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May 25th: Closing Futures Summary

Live cattle futures posted slight gains for the day of 15 to 32 1/2 cents. Cattle futures were supported by corrective buying amid ideas the downside has been overdone. Buyer interest was limited despite the big discount futures hold to the cash market, which signals attitudes remain decidedly bearish and the upside is limited. June live cattle futures ended nearly $7 below initial cash cattle trade at $125 in Texas. 

Corn futures ended the day 5 1/2 to 7 1/4 cents higher, finished near their highs of the day. The rocket-ride in soybean prices lifted corn futures today, as well. Adding to the general uplift for corn prices were rising crude oil prices and equities as well as a weaker U.S. dollar index. Ideas current rains and forecasts for more will shift some acres to soybeans added to price strength.

Soybean futures enjoyed short-covering overnight and prices surged with the start of the day trading session. The market posted gains ranging from 22 1/4 cents to 30 3/4 cents in 2016 contracts, with old-crop leading to the upside. This was a high-range close. Soybean meal futures climbed to another round of contract highs today, pulling soybean futures higher in the process. Technical buying as well as concerns about the quality of Argentina's soybean meal supplies have pushed the meal market sharply higher since early April. 

Wheat futures favored a firmer tone throughout the day. SRW futures ended around 1 to 2 cents higher and HRW futures were around 3 to 4 cents higher. HRS futures ended the day narrowly mixed after a choppy session. Wheat futures enjoyed spillover support from strength in the corn and soybean markets today. A weaker tone in the U.S. dollar index added short-covering incentive, with some additional support coming from concerns that heavy, late-season rains could do some damage to the winter wheat crop. 

Lean hog futures got off to a choppy start, but buying picked up as the day progressed and futures ended 10 to 50 cents higher for the day. Nearbys led gains. Fundamental analysis. A firmer tone in the cattle markets along with ideas the downside has been overdone lifted the lean hog market today. Outside markets were also generally price supportive. Also encouraging, pork movement was strong this morning on a slight price uptick, spurring optimism that some preparations for summer grilling season may be underway. 

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May 24th: Corn Crop Planted

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May 24th: USDA Cold Storage Report
  • Total red meat supplies in freezers were up slightly from the previous month but down 8 percent from last year. 
    • Total pounds of beef in freezers were down 3 percent from the previous month and down 7 percent from last year. 
    • Frozen pork supplies were up 4 percent from the previous month but down 9 percent from last year. 
    • Stocks of pork bellies were up 12 percent from last month and up 3 percent from last year.
  • Total frozen poultry supplies on April 30, 2016 were up 4 percent from the previous month and up 4 percent from a year ago. 
    • Total stocks of chicken were up 2 percent from the previous month and up 5 percent from last year. 
    • Total pounds of turkey in freezers were up 8 percent from last month and up 1 percent from April 30, 2015.
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May 24th: Analysis of USDA Cold Storage Report

USDA recently published the results of its monthly cold storage survey. We would view the results as generally supportive for beef prices, neutral to slightly nega?ve for pork and negative for chicken. Overall the report indicated that supplies of meat in cold storage remain plentiful and should help keep meat price inflation in check over the summer months. 

Beef: Total beef in cold storage at the end of April was reported at 452.3 million pounds, 3.2% lower than the previous month and now 6.6% lower than a year ago. It is quite impressive that the supply of beef in cold storage has been coming down even as slaughter numbers are notably higher than a year ago. Declines in beef imports are helping clean up the burdensome stocks that were created in late 2015. Cold storage inventories in the Middle Atlantic, South Atlantic and Pacific regions declined by 7.5 million pounds compared to the previous month, accounting for about 58% of the month/month decline. Since the beginning of the year boneless beef stocks in these regions are down some 20 million pounds (-9.8%). Beef imports will continue to run well behind year ago levels as evidenced by the reduction in shipments from Australia and New Zealand in April and May. Uruguayan beef imports also are down and, so far, we have no indication when Brazilian plants will be certified to ship beef into the US. Lower wholesale beef prices are helping keep the product flow moving. Producers in various production stages have become much more current. This is critical as meat supplies continue to expand. What is lagging at this point are more aggressive price adjustments at the retail level. But that is likely in the works as well and will be manifested in lower menu prices at steady declines in the price of beef in the retail meat case. Over the weekend we visited with a number of foodservice industry professionals at the NRA Show in Chicago and the mood was decidedly upbeat. Lower wholesale prices have helped bolster margins and provided more opportunities to expand product offerings.

Pork: Total pork in cold storage at the end of April was reported at 635.4 million pounds, 3.5% higher than the previous month but still some 9.4% lower than last year. The April inventory build was in line with what we normally see at this time of year so we view the pork stocks number as generally neutral for the market. The only negative were larger ham inventories, which increased at a faster pace than we normaly see at this time of year. Total ham inventories were 130.2 million pounds, 35% higher than the previous month but still 4.4% higher than last year. One thing to keep in mind, however, is that the timing of Easter will significantly impact March-April inventory shifts. Pork belly inventories jumped 11.6% from March levels and they are no up 3.1% from a year ago and 7.2% higher than the five year average. The increase in belly stocks appears to have been a precursor of the value erosion we observed in May and indicative that packers are finding demand for bellies a bit softer than they expected.

Chicken: Total chicken inventories were 806.1 million pounds, 5.3% higher than a year ago and 22.1% higher than the five year average. The inventory of breast meat in cold storage remains burdensome, with that portion of the inventory now pegged at 186.5 million pounds, 23.9% higher than a year ago and 44.2% higher than the five year average. Another negative for chicken are very heavy wing inventories. Total stocks were 79.1 million pounds, 76% higher than last year. Improvements in export demand have helped clean up leg quarter stocks, which are now down 39% from the burdensome levels last year. 

Daily Cattle Report

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May 24th: Monthly Livestock Slaughter Report

Record Low Veal and Lamb and Mutton Production for April

  • Commercial red meat production for the United States totaled 3.98 billion pounds in April, down 1 percent from the 4.02 billion pounds produced in April 2015.
  • Beef production, at 1.96 billion pounds, was 2 percent above the previous year. Cattle slaughter totaled 2.41 million head, up 1 percent from April 2015. The average live weight was up 10 pounds from the previous year, at 1,348 pounds.
  • Veal production totaled 6.0 million pounds, 10 percent below April a year ago. Calf slaughter totaled 34,800 head, down 2 percent from April 2015. The average live weight was down 25 pounds from last year, at 293 pounds.
  • Pork production totaled 2.00 billion pounds, down 3 percent from the previous year. Hog slaughter totaled 9.37 million head, down 3 percent from April 2015. The average live weight was up 1 pound from the previous year, at 285 pounds.
  • Lamb and mutton production, at 12.8 million pounds, was down 6 percent from April 2015. Sheep slaughter totaled 189,000 head, 5 percent below last year. The average live weight was 135 pounds, down 2 pounds from April a year ago.
January to April 2016 commercial red meat production was 16.2 billion pounds, up 2 percent from 2015.

Accumulated beef production was up 4 percent from last year, veal was down 6 percent, pork was up slightly from last year, and lamb and mutton production was down 1 percent. 

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May 20th: National Feeder & Stocker Cattle Summary
USDA-MO Dept of Ag Market News

RECEIPTS:  Auctions   Direct   Video/Internet  Total
This Week     188,700     44,800         1,200        234,700 
Last Week     159,000     50,100        40,100        249,200 
Last Year       168,000     29,900         6,800        204,700 

Compared to last week, steer and heifer calves early in the week sold steady to 5.00 higher, with instances up to 15.00 higher on sales that didn't get to take advantage the late last week's uptick in the market.  For the week, yearling steers and heifers traded mostly steady to 3.00 higher.  Several auctions across the North and South Plains have had steers weighing over 900 lbs in their runs the past few weeks due to the excellent weather from winter through spring.  Some of the highest prices seen this spring were perhaps this week as 2 loads of light 9 weight fancy steers in Valentine, NE sold on Thursday at 149.00-149.35.  Several strings of steers at Hub City Livestock in Aberdeen, SD and Mitchell Livestock in SD had a wtd avg on 1000-1150 lbs north of 130.00 and at Huss-Platte Valley Auction in Kearney, NE on Wednesday sold 4 loads of 1012 lbs steers at 138.50.  Replacement heifers are still in demand as a short load of 787 lb Red Angus heifers sold in West Plains, MO on Tuesday at 165.00. 

Fed cattle trade this week saw a 2.00 drop to sell at mostly 132.00 in the South Plains on moderate volume after last week's largest 5-Area cash trading week since early August 2012 and last week's estimated cattle harvest of 601,000 was the largest since w/e June 28, 2014.  Analysts are watching the steer dressed weight drop like a rock as the latest available weight is reported at 862 lbs; 42 lbs less than the first of the year and the largest drop in the same corresponding time frame since 2007. CME Feeder Cattle contracts settled the week around 1.50 higher than last Friday, while the Live Cattle contracts closed the week nearly 3.00 lower on the June contract and very uneven on the deferred contracts.  Cattle on Feed Report was released Friday afternoon with May 1st at 101 percent; Placements at 107 percent and Marketings at 101 percent with placements being above estimates and others coming in around estimates.  Auction volume this week included 61 percent weighing over 600 lbs and 41 percent heifers.

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May 20th: Cattle on Feed Report
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United States Cattle on Feed Up 1 Percent
  • Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.8 million head on May 1, 2016. The inventory was 1 percent above May 1, 2015.
  • Placements in feedlots during April totaled 1.66 million head, 7 percent above 2015. Net placements were 1.59 million head. During April, placements of cattle and calves weighing less than 600 pounds were 334,000 head, 600-699 poundswere 225,000 head, 700-799 pounds were 390,000 head, and 800 pounds and greater were 715,000 head.
  • Marketings of fed cattle during April totaled 1.66 million head, 1 percent above 2015.
  • Other disappearance totaled 76,000 head during April, 15 percent above 2015.
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Cattle on Feed Inventory in 1,000+ Capacity Feedlots as of May 1st
Millions of Head
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Number of Cattle Placed on Feed in 1,000+ Capacity Feedlots in April
Millions of Head
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Number of Cattle Marketed from 1,000+ Capacity Feedlots in April
Millions of Head
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Cattle on Feed by State as of May 1st
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May 20th: Shootin' the Bull Weekly Analysis
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In my opinion, things are really fixing to get interesting.  The weekly close only continuation chart has a wave count that suggests a new low close under $120.72 is warranted to complete the major bear market.  I was holding my breath Friday at the close to see if this would materialize and it did not.  The close for this week is $121.05.  So, it will be next week before the next opportunity presents itself for this.  So, what does this mean?  I would anticipate next week being lower.  If everything were in a perfect world, June fats would trade down to, and close somewhere south of, $117.00 by Friday of next week.  This would be anticipated to complete the entire wave sequence from the historical high.  Since there appears little decisiveness in direction, the current wave 4 on the weekly close only continuation chart could be prolonged for another week.  Alternative wave counts remain, but without a new low close on the weekly chart, I will keep this on the front burner for sometime to come.  On the flip side of this, if traders are able to close June under $120.72 on Friday of next week, then I will be anticipating a significant rally in the fats.  The cattle market appears to be in good shape and the pessimism at present is making for what appears to be an advantageous basis spread.  If we come into a lower market next week, I will be looking at buying strategies to own the August futures. 

The liquidation of cattle was immense from '09 through '11.  The beginnings of expansion were slow, but quickly gained speed with price advancement.  So much so that cows were being kept on life support just to drop a calf.  Today, that practice is no longer continuing.  While curtailing expansion may have begun a month or so ago, I would anticipate that from here forward, cow/calf operations will begin to slow expansion to a level that is more of an even keel.  Finding middle ground between the excessive liquidation and expansion is now anticipated.  This suggests that inventory increases are anticipated, but not at the same rate as previous.  Therefore, all in all, I would begin to anticipate feeder cattle prices to begin to contract as well.  Wide swings in production caused wide swings in price.  Contracting production is anticipated to contract prices.  At this time, I anticipate August feeders to continue with this contraction scheme. 

If so, it leads me to anticipate August trading up to approximately $155.00 before finding resistance.  This would be an approximate $22.00 rally from contract low.  At the $155.00 level, I will look to buy the at the money puts.  This exposes positions to the greatest amount of option premium and creates, at bear minimum, a floor from which to allow time to go by to see what materializes next.  It will be that next move that is the most important.  A continuation of the rally up towards $160.00 will lead me to sell a call at a strike that one can live with knowing no further gains can be realized on the sale of inventory.  A move lower from the $155.00 area and I would look to sell a put at somewhere under current contract low for the August.  Either of these would lower the initial premium for the put purchased and increase risk above or below the strikes chosen if initiated.  I recommend you view the webinar I produced on Thursday of this week for clarification of this.  Drop me an email and I will be glad to forward it to you.

On Wednesday of this week, the release of the Fed's minutes wreaked havoc on all commodities.  Name a sector and it was pummeled.  Grains were not granted any leniency.  However, as the Fed's rhetoric faded, grains began to shake off the comments of higher rates to start moving higher themselves.  I continue to like owning corn. While many have been courteous to explain how wrong I am, owning corn in the face of being excessively long of feeder cattle inventory is not a bad hedge in my opinion.  Not only that, the growing season is so young that anything could change the yield dramatically.  So, although corn has had little flair, the wave count suggests to anticipate December corn up to $4.27. 

Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @ www.shootinthebull.com

An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

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May 19th: USDA April Livestock Slaughter Report

Commercial red meat production for the United States totaled 3.98 billion pounds in April, down 1 percent from the 4.02 billion pounds produced in April 2015.

  • Beef production, at 1.96 billion pounds, was 2 percent above the previous year. Cattle slaughter totaled 2.41 million head, up 1 percent from April 2015. The average live weight was up 10 pounds from the previous year, at 1,348 pounds.
  • Veal production totaled 6.0 million pounds, 10 percent below April a year ago. Calf slaughter totaled 34,800 head, down
  • 2 percent from April 2015. The average live weight was down 25 pounds from last year, at 293 pounds.
  • Pork production totaled 2.00 billion pounds, down 3 percent from the previous year. Hog slaughter totaled 9.37 million head, down 3 percent from April 2015. The average live weight was up 1 pound from the previous year, at 285 pounds.
  • Lamb and mutton production, at 12.8 million pounds, was down 6 percent from April 2015. Sheep slaughter totaled 189,000 head, 5 percent below last year. The average live weight was 135 pounds, down 2 pounds from April a year ago.
January to April 2016 commercial red meat production was 16.2 billion pounds, up 2 percent from 2015.

Accumulated beef production was up 4 percent from last year, veal was down 6 percent, pork was up slightly from last year, and lamb and mutton production was down 1 percent. 

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 May 20th Seasonal Drought Outlook
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"Click Here"to view a Slide Show of Drought Monitor maps for the last 12 weeks
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May 18th: Beef Prices Lower in April

USDA’s Economic Research Service, using U.S. Consumer Price Index data for April, made the following calculations:

  • In April, Choice Beef at retail slipped about 12 cents per pound from the March level and was about 30 cents (5%) lower than a year earlier. 
  • All Fresh Beef was calculated at 3 cents per pound below a month ago and down 23 cents (4%) compared to 2015.
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May 17th: Meat Availability Continues to Expand

Production data for week ending May 14 shows that meat supply availability in the US continues to expand, with beef supply increases leading all other proteins.

Beef production for the week was estimated by USDA at 490.5 million pounds, 6.1 per cent larger than a year ago. For the last four weeks US beef production has averaged 25.8 million pounds/week higher than the previous year.

The last time we saw this kind of y/y increase in beef production was in early 2011. Keep in mind we are talking about the change in supply rather than total tonnage.

We have had a couple of 490 million pound production weeks recently. One of them was in mid September of last year and another was in mid December.

In both cases prices cratered as market found it difficult to absorb the large supply. This time, however, is a bit different because of Memorial Day demand and the general increase in meat consumption over the spring and early summer.

Pork production for the week was 461.2 million pounds, +1.8 per cent from a year ago. In the last four reported weeks pork production is up an average of 11 million pounds. Chicken production during this time also is up almost 20 million pounds and turkey production is up 4.6 million.

Combined beef, pork, chicken and turkey supplies are up an average 3.5 per cent in the last four weeks.

While there is a lot of consternation/speculation as to why futures and cash prices have been so volatile in recent months, the net increase in supply availability for all proteins remains the key bearish factor in the short term.

It is important to keep in mind that retail prices take time to adjust. This applies to the price of those ribeye steaks in the retail meat case or the price of a ribeye steak on the restaurant menu.

Over the last few years retail prices have increased sharply as US meat supplies either declined (as in the case of beef) or increased at a slower pace than normal population growth. Per capita beef supply availability in 2015 was down 10 per cent compared to what it was in 2010 and pork availability increased just 3 per cent.

Chicken were up 7 per cent, with all the growth happening last year. Over time retail prices adjusted to the tight supply environment. Retail beef prices by 2015 had increased 43 per cent compared to what they were in 2010. Pork retail prices were up 24 per cent and composite broiler retail price was up 12 per cent.

Now there is more red meat and poultry coming at us but it will take some time for the price transmission mechanism to catch up. And this is not because of some nefarious scheme on the part of retailers and foodservice operators to try and capture more margin. Rather, it simply reflects both logistic and operational challenges.

It takes time to come up with new menu items that better reflect the new pricing environment.

Example, over the years restaurants started pushing smaller size steaks from cheaper cuts or reduced the amount of meat on a sandwich. It takes time to now revert back.

Sure, retailers have the ability to run special promotions for certain times of the year - Memorial Day being one of those times. But once the promotion ends, prices revert back.

There is no guarantee for the retailer that keeping prices low will generate more sales volume. And if that does not happen then they will see a sharp drop in their overall revenue, making for uncomfortable performance review sessions for the meat buyers. Meat supplies are up, it just will take time for prices to catch up.

Daily Livestock Report

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May 16th: Recalcitrant Live Cattle Futures

Don't doubt for a second that fed cattle prices can not decline $12 cwt. during the course of 30 days. After all, they have advanced $10 cwt. in two short weeks. In spite of this risk to the market, it is surprising to see live cattle futures wanting badly to sell lower --- all while a cash market is surging higher. Markets have the ability to confound and they frequently do.

Underlying the lack of bullish sentiment in the live cattle futures contract is the fact that cattle supplies will be increasing and some of those year to year increases will historically be large. This provides a backdrop for a longer term bearish sentiment. There also is the fact that market bulls have been destroyed during the past twelve months. Trading the long side of cattle has not only been harrowing, but at times disastrous, both financially and emotionally.

The backdrop for the future may be negative but there are developing several important fundamental factors that have the potential to change the price landscape for cattle. The value of the dollar against most of the trading currencies involved in global beef trade has tumbled. This makes our beef imports more expensive and our exports cheaper to foreign beef buyers. This trend is confirmed by any superficial analysis showing sometimes large and material declines in beef from Australia and New Zealand as well as large increases of export beef destined for China and Japan.

The problem of carcass weights running 15-25# over prior year has almost run its' course and most analysts are forecasting the first week in a long period of time when carcass weights fall under prior year is at our door step. This possibility includes the chance that the carcass weight drop under prior year and this will require more daily slaughter not less to produce the same tonnage.

The quality grade is also declining with shorter days on feed. The last cattle on feed showed less cattle with 120 days on feed from prior year.

Also bolstering demand for beef are the generous margins currently present at the retail and processing levels. The harsh days of weak demand for beef, that characterized much of the winter months, has given way to improved demand created when two important sectors are now pulling beef through the pipeline rather than forcing packers to push beef out with lower prices. Consumers also are benefiting with store prices running 15-20% below last year. This past week marked the first week of a slaughter over 600,000 cattle in a year and a half.

Sustaining the current price level or posting additional advances in the cash markets will move the feeding industry into profits not seen in months that seem like years. The negativity in the futures market has had the additional benefit of putting a lid on replacement prices. Imagine what feeder cattle would cost if the deferred futures posted prices in the mid $130s -- where cash cattle are currently trading.

All this information does not guarantee traders a quick profit by jumping into the June live cattle futures. A discounted board is healthy for the industry and causes all producers to push cattle to market sooner which in turn holds down tonnage. The surge in box prices can turn on a dime and buying for the upcoming Memorial day holiday will be followed by the dog days of summer when beef demand often wanes. No matter what occurs in the coming weeks, the turnaround was welcome by a frustrated industry that has suffered through some volatile times.

Ag Center Cattle Report

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May 16th: Beef Bounces Back

Beef and cattle prices bounced back sharply in the past ten days.  Choice boxed beef ended last week at $218.56/cwt., up $14.82cwt. from the recent low on May 6.  Wholesale prices were generally higher last week for end meats (round and chuck) as well as middle meats (rib and loin).  Five-market fed cattle prices ended the week of May 13 at $132.64/cwt., up $14.61/cwt. from the May 4 low.  Auction prices for feeder cattle in Oklahoma were mostly up four to six percent in the past one to two weeks.

Price improvement has occurred despite continuing year over year increases in beef production.  For the week ending May 14, estimated beef production was up 6.1 percent year over year, contributing to a ten week average increase of 5.3 percent compared to the same period last year.   Cattle slaughter was estimated at 601 thousand head last week, up 5.8 percent year over year.  Average cattle slaughter has been 4.1 percent higher than last year for the last ten weeks.  Carcass weights are still up year over year but have decreased dramatically in recent weeks.  Average steer carcass weights were 868 pounds last week, down 26 pounds from early March and just 3 pounds heavier than the same period last year.

The recent rally in cattle and beef prices provides a new base for seasonal price movements through the summer and the remainder of the year.  Beef production is expected to increase seasonally through June but this will be tempered both by the recent acceleration in cattle marketings that is pulling cattle ahead of the seasonal peak combined with smaller year over year increases in carcass weights.   Beef production will likely trend higher in the second half of the year but carcass weights may partially offset increased cattle slaughter.  The recent seasonal decline in carcass weights may not be done yet and carcass weight may drop below year earlier levels for much of the second half of the year.  Steer carcass weights have declined 62 pounds from the October peak last fall.  This compares to an average fall to spring seasonal decrease of 41 pounds the past five years.  A typical seasonal increase in carcass weights this fall from current levels would leave steer carcass weights ten to 20 pounds below the record carcass weights from the fall of 2015.  This will depend on whether feedlots continue to market cattle aggressively and maintain a faster turnover rate.

Derrell S. Peel, Oklahoma State University Extension

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May 13th: Disconnect, Dismay, & Disgust

Yesterday cash cattle prices were dollars higher as packers competed aggressively to buy inventory to supply big kills. CME cattle futures reluctantly rallied for a while then turned tail and collapsed. Old habits die hard and for most in the cattle and beef industry, watching the futures trade, formerly yielded some sense of market fundamentals. Not anymore.

That was then. This is now. It really began in 2014. Futures never built in premium despite the lowest beef supply per capita in modern history on the immediate horizon. The shorts were never punished, despite the most bullish set of fundamentals since the 1970s. There was no blow off top. The end of the mighty bull of 2014 was a whimper not a bang.

Instead, the shorts were rewarded and the longs were punished. People forget there are short and long hedgers of cattle futures. Ridiculously wide basis, in favor of the short hedger is the new and seemingly permanent normal.

The ingrained bearish nature of cattle futures prevalent for a couple of years now may never change but the underlying fundamentals of the cattle market have changed significantly for the better in recent months. Many of the bearish fundamentals that dominated the market in 2015 have reversed, though you would never know it by the steeply discounted futures market. Acknowledging of course, the beef herd is expanding, but the discounts are excessive still looking at history.

Imports are down hard; the erosion of the export market has ceased and gained ground back. More importantly, cattle weights have dropped, now only 3 pounds above a year ago and choice grading is below a year ago- proof the industry has become more current in their marketings. Retail beef prices are down dramatically from year ago record high prices. Weekly kills have exceeded expectations for what is now the third consecutive month and cattle with June out-dates are being slaughtered. Just released this morning, consumer sentiment made a new high for the year. Perhaps a package of steaks will find its way into a few more grocery carts this month.

For some the improvements in the fundamentals are being brushed aside in favor of focusing solely on the “seasonal” of fed cattle prices, and the likelihood that the $133-135 live prices traded yesterday will succumb to prices back in the $120s or worse this summer. That’s the reason futures failed yesterday many are saying. Our memories are short. It was just two weeks ago, when Jun LC traded down to $114 and the fear that break fueled convinced some cattle feeders to sell cattle for $124 for delivery this and next week. As much as $11 below where prices were yesterday. Futures are relentless in their efforts to convince that each rally in the cash market might be the last.

Despite their volatility and lack of credibility, everyone continues to give cattle futures too much credit. Reading the futures market action is a habit for most of us. For some there is still hope that a more rational and logical market will return. Futures used to serve the hedger while risk takers made a market for the risk laid off. Now, trading is running the exchanges and perhaps the world.

This is the primary focus of the recently published book, “Other People’s Money” by John Kay. Kay says, “the finance sector needs to be reminded of its primary purpose: to manage other people’s money for the benefit of businesses and households. It is an aberration when some of the finest mathematical and scientific minds are tasked devising algorithms for the sole purpose of exploiting weakness of other algorithms for computerized trading.” Further, “a shift from agency to trading, from relationships to transactions is a central aspect of the financialisation of Western economies.”

Sound familiar?

So perhaps focusing on fundamentals first and futures trading second as a source of market direction is worth considering. After all, the fundamentals will ultimately drive this market to its destination, regardless of CME cattle futures gyrations.

Cassie Fish -- cassandrafish.com

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May 13th: Feedlots Need to Stay Current

The recent jump in fed cattle prices recently has erased much of the margin cushion that packers enjoyed in April and early May. Cutout values need to stay firm, or even gain a bit more to stimulate cash fed cattle bids. The increase in fed cattle slaughter in the last four weeks has been significant but not unprecedented. Indeed, it is the kind of activity one would expect at this time of year.  It is important to keep an eye on 2013 and 2014 levels. Feedlot inventories as of April 1 were 0.5% higher than a year ago, 0.6% higher than in 2013 and 0.3% lower than in 2013. But only focusing on total on feed supplies is insufficient. 

One needs to pay close attention to the supply of cattle that have been on feed for some time and thus will be available to come to market in the next 30-60 days. This is the supply that feedlots will draw upon when they offer cattle. As of April 1, the supply of +120 day cattle was estimated at 3.945 million head, 4% lower than in 2015 but 7.6% higher than in 2014. We estimate that as of May 1 that supply will be 3.749 million head, 4.9% less than last year but 8.4% higher than in 2014 and just 1.4% under 2013 levels. 

The point is that fed slaughter needs to maintain its current pace in order to keep feedlot supplies current as we go into the summer months. Last year packers were struggling with negative margins and slowed down slaughter in June, July and August. By September feedlots found themselves with a glut of extra heavy animals. Are feedlots now more current in their marketings? No doubt, one needs only look at the latest USDA steer weight number, which was pegged at by USDA on Thursday at 868 pounds, down 28 pounds from mid March and now just 3 pounds higher than last year. 

BUT, keep in mind that these numbers are for weights two weeks ago. We built a model that uses recent information to project where weights are for this week and it shows that steer weights have stopped going down. It is imperative for feedlots to maintain the current flow of cattle, after all this is the time to sell beef, in order to maintain currentness through the summer. If they do that, maybe there is hope to bring back the fall and winter premiums that the market normally enjoys.

CME Group

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May 12th: Canadian Weekly Cattle Report

Fed prices fall

  • The Canadian and American cash and futures cattle markets diverged sharply last week as Canadian prices plunged on weak local demand.
  • Only one of the two major Alberta packers was buying.
  • The Canfax weighted average steer price was $154.14 per hundedweight, down $11.39.
  • Heifer trade was light with prices comparable with steers but volumes were too slight to establish a market trend.
  • It was the third largest weekly steer price decline in the past 25 years, of which the first two were the result of BSE.
  • The Canadian cash market might have been playing catch up with the American market that fell sharply two weeks ago.
  • But the Chicago futures market rallied all last week on ideas that market-ready cattle supplies are tightening, carcass weighs are falling and that beef demand would pick up for the Memorial Day holiday, perhaps cutting into the ample U.S. beef supply.
  • In Canada, a variety of cattle were on offer from calves to mixed clean-up loads of yearlings.
  • Some of the cattle did not sell and were carried over into this week.
  • The weekly cash-to-futures basis weakened to +34 cents per cwt. A weakening basis is rare for this time of year, happening only one other time, in 2010, in the past 10 years.
  • Western Canadian fed slaughter for the week ending April 30 surged 11 percent to 32,962 head. For the year, slaughter is down seven percent.
  • Weekly fed cattle exports to April 23 fell 12 percent to 8,660 head. Exports for the year are up 33 percent.
  • Cattle feeders are suffering huge losses and won’t want to sell at these low prices.
  • Overall market-ready supplies in Canada should increase modestly, but packer-owned inventories are expected to tighten, perhaps giving feedlots some market leverage.
  • If the Chicago cattle futures and the exchange rate co-operate, Canadian fed prices could stabilize and perhaps see a modest rebound over the next few weeks.
Cows steady
  • D1, D2 cows ranged $93-$108 to average $101.08 per cwt., down 17 cents.
  • D3 cows ranged $84-$98 to average $90.50. Railgrade cows ranged $192-$197.
  • Cow slaughter volumes totaled 6,129 head, down five percent compared to the previous week but 64 percent larger than the same time last year.
  • The non-fed market often closes in on annual highs at this time of year, but that has not been the case this year.
  • Producers are wondering if there will there be a spring rally. For the time being it is doubtful that January highs will be revisited.
  • More fed cattle are in the Canadian pipeline and the sharp drop in fed prices does not bode well for the non-fed market.
  • The best strategy in this market is to keep inventories current.
Feeders down
  • Feeder prices fell with calves and light stockers seeing the largest declines.
  • Feedlots have historically large feeding losses.
  • Many grass operators expect to run fewer animals this year, perhaps 25 to 50 percent down, due to the moisture concerns and narrow margins.
  • There has been a big increase in light cattle placements in Alberta-Saskatchewan feedlots.
  • For the first quarter of 2016, placements of calves and stockers lighter than 700 pounds are up 28 percent compared to last year.
  • Volumes at auction have been light.
  • A few groups of heifers intended for breeding have been sold on the feeder cattle market.
  • Demand is generally limited as many producers have finalized their breeding inventory and don’t want to get overstocked.
  • The market might stabilize this week thanks to stronger Chicago cattle futures and a weaker Canadian dollar.
  • Bred cows ranged $1,250 to $2,200 and cow-calf pairs ranged $1,800-$3,000.
Beef falls
  • U.S. boxed beef prices closed at new lows for the year.
  • Choice cutout fell to US$204.42, down $8.08 per cwt. and Select was $195.50, down $7.59.
  • Since mid-April, the cutout has dropped more than $20 per cwt. and is now $50-$53 below year-ago levels.
  • U.S. carcass weights are coming down with the average last week at 820 lb., down five lb. from the week before and down 13 lb. from last month.
  • This should help to improve prices in coming weeks.
  • In Canada, for the week ending April 30, AAA was C$270.50 per cwt., down about $11 on the week and AA cutouts were $260.15, down $13.08.
  • The AAA-Choice spread improved to +6 cents per cwt. from -$1.38 due to the sharp decline in the Choice cutout and the stronger Canadian dollar at the end of April.
This cattle market information is from the weekly report from CanFax, a division of the Canadian Cattlemen’s Association.
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May 12th: Chicken, Beef, or Pork: Which Segment Drove Tyson Foods’ Revenue?

Tyson Foods (TSN) operates through four main segments: Chicken, Beef, Pork, and Prepared Foods. The Beef and Chicken segments contributed the most to total net sales in fiscal 2Q16, and the Chicken segment contributed the most to total operating profit.

Chicken, Beef, and Pork segments
In the Chicken segment, sales improved in 2Q16. The segment reported $2,737 million in net sales. The average sales price also fell as feed ingredient costs dropped. This was partially offset by mix changes. The operating profit for this segment increased to $347 million due to better operational execution and lower feed ingredient costs. Feed costs fell $80 million in fiscal 2Q16.

In the Beef segment, the livestock costs fell because of higher domestic availability of fed cattle supplies. This resulted in a drop in average sales price. The segment reported net sales of $3,639 million in fiscal 2Q16. An increase in live cattle processed as a result of higher fed cattle supplies drove the increase in sales volume. Favorable market conditions related to an increase in cattle supply, which drove down fed cattle costs, resulted in the rise in operating profit to $46 million.

In the Pork segment, better demand for pork products resulted in a sales volume increase in 2Q16. Sales volume rose 3.1% in fiscal 2Q16 as a result of improved demand for pork products. This result excludes the divestiture effect. Net sales came in at $1,190 million. The average sales price fell because of lower livestock costs and an increase in live hog supplies. Better plant utilization, accompanied by higher volumes, led to a better operating profit of $140 million.

Prepared Foods segment
The sales volume of the Prepared Foods segment was flat in fiscal 2Q16. A drop in input prices reduced the average sales price. However, this was partially offset by a change in product mix. Lower input costs of ~$220 million and mix changes of $95 million helped to improve operating income. This segment also benefited from $111 million in synergies. The amount that was realized in fiscal 2Q16 was $41 million.

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May 12th: Projected Cow-Calf Returns to Decline

Since the mid 1970’s, the Livestock Marketing Information Center (LMIC) has estimated annual cow-calf returns based on a typical commercial full-time operation.  Those estimates are for market analysis purposes and are not intended to represent an individual operation or resource base.  They are useful only in a broad context and of course LMIC makes those estimates because producer return is a key factor influencing national herd growth or contraction.  LMIC returns only include cash costs of production and pasture rent. That is, return to owner management, labor, etc., are not included.

Over the last few months, cattle prices have been lower than expected; LMIC’s price forecasts for calves to be sold this fall have been reduced and are currently about 15% below 2015’s.  Year-over-year, the percentage decline in cull animal prices is even larger (dropping 25% to 30% from 2015’s).  Those lower prices to be received by cow-calf producers have caused 2016’s expected return over cash costs plus pasture rent to be revised lower, significantly.  Costs of production are projected to decline slightly compared to 2015’s due to lower feedstuff and fuel costs.  On a per cow basis the year-on-year drop in those items will be only about 3% or roughly $25.00 on a per cow basis.

LMIC estimated return peaked in calendar year 2014, surging to just over $530.00 per cow.  In 2015, the return was just over $300.00.  That was the second highest ever calculated by the LMIC, unadjusted for inflation.  With the recent adjustment down in LMIC’s forecast cattle prices, the 2016 return was lowered to $133.00 per cow.  If realized that will be the lowest since 2013.  While that is still a positive return over cash costs of production (including pasture rent), for some relatively high-cost operations that return may not cover all economic costs.  A further decline is forecast for 2017. The rapid drop in cow-calf returns in 2016 and 2017 is likely cause for producers to ratchet-back beef cowherd expansion plans compared to those of recent years.

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May 10th: 2017 U.S. Red Meat & Poultry Production Projected Higher
USDA: WASDE

Total U.S. red meat and poultry production in 2017 is projected to be above 2016. Beef production is forecast higher as larger 2015 and 2016 calf crops are expected to support year-over-year increases in cattle placements in late 2016 and early 2017. Marketings of fed cattle are forecast higher during 2017 while carcass weights are expected to increase with good forage conditions and lower feed costs. 

Pork production is expected to increase with larger hog supplies and heavier carcass weights. A modest expansion of farrowings is expected during the latter part of 2016 and early 2017, and continued growth in pigs per litter will support larger pig crops. 

Broiler production is forecast higher as the industry continues its current expansion path. Turkey production will continue to increase during 2017, but not at the rate of growth expected for 2016 when the sector is rebuilding following the outbreak of Highly Pathogenic Avian Influenza (HPAI) in 2015.

The total red meat and poultry production forecast for 2016 is lowered from last month as production forecasts for beef, and poultry are reduced. Pork is raised on the pace of slaughter, but beef production is reduced on lowered first-half carcass weights. Broiler production is adjusted to reflect first quarter data. Turkey production is reduced on a slower expected pace of recovery from HPAI. Egg production for 2016 is raised on higher expected first-half production.

Red meat and poultry exports are expected to increase in 2017 with expanding production and moderating prices; conversely, imports of beef are expected to decline. For 2016, the beef trade forecast is adjusted to reflect March trade data; no change is made to the forecast. The pork export forecast is adjusted to reflect March data; imports are reduced on the slow pace of trade to date. Broiler exports are forecast weaker on a slower expected pace of recovery in the first half of the year. Turkey exports are adjusted for March data.

For 2017, prices of fed cattle, hogs, broilers, and turkeys are all forecast below 2016 as supplies of meat are forecast higher. Egg prices are forecast higher on firm demand. As for 2016, the fed cattle price forecast is lowered from last month as prices have weakened and cattle supplies remain relatively large. The annual average hog price is unchanged from last month. Broiler and turkey prices are fo

For 2017, prices of fed cattle, hogs, broilers, and turkeys are all forecast below 2016 as supplies of meat are forecast higher. Egg prices are forecast higher on firm demand. As for 2016, the fed cattle price forecast is lowered from last month as prices have weakened and cattle supplies remain relatively large.  The annual average hog price is unchanged from last month. Broiler and turkey prices are forecast higher as prices remain strong with slower expected growth in production. 

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May 10th: Corn Prices Projected Lower by USDA

U.S. feed grain supplies for 2016/17 are projected up 4 percent from the 2015/16 record with increases in both beginning stocks and production. Corn production for 2016/17 is projected at 14.4 billion bushels, up 829 million from 2015/16 and 214 million higher than the previous record in 2014/15. A 5.6-million-acre increase in corn plantings more than offsets a small reduction in yield.

The U.S. corn yield is projected at 168.0 bushels per acre, down 0.4 bushels from 2015/16. Corn supplies for 2016/17 are projected at a record 16.3 billion bushels, up 886 million from 2015/16, which more than offsets projected declines for sorghum, barley, and oats.

U.S. corn use for 2016/17 is projected at a record 14.1 billion bushels, 4 percent higher than for 2015/16. Feed and residual use for 2016/17 is projected 300 million bushels higher with higher production, lower expected prices, and further expansion in animal numbers in 2016/17.

Corn used to produce ethanol is projected 50 million bushels higher than in 2015/16 with a reduction in sorghum use for ethanol and higher expected ethanol blending. Exports for 2016/17 are projected 175 million bushels higher than this month’s upwardly revised projection for 2015/16. More competitive prices and reduced supplies and competition from Brazil support gains in U.S. exports for 2016/17 and 2015/16. U.S. corn ending stocks for 2016/17 are projected at 2.2 billion bushels, up 350 million from the 2015/16 projection.

If realized, stocks would be the highest since the mid-1980s; however, the stocks-to-use ratio remains far lower than in those years when domestic support policies ballooned stocks to more than 50 percent of annual usage. The season-average 2016/17 farm price is projected at $3.05 to $3.65 per bushel, down 25 cents at the midpoint from this month’s slightly higher outlook for 2015/16.

Global coarse grain supplies for 2016/17 are projected at a record 1,543.2 million tons, up 41.0 million tons from 2015/16 with nearly half of the increase on larger U.S. beginning stocks and production. Global corn production for 2016/17 is projected at 1,011.1 million tons, up 42.2 million from 2015/16, and just short of the record 1,013.5 million in 2014/15.

In addition to the projected 21.1-million-ton U.S. increase, 2016/17 corn production is also higher for most of the world’s major producing countries with production rebounds for South Africa and EU, and higher area in Argentina, Russia, and Ukraine. Brazil corn production for 2016/17 is 1.0 million tons higher than this month’s lowered outlook for 2015/16 as area is expected to decline slightly, but yields rise from those now expected for the 2015/16 crop. Partly offsetting these increases for 2016/17 is a 6.6-million-ton reduction for China corn, as changes in support policies and lower domestic prices reduce incentives for corn planting.

Global corn consumption for 2016/17 is projected at a record 1,011.9 million tons, 43.0 million tons higher than in 2015/16. The largest increases are for China with consumption projected up 9.5 million tons and the United States with consumption projected up 9.2 million tons. Smaller increases are projected for EU, Argentina, Brazil, India, Russia, Vietnam, Mexico, and South Korea.

Global corn exports for 2016/17 are higher with increases for Argentina, EU, and Ukraine more than offsetting a reduction for Brazil. Corn imports for 2016/17 are lower with declines for South Africa, EU, Vietnam, and China partly offset by increases for Mexico, Turkey, Egypt, Iran, and South Korea. Much of the imbalance in global marketing year imports and exports is driven by the timing of Brazil and Argentina exports and the South Africa change from a net importer to a net exporter.

The 2016/17 local marketing years for these Southern Hemisphere exporting countries do not start until 2017, while the local marketing years for many major importers begin in October 2016. Corn shipments by Southern Hemisphere exporters between October 2015 and February 2016 were strong, appearing as 2014/15 exports, but accounted for as 2015/16 imports.

Reduced 2015/16 Brazil second-crop corn limits export prospects between October 2016 and February 2017.

As a result, global imports decline in 2016/17 at the same time that U.S. exports expand. Global 2016/17 corn ending stocks are projected at 207.0 million tons, down slightly from the 207.9 million for 2015/16. Lower stocks in China, EU, and Brazil more than offset the projected U.S. increase.

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All Cattle & Calves Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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Beef Cows Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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Replacement Heifers Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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January 29th: January 1 Cattle Inventory Up 3 Percent
USDA - National Agricultural Statistics Service (NASS)

All cattle and calves in the United States as of January 1, 2016 totaled 92.0 million head. This is 3 percent above the 89.1 million head on January 1, 2015.

  • All cows and heifers that have calved, at 39.6 million head, are 3 percent above the 38.6 million head on January 1, 2015.
  • Beef cows, at 30.3 million head, are up 4 percent from a year ago. Milk cows, at 9.32 million head, are up slightly from the previous year.
  • All heifers 500 pounds and over as of January 1, 2016 totaled 19.8 million head. This is 3 percent above the 19.3 million head on January 1, 2015. 
  • Beef replacement heifers, at 6.29 million head, are up 3 percent from a year ago. 
  • Milk replacement heifers, at 4.82 million head, are up 2 percent from the previous year. 
  • Other heifers, at 8.71 million head, are 3 percent above a year earlier.
  • All Calves under 500 pounds in the United States as of January 1, 2016 totaled 14.1 million head. This is 4 percent above the 13.5 million head on January 1, 2015. 
  • Steers weighing 500 pounds and over totaled 16.3 million head, up 4 percent from one year ago. 
  • Bulls weighing 500 pounds and over totaled 2.14 million head, up 2 percent from the previous year.
Calf Crop Up 2 Percent
  • The 2015 calf crop in the United States was estimated at 34.3 million head, up 2 percent from last year's calf crop. 
    • Calves born during the first half of 2015 were estimated at 24.8 million head. This is up 2% from the first half of 2014. 
    • The calves born during the second half of 2015 were estimated at 9.50 million head, 28% of the total 2015 calf crop.
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