Feeder cattle prices firm

“Steers and heifers sold steady to $5 per cwt higher, with gains seen in calves suitable for grazing, as well as cattle suitable for direct feedlot placement,” said analysts with the Agricultural Marketing Service (AMS) on Friday.

“Where feeder cattle come from did make a difference on flesh condition this week. If an area has been inundated with winter moisture and harsher than normal temperatures, cattle have hardened up and are in lighter flesh than their counterparts from drier environments.”

Although auction receipts increased this week, extreme cold and winter conditions continued to hamper cattle movement in some regions.

“Very tough winter weather continues to plague the area with more snow and wind predicted for the weekend,” explained the AMS reporter at Hub City Livestock Auction in Aberdeen, S.D. “Yards and pens are already full of snow and many producers are starting to calve. Feed supplies are rapidly decreasing as cattle need so much more feed to keep body condition in the frigid weather.”

Week to week on Friday, Feeder Cattle futures closed an average of $1.71 higher (92 cents higher in the back contract to $2.70 higher in spot Mar). That was thanks to a surge of about $2.50 in the last two sessions.

Fed cattle prices hold steady

Negotiated cash fed cattle trade through Friday afternoon was generally steady at $128 per cwt on a live basis in the Southern Plains and Nebraska. Dressed trade was also steady at $205.

“The seasonal trend in the cash market would tend to say there is still upside in the finished cattle market, and there may be a few dollars left. However, the wind appears to have been taken out of the sails the past couple of weeks with cash prices failing to push closer to $130,” according to Andrew P. Griffith, agricultural economist at the University of Tennessee, in his weekly market comments.

Week to week on Friday, Live Cattle futures closed an average of 52 cents higher (17 cents higher in the back contract to 90 cents higher).

Some might consider steady cash a disappointment, given increasing wholesale beef values and the tonnage that winter weather continues to take from the market.

Choice wholesale beef value was $4.84 higher week to week on Friday at $226.13 per cwt. Select was $1.99 higher at $218.78.

As for weights and weather, for the week ending Feb. 23, the average dressed steer weight was 5 pounds less than the previous week and 9 pounds less than a year earlier at 874 pounds, according to the Actual Slaughter Under Federal Inspection report from USDA. The dressed heifer weight was 1 pound less than the previous week and 10 pounds lighter than the previous year at 818 pounds.

Beef production will still be higher

Projected beef production for this year is 27.30 billion pounds, according to the March World Agricultural Supply and Demand Estimates (WASDE). That’s 310 million pounds less (-1.12%) than the previous month’s projection.

“Beef production is reduced from the previous month on the pace of fed cattle slaughter in the first quarter and lower expected marketings in mid-2019,” say analysts with USDA’s Economic Research Service (ERS). “Partly offsetting the lower fed cattle slaughter is higher expected cow slaughter. The lower production forecast also reflects lighter carcass weights in 2019.”

Keep in mind, lower estimated beef production for this year still represents 432 million pounds more beef than last year’s estimated production.

For a narrower example, consider January cattle slaughter and beef production.

The average steer dressed weight in January was 886 pounds, which was 7 pounds lighter than a year earlier, according to the monthly USDA Livestock Slaughter report. The average dressed heifer weight was 12 pounds lighter at 824 pounds.

Fed steer and heifer slaughter under federal inspection of 2.19 million head was 61,200 head more (+2.87%) than the previous year.

Total beef production in January of 2.31 billion pounds was 30.8 million pounds more than the previous year (+1.35%).

Based on current price strength and expectations for firm demand, ERS increased the price range for fed steers (Five Area Direct) $1 at each end of the range to $116-$123 per cwt. Price projections are $124-$127 for the first quarter; $121-$127 for the second quarter; $110-$120 for the third; $109-$119 for the fourth quarter.

Fewer feedlot placements again

Feedlot placements continue to reflect the weather-slowed pace of turning cattle.

Placements in January—feedlots with 1,000 head or more capacity—of 1.96 million head was 5.27% less (-109,000 head) than a year earlier, according to Friday’s Cattle on Feed report.

In terms of weight, 41.61% went on feed weighing up to 699 pounds; 49.72% weighing 700-899 pounds; 8.67% weighing 900 pounds or more.

Marketings in January of 1.91 million head were 2.80% more (+52,000 head) than the previous January.

Cattle on feed Feb. 1 were 11.68 million head, which was 0.41% more (+48,000 head) than a year earlier.

Although a bevy of analysts expected placements to be an additional 1-2% lower, markets will likely view the overall report as neutral.

U.S. beef exports shatter annual record

U.S. beef exports blasted through previous records for value last year, according to 2018 statistics released by USDA and compiled by the U.S. Meat Export Federation (USMEF).

Beef export value last year was $8.33 billion, which was $1.06 billion more—15% more—than the previous record set a year earlier.

Beef export value per head of fed slaughter last year was also record high at $323.14, which was 13% more than the previous year and 8% more than the previous record set in 2014.

Exports also achieved a new high for volume—1.35 million metric tons (mt), which was 7% more than the previous year and 5% more than the previous record set in 2011.

Beef exports accounted for 13.5% of total beef production in 2018, which was 0.6% more than the previous year. Beef exports accounted for 11.1% for muscle cuts, up 0.7% from 2017.

Why trade negotiation matters

If you ever wondered about the potential impact of current trade negotiations, consider that South Korea accounted for half of the $1 billion surge in beef exports last year.

“There may have been no greater ag trade success story in 2018 than U.S. beef exports to Korea,” says Dan Halstrom, USMEF president and CEO. “Less than a decade removed from street protests opposing the reopening of this market, Koreans now consume more U.S. beef per capita than any international destination.”

This, Halstrom says, is a testament to the U.S. beef industry’s strong commitment to the Korean market and the outstanding support received from the U.S. government—through both USDA promotional funding and the negotiation of the Korea-U.S. Free Trade Agreement (KORUS), which has dramatically lowered import duties on U.S. beef.

Since KORUS was implemented in 2012, the import duty rate on U.S. beef declined from 40% to 18.7% and will fall to zero by 2026. U.S. beef’s main competitors also have free trade agreements with Korea but currently face higher duty rates than the U.S., including Australia (24%), Canada (26.6%) and New Zealand (26.6%).

Keep in mind that Japan is the leading destination for U.S. beef in terms of value; a little over $2 billion worth last year. Since exiting the Trans-Pacific Partnership, the U.S. has yet to establish a bilateral agreement.

Erin Borror, USMEF economist, emphasized Japan’s importance as a trading partner at the recent USDA Agricultural Outlook Forum. She cautioned that U.S. beef and pork face stiffer competition due to Japan’s preferential trade agreements with other trading partners. Unless the United States secures similar access terms, she says the situation will worsen.

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)