Cash and futures fed cattle prices just might be putting in a summer low, but it would take a look at the futures market to tell.
Cash fed cattle prices this week traded about $3 per cwt below last week, setting a low for the year at $117-ish. For the last 1 ½ months, the nearby Aug contract has found support around $113 per cwt with the latest low at $112.42 on July 6.
Resistance in the Aug contract has come around $118. This week, the contract has been supported near the low end of the range – $113.
The reason it is necessary to look at the futures market to see the suggestion of a summer low is that weekly average prices tend to show a cash fed cattle market that is following last year’s downward trend instead of the 2011-20015 average.
Last year’s price decline was based on rising supplies of finished cattle, prospects for more to come and limited prospects for a rally.
THINGS HAVE CHANGED
However, since late last year, things have changed. Beef demand began to rise with the improved economic condition of many US families, and export demand continued to increase.
The fact that beef demand rose can be seen in the strong sales of choice beef at retail. Consumers were more willing to pay more for more of this, more expensive product, a classic definition of rising demand.
There is little indication that the new demand for beef has gone away. It may have stalled out at current levels, but market analysts have been saying for months that retail margins for beef are good.
If retail grocers perceive strong beef demand, they are likely to push it for the upcoming Labor Day holiday. Cash flow is highest for the most expensive meat product, and if returns are notably strong as well, what could be better?
Product for this holiday, which is little more than a month away, must be booked by mid-August because only fill-in purchases may be made late in the month and have it arrive in time for holiday features.
Something else that has changed is supply. Beef production is growing but not at the pace it was last year.
Feedlot sales have been aggressive as they try to take advantage of profitable margins, reducing front-end supply issues for the short term, and pulling down carcass weights.
As supplies of slaughter-ready cattle remain at least somewhat constricted and carcass weights are challenged, cattle prices could be supported as packer buyers seek to pad their own kill lines at the expense of their competitors.
CATTLE, BEEF RECAP
Fed cattle sales on the livestock exchange video auction Wednesday averaged $117.68 per cwt, down $0.59 from $118.27 last week. Lots with one- to nine-day delivery sold at $117.72, compared with $118.30 last week, and lots with one- to 17-day delivery sold at $117.63, compared with $118.00 last week.
Light cash cattle trading was reported Wednesday at $117 per cwt on a live basis, down from $118.25 to $120.50, mostly $120 last week. Dressed-basis trade was at $187 to $188, down $2.
The USDA’s choice cutout Thursday was down $0.64 per cwt at $206.43, while select was off $1.21 at $196.66. The choice/select spread widened to $9.77 from $9.20 with 132 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Wednesday was $151.30 per cwt, down $0.27. This compares with Thursday’s Aug settlement at $147.82, up $1.35.