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Weighing The Market

published: June 14th 2019
by: Wes and Sharla Ishmael

Pricier corn weighs on calf and feeder markets

Historically slow corn planting, courtesy of protracted cool, wet conditions and widespread flooding propelled grain prices higher last month, adding more pressure to already wheezing feeder cattle prices.
    For perspective, 67% of corn was planted as of June 2, which was 29% less than last year, 29% less than the five-year average and the slowest on record. Planting was even slower in some key corn states, compared to average: Illinois (-59%);  Indiana (-62%); Iowa (-33%); Minnesota (-39%); Nebraska (-11%).
    Spot Corn futures (Jul) surged from $3.51 May 10 to $4.36 May 30, up 85¢. During the same period, spot Feeder Cattle (Aug) declined $13.70, from $146.82 to $133.12.
    “It is not surprising to see the lightweight calf market begin to soften as the market begins to move towards late spring and early summer,” explained Andrew P. Griffith, agricultural economist at the University of Tennessee, in his May 20 market comments. “However, it is disconcerting to watch yearling cattle prices soften during this same time period when they typically begin seeing support.”
    As bad as it felt, weighted average regional calf and feeder cattle prices for the month were near par with last year or higher in the North Central and South Central regions, according to USDA’s Na-tional Weekly Feeder and Stocker Cattle Summary. 
    Likewise, the CME Feeder Cattle Index peak (143.90) and trough (131.82) during the month were higher than a year earlier.
    In the third quarter, the Livestock Marketing Infor-mation Center (LMIC) expects feeder steers (700-800 lbs.) in the Southern Plains to be 3% to 4% below the previous year’s average of $155.99. Steer calf (500-600 lbs.) prices for the quarter are pegged flat to 1% higher. LMIC analysts project flat prices for feeders in the last quarter of the year; unchanged to 4% higher for calves.
Fed cattle prices start
 to soften
    The average 5-area direct cash fed steer price in May was $118.13/cwt. on a live basis and $190.64 in the beef. Although similar to the previous year, prices declined more sharply month to month as the impact of weather-depres-sed carcass weights lessened and beef production increased.
    Federally inspected beef production in April (latest data available) of 2.23 billion lbs. was 144.6 million lbs. more (+6.92%) than the previous year. For the year, however, beef production of 8.56 billion lbs. was 1.12% more (+94.6 million lbs.) than the same time a year earlier.
    May’s World Agricu-ltural Supply and Demand Estimates (WASDE) peg beef production this year at 27.27 billion lbs., which would be 397 million lbs. more than last year.
    WASDE projected the annual average fed steer price at $118.50/cwt., compared to $117.12 last year. Prices were forecast at $121 in the second quarter, $113 in the third quarter and $114 in the fourth quarter.
Looking ahead
    On a positive note, some signs suggest feedlot marketing is current.
    “Feedlots marketed ag-gressively and did not place as strongly as expected during April,” explained Ste-phen Koontz, agricultural economist at Colorado State University, referring to the May Cattle on Feed (COF) report.
    In a mid-May issue of In the Cattle Markets, Koontz adds, “Cattle on feed over 90 days declined very slightly and cattle on feed over 120 days are down sharply—over 200,000 head. Cattle on feed over 120 days start to decline seasonally during May; this was seen, but more sharply than typical.”
    In fact, if not for surging grain prices, the COF would likely have provided market support.
    There were 1.84 million head placed in feedlots (capacity of 1,000 head or more) in April, which was 8.67% more (+147,000 head) year over year. Most analyst expectations ahead of the report were for placements to be up 13% or so.
    The 1.93 million head marketed in April were 6.93% more (+125,000 head) than the previous year, which was slightly more than pre-report projections.
    Likewise, cattle on feed May 1 were slightly less than expected with 11.82 million head, which was 2.25% more (+260,000 head) than a year earlier. Still, that’s the most inventory for the date since the data series began in 1996, according to USDA’s Agricultural Marketing Service.
    Grading percentages also point to market currentness, as the positive basis encouraged many feedlots to be willing sellers at lower cash prices.
    Carcass quality was higher year over year in May with an average of 78.36% grading Choice and Prime, which was 1.13% more than the previous year. However, the average was 1.86% less month to month—compared to a decline of 0.84% the previous year.
Lingering trade headwinds
    Trade issues and worries about slowing domestic and global economic growth continue to cast a shadow over both equity and commodity markets.
    “Per capita world GDP growth is expected to decrease from 2.1% in 2018 to 1.8% in 2019,” say analysts with USDA’s Econo-mic Research Service (ERS), in the most recent Outlook for U.S. Agricul-tural Trade. “Global trade tensions and the fading impact of fiscal stimulus in the United States, and monetary stimulus elsewhere, will lead to slowed growth for the remainder of 2019.”
    Projected livestock, dairy and poultry exports were reduced $500 million to $29.9 billion.
    Beef exports are forecast $300 million lower to $7.4 billion on softer prices and volumes. However, ERS analysts point out Australia’s weather-related struggles (lower exportable supplies) provide the U.S. opportunity to expand Asian market share.
    Although the trade impasse continues between the U.S. and China, Canada and Mexico lifted retaliatory tariffs on U.S. imports after the U.S. lifted previously imposed tariffs on imports of steel and aluminum from those nations.
    Notwithstanding White House threats of imposing more tariffs on Mexican imports—stemming from mounting illegal immigration into the U.S. from that country—odds appeared more favorable for ratification of the U.S.-Mexico-Canada trade agreement.
    Japan also agreed to eliminate longstanding restrictions on U.S. beef exports, including the 30-month cattle age limit.
    The U.S. Meat Export Federation (USMEF) estimates removal of the cattle age restriction will increase exports to Japan 7% to 10%, or by $150 million to $200 million per year.

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