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CME: Bearish News for Cattle Market

19 August 2019

US - Slaughter and feeder cattle prices have been under steep pressure this week, reports Steiner Consulting Group, DLR Division, Inc.

A combination of the fire at the Tyson plant near Holcomb, KS (see Monday 8/12/19 DLR), the latest WASDE report and the NASS crop acres report have been bearish news for the cattle market. As the market has been digesting all the news and information cattle prices have been taking the brunt of the impact.

The October slaughter cattle futures took a strong hit on Monday (8/12) closing limit down at $103.75/cwt. Tuesday and Wednesday posted even lower prices closing below $100/cwt on both days. As of this writing, the October slaughter futures closed at $98.53/cwt, yesterday. The last time October slaughter cattle futures prices were below $100/cwt was February 2017. It’s been since December 2010 for the 5 Market weighted average cash price to trade below $100/cwt.

The feeder cattle futures market prices are a similar story to slaughter cattle futures. On Monday (8/12) the September contract closed limit down at $133.95/cwt while Tuesday closed further down at $127.20/cwt. Wednesday did rebound closing at $132.83/cwt and Thursday closed at $133.30/cwt.

Cash prices for Medium and Large #1 700-800 pound feeder steers have been posting marginal gains from the low of $134.82/cwt the last week of June to $144.73/cwt the week of August 10th. Given recent market conditions the gains made are expected to moderate as the sector struggles with adjusting to the changing market conditions.

Comparing feeder and fed steer prices can help provide a gauge for potential market impacts and seasonal feeder cattle price directions. Current feeder cattle prices for 750-800 pound steers have been averaging about $35/cwt above slaughter cattle prices.

Even with the recent volatility in both markets, futures prices still indicate the approximate $35/cwt premium for feeder cattle is holding. This relationship is expected to continue in the short term, although it is still below seasonal levels which can exceed $50/cwt in late September.

Estimated daily cattle slaughter for the first four days of the week has totaled 463,000 head which is 13,000 head (2.7 percent) below last week. As the industry works to adjust cattle flows to those plants with excess capacity in the wake of the fire at a slaughter plant in Western Kansas, there will be a slowing of slaughter numbers. Some excess cattle supplies may be absorbed by increased Saturday slaughter levels.

The tighter cattle supplies have already led to higher wholesale (boxed beef) prices. At the start of the week (12 August) the daily choice beef cutout value was $218.62 and just four days later the price had risen 8 percent to $236.12. The counter-seasonal rise in wholesale beef prices helps bolster the already strong packer margins allowing them additional leverage in negotiating for slaughter cattle.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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