Seasonal Cash Cattle Slide May Be Near End

The summer slide in beef cattle prices may be over unless more cattle come to market than many traders expect as wholesale beef prices turn upward this week and light the fuse on futures markets.

Fed cattle traded $3 per cwt lower on a live basis last week in the Plains with the five-area USDA weighted average price of $145.48 per cwt for steers being down $2.48, or 1.68%, from $147.96 the previous week.

For reference, the five-area weighted average steer price a year ago was $163.26 per cwt.

The decline, though more volatile than in some years, has followed from the spring highs to summer lows fairly normally.  However, the decline has surpassed the average dollar amount and percentage decline and could turn higher without violating either.

Fed cattle prices have fallen nearly $22 per cwt since the first week of April, about a 13% decline.  From 2010 to 2014, fed cattle prices averaged a 9.8% summer decline with a range of about 5% to 15% over the five-year period.

Cash cattle prices could continue to soften over the next week or so, but futures markets appear to have already begun anticipating the cash-market move.  The market appeared to bottom Monday, casting aside bearish tones from the USDA’s monthly Cattle-on-Feed and Inventory reports quickly.

The move in futures was augmented by technical studies indicating the market was oversold with pent-up volatility.  Once prices appeared to rebound on the strength of a couple of days of higher beef quotes, the boldest of the futures speculators stepped in.

 

OUTLOOK

 

After finding a bottom, many expect beef and cattle prices to rebound, although few, if any, expect the market to reach last year’s record-high levels.  Slowly building supplies of feeder and fed cattle, combined with continued strong imports of grinding beef, are seen as deterrents to reaching those levels.

Eventually, that expansion of feeder cattle availability is expected to pressure the feeder and live-cattle markets, a process that likely will last for several years.

In the meantime, however, cow/calf producers likely will have a few years of good profits.

The timeframe of those good profits for cow/calf producers could be shortened if mandatory Country-Of-Origin labeling is repealed.  Bills are circulating through Congress to do just that after the US lost another World Trade Organization ruling that said the law unfairly discriminated against Canadian and Mexican cattle and beef.

If the law is repealed, imported feeder cattle, especially from Mexico, will compete for feedlot bunk space, taking cow/calf profits down more swiftly.

Mexican beef was not expected to be a very good competitor with US beef, even in the markets where the two can share retail space.  The Mexican cattle system relies more on forage and less on grain as food sources.  This produces less fat and marbling than the US grain-fed system, which produces more of both.  Some consumers like the forage-finished beef, but most US shoppers prefer more marbling.

 

CASH CATTLE MARKET QUIET

 

Cash fed cattle markets Tuesday remained undeveloped, with bids posted at $143 per cwt on a live basis in Kansas.  No bids were reported in Nebraska’s dressed market, but asking prices were around $236.

Prices last week were lower, with live-basis sales at mostly $145 to $148 per cwt, mostly $3 lower.  On a dressed basis, cattle traded at $230 to $232, down $4.

The USDA’s beef cutout values Tuesday began the day trading higher in moderate volume but by the afternoon boxed beef report were slightly lower.  The choice cutout was $232.15 per cwt, down $0.12.  Select was $228.87, off $0.01.  Volume was active with 114 loads of fabricated cuts being sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Monday was $214.83 per cwt, down $0.87, compared with the Aug settlement of $211.25.