Colorado State University Agricultural Economist Stephan Koontz asked in a Livestock Marketing Information Center letter called In The Cattle Markets “what portends for the rest of September and October?”
Labor Day is behind us, and the fall run of calves is in front, Koontz said. Historically, October is a tough month for fed cattle markets with the summer demand season winding down and fed cattle weights winding to some of their seasonal highest.
Likewise, calves have a tendency to be plentiful, he said. But, this year is likely to not follow the trend.
BOXED BEEF VALUES HIGH
Boxed beef values are well above $300 per cwt and the choice/select beef spread is near $25 per cwt, Koontz said. These are strong values compared with the current and past year and also are seasonally strong.
But again, October is in front of us, Koontz said. Slaughter weights are climbing and will continue to do so until November.
“We will have to see if the seasonal climb persists with the heat of this summer,” he said. Weekly slaughter numbers were reasonably good – with the exception of Saturdays – with some clear periodic reduction in numbers.
Packer margins were much tighter some of the year and the expected response can only be lower kill volumes, Koontz said. These were seen, but the USDA Cattle on Feed report last month was more than a bit of a surprise with respect to the tightness of on-feed numbers.
Calculated inventories of cattle on feed over 120 and over 150 days also jumped in August with the lighter kills but remain below recent years, he said.
THE CRUX OF THE MATTER
“The crux of the immediate outlook is where will boxed beef values head?” Koontz asked. “And how hard will feedlot push?’
Currently, the feedlot cash return is excellent and has been for the past four months, he said. Any bid is going to pencil out excellently. (And those hedges are going to be tough to explain to inexperienced investors.)
“Will packers return to more disciplined buying through this fall?” Koontz asked. “My bet is yes.”
I am jumping to the technical picture but $2 a pound for Apr futures sure could be a strong number for resistance, he said. Again, depending on the box value.
Regardless of other fundamentals, the price of replacement female beef animals has moved significantly higher in the last month, Koontz said. These transactions are on the order of 50% higher than this time last year for the same regions.
This is a counter seasonal trade, but there is some evidence of herd building albeit with minor overall animal numbers, he said.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $181.64 per cwt to $186.65, compared with last week’s range of $178.95 to $187.74 per cwt. FOB dressed steers, and heifers went for $283.68 per cwt to $291.00, compared with $279.95 to $289.61.
The USDA choice cutout Thursday was up $0.67 per cwt at $301.93 while select was up $0.32 at $279.00. The choice/select spread widened to $22.93 from $22.58 with 104 loads of fabricated product and 27 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 $1.60 to $1.75 a bushel over the Dec corn contract, which settled at $4.75 1/4 a bushel, down $0.07.
The CME Feeder Cattle Index for the seven days ended Wednesday was $254.09 per cwt, up $0.67. This compares with Thursday’s Sep contract settlement of $253.75 per cwt, down $0.90 and Oct’s $257.77, down $2.80.