Live Cattle Futures and Spot Fed Cattle/Wholesale Beef values collapsed but there appears to have some glimmers of light at the end of the tunnel—hope it isn’t an oncoming train:
Limbo Time- How low can they go? The Backlog of over-finished cattle continues but perhaps a glimmer of light may be developing that the worst may be over! This week, October Live Cattle futures closed limit down Tuesday off -$3.00 per cwt., Wednesday had an expanded limit down off an additional -$4.50 and Thursday continued selling off by more than -$3.00. The October Live Cattle futures have sold off to levels not seen in a long time. Note how much value has been lost so far this week—October Live Cattle futures ruptured, Thursday’s late session was reported at $120.425 per cwt. that is more than -$13.00 per cwt below last Friday’s close at $133.700.
The Direct Fed Cattle marketing reports for Iowa, Minnesota and Nebraska continue indicating very heavy Fed Steer weights are being sold. This suggests Fed Cattle Packers now have the upper hand and Feedlots are capitulating with larger numbers of Fed Cattle are being marketed. The USDA’s Direct Daily Cattle report reported Steers grading over 80% Choice were expanded but still had an average Live weight of 1,530# with a range from 1,400 to 1,575# and an average price at $117.48 per cwt. However, Dressed Steer carcass weights are getting lighter on average than seen in recent weeks. We will be closely monitoring the USDA’s Direct Fed Cattle reports to assess if the “Backlog” of over-finished cattle is clearing the market.
Trade chatter indicate some Fed Cattle Packers are buying Fed Cattle in the upper Corn Belt states and shipping them to supply Southern Plains plants, this is helping to fill slaughter capacity and contributes to keeping a lid on local Spot Cattle bids to feedlots in Texas and Kansas even though they do not have “over-fed cattle”. However, recent trade chatter indicated a major U.S. Fed Cattle packer was an active buyer of heavy weight cattle and extended their Fed Cattle purchases by several weeks- we see this as a positive sign!!
This rupture in Cattle/Beef prices suggests several things will develop in coming months. First, many feedlot operators and investors that are custom feeding cattle customers are losing a “boat load of equity” with cattle feeding losses being reported at -$400 to -$500 per head marketed for unhedged animals. We expect banks will be very hesitant to expand loans for cattle feeding in coming months. Many feedlot operators and outside investors will likely sharply restrict bids for stocker-feeder cattle this fall. This summer the cattle sector bid Stocker – Feeder cattle values to extremely high of levels.