Live cattle futures settled sharply higher Monday as the market reacted strongly to Friday’s higher-than-expected cash market, thinking maybe the market had turned higher seasonally.
Late profit taking, however, revealed some lingering doubts, and the lack of significant carry in futures contracts into next year shows these doubts are deep seated.
Cash prices for fed cattle turned up last week as packers grudgingly gave in to higher asking prices by cattle owners. This was a week before the 2009-2013 average, which has the market turning up this week as school lunch program buying combines with preparations for the Labor Day holiday to jump-start a sluggish summer demand profile.
A Livestock Marketing Information Center graph shows the normal upswing occurring in the first week of August.
NOT EVERYTHING IS NORMAL
However, this year, there are a few things that aren’t normal and could even thwart the seasonal tendency to rise in August.
Dressed weights of the cattle slaughtered are holding well above the average and a year ago. Weekly weights dipped in the latest USDA figures, but this often changes a little from one week to the next.
What is important is that the average carcass weight of each steer slaughtered the second week of July was 884 pounds, 19 pounds, or 2.20%, more than last year’s 865 pounds and 34.8 pounds, or 4.10%, above the five-year average of 849.2 pounds.
That’s like adding more than 16,000 head to last year’s weekly slaughter and doing it with fewer cattle. Steer slaughter the second week of July totaled 311,531 head, 3,468, or 1.10%, fewer than last year’s 315,000.
So, while it’s true there are fewer cattle to slaughter this year, larger weights are producing ample supplies of beef.
DEMAND ALSO IN QUESTION
In spite of a seasonal push for higher August beef prices to fuel a corresponding rally in live cattle prices, many traders continue to harbor lingering doubts. Monday’s early futures rally based on Friday’s higher-than-expected cash cattle prices was easily set back by weak boxed beef prices from the USDA at midmorning.
Traders were left to wonder if the expected seasonal swing higher will be an underwhelming affair this year.
Many also continue to talk about increased competition from pork and chicken taking the wind out of the sails of an August beef/cattle rally.
Still, there is an old adage among traders that goes, “Don’t fade the seasonals,” which keeps the market expecting, or hoping for, enough increase in demand to form an August rally. For this reason, at least, traders may see a more volatile market in coming weeks.
CASH CATTLE MARKET QUIET
Cash cattle markets did not trade Monday. Prices last week were steady to $2 higher at mostly $147 to $148 per cwt on a live basis with a few up to $149 in western Nebraska. On a dressed basis, cattle traded at $232 to $234, up $2.
The USDA’s beef cutout values Friday were mixed, with the choice cutout at $233.99 per cwt, up $0.74 and select at $228.83, off $0.46. Volume was light to moderate with 88 loads of fabricated cuts being sold into the spot market.
The CME Feeder Cattle Index for the seven days ended Friday was $217.00 per cwt, up $1.08, compared with the Aug futures close Monday of $148.00.