Beef and cattle markets appear to be stronger than might be expected in the middle of summer’s heat, but supplies may overrun the market in coming months, an economist warns.
Stephen Koontz, professor of Agricultural and Resource Economics at Colorado State University, this week wrote for the Livestock Marketing Information Center that slaughter rates are solidly above last year, and last month’s USDA Cattle on Feed report showed market-ready inventories continue to be drawn down from last fall’s excessive levels. But supplies likely will grow over the next few months.
It has taken roughly a year for the market to work its way through this wreck, Koontz said. It takes strong marketings, light placements, and solid downstream margins for these situations to get cleaned up.
All but the lighter placements of that scenario have played out this spring and summer, he said. Demand has been solid, and beef prices have held strong in the face of greater-than-prior-year slaughter and meat supplies.
The choice/select spread has returned to more normal but also solid levels. Last week was $13-$14 per cwt, while the three weeks prior were above $20.
Hide and offal values have held steady the last month and last week’s trade data for May show beef exports up 15% from last year.
However, late summer and early fall is the critical time when these wrecks usually start, and this time period is some weeks off.
THE BEARISH TALE OF THE TAPE
All that bullishness is in the face of very large wheat pasture feeder cattle placements, heavy cattle on feed inventories and the seasonal increase in live animal slaughter weights, Koontz said. These prospective supply increases will weigh heavily on the market into fall.
There is no way around the heavier supplies of beef, he said.
With live cattle futures at $8-$11 discounts to the cash market, futures are communicating a very pessimistic outlook, although cash prices so far have been persistently better than futures implied.
Technically, most live cattle contracts have been at support planes for some time while feeder cattle have rallied to resistance, suggesting fed cattle were unlikely to move lower while feeders are unlikely to move higher.
However, Monday’s sharp move down broke through some live cattle support – a bearish signal, he said.
Both markets have rallied to resistance and fallen to support repeatedly through spring and summer. Feeders moved down more when new crop corn futures were well above $4 a bushel, but until there is some substantially different fundament news it looks like this is the where the markets are stuck: an oscillating pattern producing volatility with a drift lower.
CASH CATTLE MOSTLY QUIET
Light cash cattle trade was reported Thursday at $187 per cwt in dressed markets after scattered action Tuesday at $188. On a live basis, bids rose to $117 from $116 earlier in the week, but asking prices were firm at $120 to $122.
Cash markets last week were about $2 per cwt lower live at mostly $120 with some at $120.50 in Nebraska. Dressed basis trades were about $3 to $4 lower at $191 to $192.
The USDA’s choice cutout Thursday was $0.19 per cwt lower at $205.00, while select was off $2.45 at $193.06. The choice/select spread widened to $11.94 from $9.68 with 105 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Wednesday was $143.86 per cwt, down $0.86. This compares with the Aug settlement Thursday of $141.70, up $2.42.