Live cattle markets may be in for a repeat of last week’s market and claw its way higher.
There is talk of cattle changing hands in Nebraska’s dressed market at $242 per cwt, up about $2 from last week. There also is talk of light sales in Kansas and Texas at $150, about steady with last week.
In a surprise to futures markets last week, cash live cattle markets traded steady to higher, even though many expect the market to be heading into the largest supplies of the year.
A year ago, the USDA’s five-area weighted average was $157.40 live and $249.45 dressed.
Many expected the increased supply and seasonal decline in demand to erode prices this week. Even many producers seemed resigned to lower prices.
They were, however, putting up a good front, asking higher prices from last week on the basis of this week’s lower estimated feedlot showlists.
The supply of cattle tends to peak in July, and the prices last week were more than $6 per cwt below the same week last year. The fed cattle market may be tested over the next several weeks as heavier cattle continue to come to the packer, and some analysts now are saying the market could be in for range-bound, sideways trading into late summer or early fall.
BEEF CUTOUT
The USDA’s afternoon beef cutout value was down $2.64 per cwt at $242.03, while the select value was $239.24, off $1.85. Volume was very active at 123.
Last week, the choice cutout was $255.16, and the select cutout was $250.13.
The choice/select spread was $2.79, versus $4.85 a week ago. The seasonal bottom for this spread occurs the first week of August at $5.81. Last year, it was $3.11. Already this year, it is below last year’s bottom.
Now that Independence Day is in the rearview mirror, grocers don’t have much to run features around until the Labor Day holiday. In between, summer’s heat and humidity and the lack of a holiday keep many inside eating cold cuts. Deli ham and turkey sell well at this time of year, and the more miserable it is outside the better the retail sales of these products.
Additionally, packers and retail grocers may not have had the level of holiday sales they were hoping for, although they may have planned for slimmer sales since they are coming back this week to pay more for cattle in spite of the dog days of summer ahead.
It also is common for retailers and restaurants to do more hand-to-mouth purchasing through the summer period. This makes the market a bit more volatile and unpredictable.
PACKERS SHORT?
It’s nearly always dangerous to bet against the packer, but to some, it appears the packers are short cattle. They may or may not be short, but the futures market looks confused.
A depressed beef cutout likely is in the works, analysts say. This could put a crimp in packer margins and could be behind this week’s lower slaughter rate. The USDA estimated slaughter through Wednesday at 323,000 head, compared with 338,000 last week and 341,000 last year.
FEEDER CATTLE DECLINE
Meanwhile, the CME Feeder Cattle Index fell for seven of the last eight days, dropping $11.08, or 4.79%, from $231.30 on June 25 to $220.22, bouncing slightly Wednesday to $220.39 per cwt, up $0.17.
That should help cattle feeders’ bottom lines, especially if live cattle prices remain firm. If feeder cattle prices are coming down longer term, as suggested by the CME Index, it means break-evens for cattle feeders also are coming down.