What do you do when feeder calf and calf markets have been strong and you look at the technicals and see a different message? “Very clearly sell,” says Stephen R. Koontz, agricultural economist at Colorado State University.
Why? Koontz said feeder cattle futures exhibited weakness early this week after holding fast last week, and rallying to fill the gap down in late September the prior two weeks. In mid-September the market rallied close to resistance formed in May and June.
WEAKER CALF PRICES AHEAD?
“My interpretation of the feeder cattle futures rally through most of late August and early September was that it was driven by a strong cash calf and feeder cattle market pricing in a lot of the cheapening feed market, Koontz said in a column. “It is possible that all of this has run its course and traditional seasonal weaker calve prices are in the works.”
Koontz did concede he had saying that since August. “However, the technicals support my position rather clearly,” he said. “Feeder cattle and live cattle contracts have rallied to levels established in the early summer. The market turned lower in mid-July and it is set to repeat that now” Koontz said. “All of these fall contracts that have rallied to resistance planes have been turned back. Do we have the fundamental support to hold or push higher?”
MARGINS UNDER PRESSURE
Examining the fundamentals, Koontz said boxed beef composition values and fed cattle prices have drifted sharply lower the last half of the year. But he said they recently have shown strength over the prior two-to-three weeks. Both packer margins and cattle feeding margins are under pressure in this market.
Koontz said exports have been the surprising bullish news. But the overall perspective on protein markets is that beef, pork and poultry supplies are likely to be large through the fall and early winter.
SUPPLIES ARE LARGE
“Supplies are large and cold storage stocks are increasing,” he said. “Thus, feeder cattle and calve are unlikely to hold at the levels seen in this environment.”
The cheapening feed also may have run its course. Koontz said. The USDA Crop Production and WASDE reports revealed corn yield forecasts were increased from 169.9 to 171.8 bushels per acre. But he said the forecast of acres harvested was reduced from 83.5 to 83.1 million acres. Total production was revised up slightly less than 100 million bushels.
“Barring harvest surprises, the corn market looks to have bottomed,” Koontz said. “All in all, there is little underlying fundamentals based support for prices holding.”
CATTLE, BEEF RECAP
Boxed beef cutout values were higher to sharply higher on moderate to good demand and
moderate to heavy offerings. Select and choice rib cuts were firm to higher while chuck
and round cuts were steady. Choice loin cuts were steady while select was higher. Beef trimmings were sharply higher on good demand and light to moderate offerings.
Choice was $2.31 higher at $199.57 while select was $190.76, $1.67 higher. The choice/select spread was $8.81 and 149 loads of fabricated product was sent to the marketplace.
As of Thursday morning, negotiated cash trade was limited on light-to-moderate demand in Kansas and Nebraska. A few live purchases traded at $110.00 in both regions, but there were not enough sales for an adequate market test. Trade was mostly inactive on light demand all other feeding regions.
The latest established market in the Texas Panhandle was Wednesday with live purchases at $110.00. Last week, live purchases in Kansas were at $111.00. For the prior week in the Northern Plains, live purchases traded at $111.50 and dressed purchases in Nebraska at $175.00. In the Western Cornbelt last week, live purchases ranged from $110.00 to $111.00 with dressed purchases at $175.00. The CME Feeder Cattle Index was at $155.08 for the seven days ending October 18, down 18 cents. The October feeder cattle contract at the CME closed at $153.150 cents up 0.625 cent per pound.