For many live cattle futures investors, the market outlook has turned bearish, but it’s possible the rally can be revived.
What started in June as a supply led rally morphed into a demand-led push into a mid-August double top on daily price charts that turned speculators bearish. Part of this was seasonal, a market analyst said, but to some extent it was belief that a demand-led rally that lacked the Hotel, Restaurant and Institutional backbone could not be sustained.
IMPRESSIVE SUMMER RALLY
Comparing weekly USDA choice cutout prices of this year with last year has been nothing short of astounding with the lack of HRI business.
HRI beef consumption has been slashed by state and federal closure mandates for COVID-19 control. Some of this business has come back as restaurants reopened with tables closed for social distancing, but it is a fraction of what it once was.
In spite of the lack of HRI business, weekly choice beef prices have risen $21.25 per cwt, or 10.6%, since the bottom of $201.24 the third week of July to last week’s average of $222.50, as calculated using USDA Agricultural Marketing Service data.
Comparing that with the 2014-2018 weekly average price, the choice cutout usually rises only $1.20 per cwt, or 0.55%, in the same period.
Yet last year’s midsummer rally also was impressive, compared with the average, so maybe something new is getting started, the analyst said. Last year, during the same period, the USDA choice cutout rose to $239.87 per cwt from $213.11, a gain of $26.77, or 12.6%.
Nevil Speer, private market advisor from Bowling Green, KY, said in an email that he sees strong demand in recent months as a manifestation of longer-term trends: 1. Strong economic conditions going into the COVID recession – a long economic recovery from the 2008 recession that gave rise to a willingness by consumers to spend money – coming out of COVID, those with expendable income are back in the spending mode; 2. and a beef industry that continues to produce a better-quality product – consumers have become accustomed to high-quality, consistent beef and have proven willing to pay for better product.
WHAT ABOUT THE OTHER SHOE?
Things change for many consumers after the Labor Day holiday. The holiday marks a mental break for consumers with the kids back in school, or at least studying from on-line classes. All of which increase family expenses.
Summer vacations are over. The grill has made its last meal until spring and the whole mindset begins to settle in for the fall and winter seasons, pushing more consumption of roasts than steaks.
The economy is reawakening – and establishing some new paradigms, Speer said. There’s still work ahead, though. There’s always the risk of another down-turn from some unforeseen event, and this fall could prove especially elusive because of concerns about the upcoming election.
CATTLE, BEEF RECAP
Fed cattle trading was reported in the Plains last week at $105 to $106 per cwt on a live basis, steady to down $1 from the previous week, and at $167 dressed, down $1 to $5.
The USDA choice cutout Monday was down $1.45 per cwt at $227.95, while select was up $0.46 at $215.32. The choice/select spread narrowed to $12.63 from $14.54 with 49 loads of fabricated product sold into the spot market.
No steer or heifer contracts were tendered for delivery Monday against the Aug live cattle futures contract.
The CME Feeder Cattle Index for the seven days ended Friday was at $140.99 per cwt, down $0.57. This compares with Monday’s Sep contract settlement of $140.30 per cwt, up $0.27.