Feeder cattle prices continue to soften

The 2-ton monkey in the cattle closet—increasing fed cattle supplies through spring and into summer—continued to cast a shadow over positive fundamentals this week. Among the positives were steady to higher cash fed cattle trade, continued strength in wholesale beef values and snug front-end supplies.

Steers and heifers traded from steady to $4 per cwt lower, according to the Agricultural Marketing Service (AMS). However, there were instances of steady to higher prices for cattle suited to summer turnout.

For instance, steers and heifers weighing less than 725 pounds in light to moderate flesh traded steady to $5 higher at Tuesday’s Kingsville Livestock Auction in Missouri. The AMS reporter there explained, “Despite futures trending lower and the fed cattle market under pressure with large supplies expected through the summer months, buyers continue to be optimistic about grass cattle. Demand was good for cattle suitable for grazing, however demand was light for heavier weights and fleshier cattle as feedlots are abundant with feeders staring down the June and August Live contract lows.”

Feeder Cattle futures closed an average of $3.02 lower, week to week on Friday ($2.47 to $3.70 lower).

“Losses of $9 to $12 on spring and summer Feeder Cattle futures contracts in the past four weeks has put a damper on many producers’ attitudes,” says Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments. “Fall and winter contracts have only declined $7 over the same time period, but the sentiment would be that they have time to fall further.”

Weather continues to alter marketing and management plans, too.

“With many ranchers running low or tight on hay supplies, they are selling many of the cows that are open or have lost calves,” explained the AMS market reporter at Billings Livestock Commission in Montana on Thursday. “With extremely difficult calving conditions seen across the state, many cows have lost calves.”

In areas like the Southwest and the Southern Plains, drought continues pushing cattle to market earlier. AMS analysts note that the Kansas Governor signed a drought declaration for all 105 counties in the state this week.

“To the extent that drought conditions in the Southern Plains have diminished pasture availability, more cattle have been placed in feedlots in late 2017 and early 2018 than in the prior year,” say analysts with USDA’s Economic Research Service (ERS), in the latest monthly Livestock, Dairy and Poultry Outlook. “This likely diminishes the pool of cattle available for placement throughout first-half 2018. The price forecast for feeder steers 750-800 pounds was adjusted lower for the first quarter to $146-$149 per cwt on current price movements. In the second quarter, fewer calves will likely be available for placement, which should keep prices relatively strong at $144-$152.

Fed cattle traded across the week

Negotiated cash fed cattle sold steady to higher, beginning in the Southern Plains on Tuesday. Prices there were $1 higher than the previous week at $127 per cwt. Live trade in the Northern Plains was mainly $1-$2 higher at $128-$129. In the western Corn Belt, prices were $1-$3 higher at $128-$131. Dressed prices there and in Nebraska were $1 higher at $205.

Griffith notes that fed cattle prices remain strong, trading in a range of $125-$130 for eight consecutive weeks. However, he says, “It is difficult to imagine at this juncture that fed cattle prices can make a run like they did one year ago into the May and June timeframe and trade over $130 for nine consecutive weeks. Such an occurrence would be surprising, however, analysts have consistently underestimated the strength of beef demand.”

Live Cattle futures closed an average of $2.14 lower week to week on Friday ($1.02 to $2.55 lower).

“For much of last year and through January 2018, the level of feedlot marketings maintained a rapid pace, with the percentage of cattle on feed over 120 days below year-earlier levels,” say ERS analysts. “However, the pace of slaughter began to slow and the percentage of cattle on feed over 120 days moved above a year earlier at the beginning of February. Prices offered for fed steers in the Five Area marketing region fell nearly $4 from a mid-February daily high of $130 per cwt, compounding already weak margins. To the extent that these cattle are not marketed in the first quarter, they will likely add to an increased pool of slaughter-ready cattle in the second quarter, putting pressure on prices.”

Based on current cash cattle prices and expectations of continued strength in wholesale beef prices,  ERS adjusted the first-quarter fed steer price higher to $124-$127.

Rib and loin primals are driving cutout value

So far, wholesale beef values continue to provide support. Choice boxed beef cutout value was $1.45 higher week to week on Friday at $225.59 per cwt. Select was 40¢ lower at $216.86.

After languishing for the first six week of this year, Griffith points out Choice and Select cutouts gained $15 and $12, respectively, in the past four weeks.

“Rib primal values last week were nearly $44 per cwt higher than the same week one year ago, while loin primal values were $9 softer,” Griffith says. "What is a little more surprising is the strength in the chuck and brisket. The chuck primal was $15 higher than the same week last year, while the brisket was $54 cwt higher…What is driving support for chuck and brisket at this time? Could it be the announcement by McDonalds to serve only fresh beef in its quarter-pound burgers? More information will have to be revealed before there is a clear answer.”

“Consumer demand for meat was stronger than average in 2017. It is rare for meat supplies to grow as they did last year without output prices suffering more severe declines,” say analysts with the Food and Agricultural Policy Research Institute (FAPRI) at the University of Missouri. “While economic projections point to U.S. meat demand remaining solid, prices are projected to retreat for most products in 2018 due to continued supply pressure and a return to more historical levels of consumer demand.”

Cattle grade Prime at record pace

Coincidental or not, consumer beef demand continues stronger than many expected, amid growing total supplies of red meat and poultry, as the percentage of cattle grading USDA Choice and higher continues to grow.

For instance, according to USDA, for the week ending Feb. 24, the percentage of cattle grading USDA Prime continued at a record pace, according to Isaac Olvera, livestock and meat market analyst for Informa Economics IEG. He points out the 8.62% Prime that week was 2.4 points (30.5%) more than last year and 3.7 points (76.8%) more than the 5-year average.

“Typically, overall quality grading declines from late winter into mid summer, but the Prime category continues growing counter seasonally. From the weekly comprehensive report, total Prime load counts averaged near 20% larger than a year ago throughout the first nine weeks of 2018, with the Prime cutout running 6% over last year,” Olvera explains.

“With the Choice cutout up closer to 8% year over year, the Prime/Choice spread has narrowed considerably, declining from an expected early-year $25 range towards the $11 area reported last week. The spread tends to widen seasonally, from mid spring into late summer, but the larger supplies of Prime grade appear to be pressuring the marketplace, with the spread declining 48% over the past four weeks. At narrowing prices, expect a greater degree of emphasis to be placed on Quality grades as more Prime product is expected to show up at both retail and food service, as well as sold for export.”

Besides the genetic trend toward increased marbling, Olvera explains the increase in higher quality grades likely reflects revisions USDA made to assessing carcass maturity. Bone ossification was key to classifying carcass maturity until last December, when USDA began allowing documented birth and dentition to determine age.

“Likely, cattle that used to be pushed out of the A maturity group (9-30 months of age) based on bone ossification are now being allowed under more scientific maturity assessments, and are now grading Prime,” Olvera says.

CATTLE MARKET WEEKLY by Wes Ishmael

Calf-Feeder Trade

Regional Steer Price Average

North Central

South Central

Southeast

CME Feeder Index

CME Feeder Cattle Futures

CME Live Cattle Futures

CME Corn Futures

CME Oil Futures (WTI)