Live cattle futures ended down the daily limit of $3.00 per cwt Tuesday, as technical support failed and fears of lower cash cattle prices took over. The limit-down close suggests further pressure early Wednesday.
Furthermore, cash cattle prices are in a downtrend that shows no signs of a bottom.
Market analysts Tuesday said traders feared a bumper corn crop could send feed prices so low that feed lots would feed cattle to their ultimate weight, increasing beef supplies and pressuring cattle prices even more.
USDA Agricultural Marketing Service data show a continued decline in live cattle cash prices for more than a year. Prices are even ignoring a 2010-2014 second-half seasonal increase.
Last week’s cash cattle price of $106 per cwt now is above Tuesday’s $103.12 settlement for the most-active Dec futures contract, indicating futures traders are losing confidence in the ability of the cattle market to rally.
Midday boxed beef prices Tuesday were higher and followed a gain on Monday, yet even this was not enough to support the live cattle market.
USDA WEIGHS IN
“Negative psychology continues to permeate the US cattle and beef industry,” said the USDA in its latest Livestock, Dairy, and Poultry Outlook report. “Fed cattle and wholesale beef prices (have) yet to find stability.”
Aggressive steer and heifer slaughter rates, along with a seasonal increase in carcass weights, remain bearish concerns for the entire beef complex, the report said.
Demand also is a concern as beef prices typically weaken after the Labor Day holiday, the Outlook report said. Additionally, supplies of competing meats are large.
Market analysts have said previously that the cattle market appears to be looking at the entire meat supply as a continued bearish factor for the cattle industry. Beef supplies by themselves have been larger, but there are billions of pounds of all meats in cold storage with increased production of beef and pork in the pipeline. What’s more, the physiology of cattle means changing the production pattern is like turning the Titanic – slow.
USDA economists said there may be a fourth-quarter beef rally as demand for certain holiday products often boosts prices.
However, with all the meat in the freezers, that fourth-quarter rally may be a mirage for the cattle industry, like it was last year, other market analysts said.
BEEF EXPORTS GAINING MOMENTUM
The real silver lining may be in the form of rising beef exports, the USDA said.
“US beef exports were up 8% year-over-year in July, supported by solid exports to most top destinations, with the exception of Canada (down 22%),” the Outlook report said.
“Despite some negative effects from the strength in the US dollar…, the outlook for US beef exports remains optimistic on expectation of stronger overall global demand for beef and lower wholesale US beef prices.
“Forecasts for third-quarter beef exports remain unchanged,” the USDA said, “while 10 million pounds were added to the 2016 fourth-quarter projection on the expectation of stronger demand from Asian countries and Mexico.”
CASH CATTLE MARKETS QUIET
No cash cattle trading was reported through Tuesday with offers around $110 per cwt live and $170 dressed.
Cash cattle prices were down about $4 last week amid very light trading. Prices were $106 live and $166 to $168 dressed.
The USDA’s choice cutout Tuesday was $1.18 per cwt higher at $188.22, while select was off $0.07 at $179.58. The choice/select spread widened to $8.64 from $7.39 with 94 loads of fabricated product sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Monday was $136.81 per cwt, down $0.33. This compares with the Sep settlement Tuesday of $134.82, down $1.22.