This week’s $3.00-per-cwt drop in cash cattle markets confirmed the bearish forecast of futures traders and reinforced the market’s counter-seasonal bearish tone.
Cattle and beef prices will remain on the defensive for as long as this bearish psychology continues. Deciphering when that will happen, however, is the hard part of the forecast.
Many market analysts say the fed cattle market likely will turn higher in late September and push to new highs in the fourth quarter, but the futures market isn’t so optimistic. Currently, the market says cash prices won’t catch a bid until October and then remain below even this week’s prices well into next year.
Soon-to-expire Aug live cattle futures gapped lower Wednesday and fell away to a new weekly low of $148.00 per cwt. However, cash trade in the Plains at $152.00 gave the market some lift, and the contract closed the opening gap and settled near its open and high at $149.25, although the market fell away again in overnight trading.
Last week’s bounce may have been a “flag” on daily charts that only confirms a further downtrend is coming.
If this week’s cash trading is established at $152, it will be the lowest weekly price since the third week of June when the Southern Plains price averaged $149.80. It also will be $11.88, or 7.25%, off the top or $163.77 set the last week of July.
BOXED BEEF STILL WEAK
The USDA’s weekly choice beef cutout value moved lower again this week. The choice cutout was reported Wednesday at $251.55 per cwt, down $1.36 for the day, and off $5.33, or 2.07%, from $256.88 a week ago. Select beef, at $243.07 Wednesday, was off $0.84 from Tuesday and down $6.48, or 2.60%, from $249.55 a week ago.
Wednesday, 177 loads of fabricated product were sold into the spot market, and the choice/select spread widened to $8.47. The choice/select spread began widening right on cue this year as the percentage of choice cattle slaughtered declined against the number of cattle grading select.
Weekly cattle slaughter rates are holding in a narrow sideways pattern, while slaughter weights of steers and heifers keep rising. The extra beef is weighing on beef cutout values, a trend that will likely continue until available cattle for slaughter declines.
JULY PLACEMENTS SEEN DOWN 9.1%
Those extra slaughter cattle supplies are expected to get tight again as month after month of feedlot placements falls significantly below year-ago levels. A Reuters survey shows traders and analysts expect July placements to fall 9.1% below the same month a year ago as high-priced calves discourage feeders from buying them to refill pens.
Feeder cattle prices are being driven by tight supplies after years of drought.
What’s more, the high price of feeder cattle themselves may be limiting the incentive to hold heifers and rebuild the herd. Some economists have said the sale of a heifer to the feedlots at current prices is much more attractive than holding the heifer, putting more money into her and then waiting for two years to get any return on investment, during which time, she could die.
Feeder cattle are falling away as buyers recheck their breakeven calculations and conclude current values do not offer them a profit opportunity. The CME Feeder Cattle Index for the seven days ended Wednesday was $219.46 per cwt, down $0.65. This still is well above Thursday’s Aug futures settlement of $214.95, which was down $2.20.