Hopes linger for a seasonal bottom in fed cattle prices

Calf and feeder cattle Prices continue steady to higher

Except for calf and feeder cattle prices, markets this week mostly continued in a holding pattern.
Steers and heifers traded steady to $6 per cwt higher this week, according to the Agricultural Marketing Service (AMS).
Regionally speaking, prices did the most catching up in the Southeast—$5 to $6 higher from 400 to 700 pounds, according to the National Weekly Feeder and Stocker Cattle Summary from AMS.
Speaking of the Southeast, Blue Grass Stockyards in Lexington, Kentucky hosted a capacity crowd for the grand opening of its new state-of-the-art facility. It replaces the previous, landmark stockyards there—at a different location—which was destroyed by a fire in January of 2016.
“Calf prices will likely decline a bit more to a seasonal low in October, but are expected to remain higher year over year through the fourth quarter,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his Cow-Calf Corner market comments. “Strong stocker demand for fall and winter grazing may limit seasonal price pressure this fall. Heavyweight feeder cattle prices typically decline seasonally through the end of the year but are also expected to remain above year-ago levels. While prices may weaken seasonally, I don’t expect a repeat of last year’s October crash in cattle prices.”
Feeder Cattle futures closed an average of $1.78 higher week to week on Friday ($1.30 to $2.50 higher).
Similar to the previous week, the standoff between cattle feeders and beef packers continued through late Friday afternoon. There were a few trades on either side of steady during the week, but there were too few transactions to trend. Prices the previous week were mainly $105 per cwt on a live basis and $165 to $168 in the beef.
Cattle feeders were likely emboldened by thoughts that packers need inventory after last week’s light kill. Stronger futures prices helped, too.
Other than narrowly mixed through the front three contracts, Live Cattle futures closed an average of $1.16 higher week to week on Friday (70¢ to $2.15 higher).
Notions also persist that wholesale beef values are at least near the bottom.
“Boxed beef prices this week were at best steady, as there was no follow through from the marginally higher prices the prior week,” says Andrew P. Griffith, agricultural economist at the University of Tennessee. “It is fairly clear to see at this point that the last official grilling holiday of the summer did little to spur boxed beef prices.”
Choice boxed beef cutout value was 46¢ lower week to week on Friday afternoon at $191.42 per cwt. Select was $4.12 lower at $185.85. The Choice-Select spread was $3.66 higher at $5.57.
Right at 80% of steers and heifers graded Choice and higher in the most recent USDA National Steer and Heifer Estimated Grading percent report (week ending Aug. 25). Of those, about 6% graded Prime and 31.5% were certified in the upper two-thirds of Choice.
In Griffith’s weekly market comments, he points out that softer wholesale prices are also reducing beef prices for consumers.
“Retail beef prices are likely to soften the next two to three months as the market moves through the large quantities of beef and pork,” Griffith says. “If the domestic market is forced to absorb the increased meat production, then lower prices can be expected.”
Although beef production will be higher this year than last (~26.6 billion pounds), analysts with USDA’s Economic Research Service eased their expectations by140 million pounds in the World Agricultural Supply and Demand Estimates (WASDE) released this week (see “WASDE Suggests…” below). That’s compared to the previous month’s estimates.
“One of the driving factors is reduced slaughter weights,” AMS analysts say. “Although total slaughter headcounts have been at or above last year’s numbers, slaughter weights have been declining. The increase in headcount is not enough to offset the lower slaughter weights, leading to a decline in production.”
Outlook
Beef production is expected to be 4.0% to 5.0% more year over year in 2017, according to Peel, with total cattle slaughter 5.0% to 5.5% more than last year.
However, Peel also points to lighter carcass weights as a mitigating factor.
“So far this year, steer and heifer carcass weights have averaged nearly 14 pounds less than last year,” Peel says. “Fed carcass weights typically peak seasonally in October or November. The extent to which carcass weights remain below year-earlier levels will be an important factor in moderating year-over-year increases in beef production in the fourth quarter.”
Brian Williams, livestock economist at Mississippi State University, says that shifting cattle feeding economics point to increasing carcass weights. In the latest In the Cattle Markets, Williams explains positive cattle feeding returns encouraged feeding and marketing more cattle quicker, which equated to lighter carcass weights.
“Now that profits (feedlot) are turning negative, that incentive is gone and feedlots will likely shift toward trying to squeeze as much gain out of each animal as possible,” Williams says. “If that happens, look for the uptick in slaughter weights to shift total beef production higher in the coming months.”

Expect seasonal price trend for culls

Cow-calf producers with the resources to keep and add pounds to cull cows should start calculating whether to market them in the fourth quarter, or add weight and market in the first few months next year, say analysts with the Livestock Marketing Information Center (LMIC).
In other words, LMIC expects typical seasonal cull cow price trends this year. In an industry driven by spring-calving cows, that means prices will be lowest in the fourth quarter when most of the open cows come to town.
Cull cow prices usually decline about 10% between September and November (long-term average), according to LMIC. Then prices increase seasonally after the first of the year. Last year, LMIC analysts say cull cow prices increased $5.25 per cwt between November and January, $12 between November and February, $20.50 between November and March.
Even with seasonal trends in place, LMIC expects cull cow prices to be lower year over year.
“Several factors underpin the seasonal pattern in cull cow prices,” LMIC analysts explain in the most recent Livestock Monitor. “First, the supply of cull beef cows is largest in the fall, which dampens prices. After those large supplies are marketed, prices increase. Second, fed cattle prices are typically highest in the winter and early spring months (February through May), which supports slaughter cow prices. Other factors that can significantly influence cull cow prices are the level of dairy cow slaughter and the amount of beef imported from Australia and New Zealand, which competes mostly in the cow-beef market and not as much with meats from fed steers and heifers.”

WASDE suggests low feed costs

Odds continue to favor lower feed prices, according to the monthly World Agricultural Supply and Demand Estimates (WSADE) released on Tuesday.
USDA surprised plenty of folks by increasing yield and total production for corn and soybeans.
Corn production is forecast at 14.2 billion bushels with yield of 169.9 bushels per acre. If realized, this will be the third highest yield and production on record for the U.S. Corn ending stocks increased 62 million bushels from the previous month. The projected range for the season-average corn price received by producers was lowered 10¢ on both ends of the range to $2.80 to $3.60 per bushel.
Based on conditions at the beginning of September, WASDE forecasts soybean yield at 49.9 bushels per acre for record-high total soybean production of 4.43 billion bushels. The 2017-18 U.S. season-average soybean price is forecast at $8.35 to $10.05 per bushel.
With grazing prospects for winter wheat in mind, WASDE has 2017-18 wheat prices at $4.30 to $4.90 per bushel.
Beef and Meat Production Lower
WASDE forecasts less total meat production for this year than a month earlier, with estimated decreases in beef and broiler production more than offsetting increased pork and turkey production.
More specifically, WASDE reduced second-half beef production on the slower expected marketing pace for fed cattle. For 2018, the beef production forecast is lowered from the previous month on the slower rate of placements during the second-half of 2017, which are expected to result in reduced steer and heifer slaughter in the first half of next year.
“Cattle prices are reduced from last month for the remainder of 2017 and into early 2018 on current price weakness,” WASDE analysts say.
The fourth-quarter fed steer price is projected at $107 to $113 per cwt, compared to $110 to $113 estimated for the third quarter. The annual price was reduced $2 on both ends of the range from the previous month’s forecast to $118-$120. The projected first-quarter price for next year is $110 to $120.

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