The USDA reported 110 head of fed cattle that sold in Iowa yesterday for $146.50 live. Although it wasn’t reported by the government I did hear of a string of cattle that sold in Nebraska for $147 live and another string that sold for $2.32 dressed and all of these cattle went to a major packer in the region. Bids on the southern plains were raised up to $145 from $144 yesterday but still no takers as feedlots in the region are priced at $150. Bids in the north were $145 live and $2.32 dressed. The beef market and the futures market continue under pressure and this shoiuld eventually pressure cash cattle values.
The reported CME cash feeder cattle index for 7/21/15 was $217.14 a loss of $.48. The daily inputs for the feeder index were 570 head of steers weighing 757 lbs. with a weighted average price of $211.84. The negativity in the futures market along with the defensive nature of the cash fed cattle market is weighing on the cash feeder cattle market this week and yesterday was no exception with most feeder auctions reporting their cattle $2-$4 lower. I would expect this to continue until we can find some sort of seasonal low in the fat cattle market, which may not happen for another couple of weeks.
Cash Beef Situation and Outlook:
Yesterday’s cattle slaughter was estimated at 104,000 head, which would be steady with last week and 10,000 head below the same day a year ago. The week-to-date kill stands at 327,000 head, which would be 5,000 head above last week’s pace with expectations for a 540,000 head production week vs. 538,000 head last week. The boxed beef market was lower yesterday with the choice cutout closing down $.40 at $232.92 and the select cutout closing down $1.66 at $228.35. Sales volume was good with 188 loads of beef sold (94.83 loads of choice fab cuts, 39.37 loads of select fab cuts, 25.84 loads of trim, 27.51 loads of grinds). The choice/select spread settled at $4.57 a gain of $1.26. The USDA hide/offal value of a typical slaughter steer was $11.37 a gain of $.04. WTD (Thursday-Wednesday) the choice cutout has lost $1.03 and the select cutout has lost $2.47. WTD (Friday-Wednesday) spot boxed beef sales volume has been 535 loads vs. 717 loads the same period a week ago.
The boxed beef market remained under pressure yesterday as buyer demand continues to be dull. End meats fair better than middle meats but the entire complex is searching for a summer low, which doesn’t appear to be found yet. Boneless beef markets were under pressure yesterday as well with a very sharp drop noted on 90% lean cow beef but the fed cattle 50’s are under some pressure as well contributing to losses in beef cutouts. In all there isn’t much good to talk about in the cash beef trade and I would look for the market to be a little lower going into next week. Perhaps if we get into next week we can see a little support develop if packers keep slaughters curtailed. Beef exports for the week of July 10-16, 2015 are as follows:
Beef: Net sales of 10,100 MT for 2015 were down 12 percent from the previous week and 15 percent from the prior 4-week average. Increases were reported for Mexico (2,100 MT), Japan (2,100 MT), South Korea (2,000 MT), Canada (1,100 MT), and Taiwan (1,100 MT). Exports of 12,800 MT were up 9 percent from the previous week and 7 percent from the prior 4-week average. The primary destinations were Japan (3,800 MT), South Korea (3,000 MT), Mexico (1,600 MT), Canada (1,600 MT), and Hong Kong (1,100 MT).
A recap of the monthly cold storage report released yesterday showed beef stocks in the nation’s freezers at the end of June at 467.1 mil lbs. which would be 2% below the previous month but 30% above a year ago. Expectations were for beef stocks to be 454 mil lbs. Pork stocks as of the end of June were 632.2 mil lbs. which would be 3% below the previous month but 18% above a year ago. Expectations were for pork stocks to be 606 mil lbs. Chicken stocks were reported at 722.5 mil lbs. which would be 2% below a month ago but 22% above a year ago. Turkey stocks were 458.1 mil lbs. which would be 4% above the previous month but 1% below a year ago.
Futures Market Situation and Outlook:
Yesterday’s cattle futures trade saw 47,891 live cattle trade with open interest increasing 3,143 to 241,169 and 7,441 feeder cattle trade with open interest increasing 309 to 43,301. In options trade, 763 feeder cattle calls traded with open interest increasing 35 to 18,906 and 603 feeder cattle puts traded with open interest increasing 244 to 25,195. In live cattle options, 6,111 calls traded with open interest increasing 1,747 to 90,964 and 12,989 puts traded with open interest increasing 3,902 to 138,448. In option volatility, the ATM August live cattle $144 straddle settled at $3.10 (-$.25) @12.75% (-.25%) volatility. The ATM August feeder cattle $212 straddle settled at $6.27 (-$.30) @11.75% (-.25%) volatility.
Estimates for both the cattle on feed and cattle inventory report are shown below.
Cattle futures were lower again yesterday as funds continue to liquidate and new shorts are coming into the market. Expectations for lower cash fed cattle trade this week, lower boxed beef, and negative implications for Friday’s cattle on feed and cattle inventory were the main factors in the lower futures trade yesterday. I think the cattle inventory report in particular weighed on feeder cattle futures and deferred live cattle as it is expected to show cattle herd expansion is in full swing as shown above. So it may take another week or two to straighten out the cash cattle and beef markets.. August live cattle are set up for a test of price counts at $142 as are August feeder cattle at counts of $206. I think we are going to find strong resistance at $147-$148 in August live cattle and $216-$218 in August feeder cattle in the near term and would look to sell near term rallies into those areas until we get down to the above mentioned price counts under the market.
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