Substantial Seasonal Price Weakness Through Fall

Just past the half-way point in getting this fall’s calf crop marketed, the price weakness has been an eye-opener to Stephen Koontz, agricultural and resource economist at Colorado State University.

Writing for the Livestock Marketing Information Center’s In the Cattle Markets, Koontz said, “I have spoken to producers that sold calves in October who received close to zero basis for 4- to 5-weight animals.  This was $15 to $25 per cwt weaker than expected.”

A review of USDA Agricultural Marketing Service reported prices shows those sales were small loads, in smaller regional Colorado markets and were not common, but neither were they unique, he said.  There were more than a few very cheap calves changing hands, and not just in Colorado.

However, he was able to determine that those animals had minimal to no value-added services.

 

SALES DELAYED

 

It seems many producers have delayed marketing, Koontz said.  Inexpensive, although lower-quality hay is relatively plentiful, and mild fall weather has further encouraged delayed sales.

He said he anticipated that would result in higher-than-normal placements for the rest of this year and into 2017.

While calves, feeder cattle, and fed cattle have all seen very weak prices this fall, lower beef product prices are translating into very effective product movement, he said.

 

PACKER MARGINS ENCOURAGE MOVEMENT

 

Strong packer and retailer margins are encouraging beef movement, Koontz said.  Packers may make money in almost every month this year, offsetting a terrible 2015.

Saturday slaughter volumes have been substantial most of this year, compared with last year and the prior five-year average, Koontz said.

And while cold storage volume of beef did increase sharply in September, that volume is similar to prior years and reasonable with the volume of beef being processed, he said.

 

MARKET MOVES OVERDONE?

 

Market moves into lower prices have over done it, Koontz believes, similar to the extent the market over reacted during the expansion years of 2013-14.  These lower prices are what it takes to move the volumes of beef along with the higher volumes of other proteins.

Kansas State University’s third-quarter retail beef demand index shows a greater than 5% decline from last year but a modest softening relative to the second quarter, Koontz said.  This decline helps explain the much lower beef product prices.

In the context of doing a cattle market outlook, Koontz said he had said most of this year that the worst was over and there would not be more of the same from 2014-15 in 2016, but the fall has not played out in any reassuring way.

 

WHAT ABOUT THE TECHNICALS?

 

Down trends remain in place for the nearby two live and feeder cattle contracts, and the technicals remain long-term bearish, he said.

All markets rallied sharply through the last two weeks of October.  But this followed the larger sharp moves down through the end of September and first half of October.

Retracements are to be expected.  The sharp down moves broke support planes and are bearish signals in addition to the trend.

 

CASH CATTLE MARKETS STEADY TO LOWER

 

Cash cattle markets Thursday were steady with Wednesday at $104 to $106.  Dressed-market action ranged from $162 to $163, down $1 to $2.

The USDA’s choice cutout Thursday was $1.30 per cwt higher at $188.74, while select was off $0.06 at $173.87.  The choice/select spread widened to $14.87 from $13.51 with 73 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Wednesday was $125.97 per cwt, up $0.56.  This compares with Thursday’s Nov settlement at $125.85, down $0.72.