year, though, increased corn exports and domestic industrial use is keeping corn prices higher.
“Corn export volumes were up more than 80% from a year earlier during the harvest quarter (September-November 2016),” LMIC analysts say. “Weekly export data for the December 2016-February 2017 quarter shows exports up about 50% from the same period a year earlier.
“Domestically, corn consumed by food and other industrial processes (e.g. ethanol, corn sweeteners) during the harvest quarter was up 54 million bushels from a year earlier, which compares to a 16-million-bushel increase during the harvest quarter of 2015 relative to 2014’s. Corn used for alcohol and other uses in the latest reported month (January 2017) was up 7% from a year earlier, a bigger percentage increase year-over-year than was posted during the prior quarter (September-November 2016).”
In other words, LMIC analysts say increased exports and domestic industrial use—relative to the spring and summer of last year—will determine if the stronger corn prices that began last fall can be sustained.
“Assuming a winter quarter average corn price at Omaha of $3.35, the prospects for an average Omaha corn price for the spring quarter may be close to $3.50,” LMIC analysts say. “This compares with a spring quarter 2016 Omaha corn price of $3.66.
“Translated into nearby corn futures market terms, a $3.80 price would be consistent with seasonal basis relationships between the Omaha market and nearby futures... Last spring, Omaha corn prices moved up 20¢ per bushel from the winter quarter. If usage gains decelerate in April, May and June, prices may struggle to increase by more than 10-15¢ per bushel on a quarterly average basis.”
Other acreage highlights
As many suspected, soybean acreage is the primary beneficiary of reduced corn plantings.
Soybean planted area for 2017 is estimated at a record high 89.5 million acres, according to USDA. That’s 7% more than last year.
On the other end of history, the all-wheat planted area for 2017 is estimated at 46.1 million acres, down 8% from last year. This would be the lowest total planted area for the United States since records began in 1919.

CATTLE MARKET WEEKLY by Wes Ishmael

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