Cattle markets continue the decline from September into November, said Stephen Koontz, Colorado State University agricultural economist at Colorado State University in a Livestock Marketing Information Center letter called In The Cattle Markets.
Much of that movement lower could, and should, have been anticipated, Koontz said. The underlying supply and demand fundamentals did not support year-long and continuing higher movements in cattle prices.
Supplies are tightening, and demand has been strong, but the movement to record high prices was well in advance of that which can reasonably be supported by fundamentals, he said.
PACKER MARGINS THIN TO NEGATIVE
Packer margins have spent much of the year at levels that were unlikely to cover costs – or much of costs – there may have been only a single month with some positive return, Koontz said. Even with strong beef prices, fed cattle were too strong, relatively.
The cash market has not yet followed live cattle futures lower, but the underlying fundamentals make that likely, he said. The boxed beef composite value has held at levels modestly above $3 a pound.
It also will be interesting to watch the beef market react to holiday demands, Koontz said. For example, do ribs display the strength of last year’s holiday? Or, is there some erosion of demand?
Overall beef demand indices show persistent weakness quarter on quarter and year on year from 2020’s peak strength, he said. Some beef demand is weakening. not in a substantive manner but weakening nonetheless. This is not bullish news.
FOREIGN TRADE ALSO LIMPING
The import and export pictures also are not bullish news, Koontz said. Weekly imports – especially of feeder cattle – are strengthening, and weekly exports of beef muscle cuts are decreasing.
Again, neither in substantive form but the effect of both on the overall marketplace is clear, he said. Weekly steer and heifer slaughter numbers offer a prelude to the monthly marketings from the Cattle on Feed reports.
Slaughter is reasonable but has softened for steers and has drifted lower for heifers for the first time in several years, Koontz said.
It is unlikely that current marketings have reduced inventories of longer-fed cattle – on feed over 120 and 150 days, he said. These inventories likely will weigh on the market through the end of the year, a perspective confirmed by changes in steer and heifer slaughter weights.
Slaughter weights have climbed six of the last eight weeks – in the face of colder weather – but also following the normal seasonal pattern, Koontz said.
However, the thing not observed this year is tighter supplies from herd rebuilding, he said. The continued marketing of heifers through fall calf sales indicates herd liquidation continues.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers last week ranged from $177.68 per cwt to $180.99, compared with the previous week’s range of $178.00 to $186.00 per cwt. FOB dressed steers, and heifers went for $279.82 per cwt to $284.01, compared with $283.24 to $292.15.
The USDA choice cutout Friday was up $1.03 per cwt at $298.03 while select was up $1.14 at $268.76. The choice/select spread narrowed to $29.27 from $29.38 with 45 loads of fabricated product and 11 loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.35 to $1.40 a bushel over the Dec corn contract, which settled at $4.63 1/4 a bushel, down $0.05 1/2.
The CME Feeder Cattle Index for the seven days ended Thursday was $225.24 per cwt, down $0.44. This compares with Friday’s Nov contract settlement of $219.35, down $7.77.