Cattle markets continue to show gradual strength, allowing optimism for the future, but producers should lay off risk periodically, said Stephen Koontz, agricultural economist at Colorado State University, in a Livestock Marketing Information Center letter to Extension agents called In The Cattle Markets.
After the late-August and early September price break, all live cattle futures contract prices returned to and pushed into life-of-contract highs, Koontz said. Feeder cattle futures, though, have not made new highs and likely won’t, given current high feed costs, but all contracts are very strong.
Underlying cash cattle and calf markets have followed suit, he said. The USDA’s five-market fed cattle weighted average is into the $130s per cwt for the first time since 2017, while feeder cattle and calves have shown little seasonal weakness. Small calf prices are up to levels similar to last spring.
THE TECHNICALS
Most contracts broke through resistance while pushing to new highs, Koontz said. This is what the market has to do to move higher and is, thus, a buy signal to many investors.
However, the move was weak and with softening momentum, he said. Further, early this week the number of “hook reversals” were plentiful, and there even were key reversals in some of the more distant contracts.
Those are, albeit often short-term, sell signals, Koontz said. The technicals reveal that persistent pattern of gradual moves higher followed by periodic hard adjustments lower.
UNDERLYING FUNDAMENTALS
The underlying fundamentals continue to paint a bullish picture, he said. Boxed beef cutout valuations are drifting lower following seasonal summer highs.
But packer margins remain incredibly strong by historical standards, Koontz said. FI steer and heifer slaughter remain elevated and repeatedly press on what he perceives as industry capacity of 525,000 head a week.
Saturday slaughter also is elevated, yet cattle on feed more than 120 and 150 days continue their seasonal decline but remain above last year.
Thus, the leverage remains with the packer, but companies have a strong incentive to run as many hours as possible, he said.
Beef cow slaughter also remains strong, Koontz said. The beef herd liquidation continues and will affect next year’s supply.
And there is no bearish demand news, he said. Beef supplies are up, cold storage is down, and beef prices are high – not as high as during the seasonal peaks but very strong given beef supplies.
Exports to China are growing leaps and bounds. But compare increases in beef exports to China to the decline in beef exports to Hong Kong, Koontz said. International demand appears strong, but other things are not constant.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $138.98 to $140.92 per cwt, compared with last week’s range of $131.81 to $135.75. FOB dressed steers and heifers went for $209.66 to $218.80 per cwt, versus $205.64 to $209.84.
The USDA choice cutout Thursday was up $1.80 per cwt at $272.02, while select was up $0.28 at $258.25. The choice/select spread widened to $13.77 from $12.25 with 153 loads of fabricated product and 21 loads of trimmings and grinds sold into the spot market.
The USDA reported Thursday that basis bids for corn from livestock feeding operations in the Southern Plains were unchanged at $1.35 to $1.45 a bushel over the Dec futures and for southwest Kansas were unchanged at $0.40 over Dec, which settled at $5.77 a bushel, up $0.05.
The CME Feeder Cattle Index for the seven days ended Wednesday was $161.34 per cwt down $0.26. This compares with Thursday’s Jan contract settlement of $165.77 per cwt, down $0.05.