Livestock Call by John Otte

Cash cattle bid-ask spread around $4 to $6, feedlots see higher cutouts as reason to ask more, hog futures bounce on lower cold storage stocks

Published on: Apr 24, 2014

April 24, 2014

Opens
Fed cattle
, lower
Feeder cattle, steady
Lean hogs, steady to lower

Overnight stock futures trade points higher on Wall Street.

Most livestock futures traded near steady overnight.

Cash fed cattle. USDA reported negotiated cash trade was at a standstill on Wednesday.

Combined show lists in Nebraska, Colorado, Kansas and Texas are up 13,000 from last week and 26,000 more than two weeks ago. Cattle buyers see larger show lists and expectations of further hikes in supplies as reasons not to bid up for cattle.

A dressed bid at $232 surfaced in Nebraska Wednesday morning. That's $4 to $6 lower than last week's sales. Owners passed.

Southern Plains owners are seeking steady to slightly higher prices than last week's sales, which were mostly around $147 live. Last week's Northern Plains live sales ran $150 to $151.50 and $240 dressed.

Wednesday's midday choice cutout was up $6.00 so far this week with select up $5.87. Cattle owners view advancing cutouts as reason why packers ought to pay at least last week's prices.

However, cutouts are roughly $10 off their recent highs. That contributes to recent futures weakness. 

The almost $9 discount from April to June live cattle futures should catch most of the expected seasonal cash decline into summer. The longer the $147 to $150 live basis cash cattle hang around, the higher the summer seasonal low should be because feed yards will attempt to pull cattle ahead and sell them before prices slip. Lots of folk think summer cattle in the $132 to $135 area are well priced.

Wednesday's morning choice boxed beef cutout was up $1.14 at $232.35, with select up $1.28 at $220.90. Afternoon cutouts were higher on moderate demand and light to moderate offerings. Choice was up $1.43 at $232.64, with select up $1.05 at $220.67 on 152 loads.

USDA estimated Wednesday's cattle slaughter at 115,000. Slaughter so far this week of 334,000 is down 14,000 from last week and down 34,000 from last year.

Cattle futures. Fed cattle reversed earlier losses to end Wednesday's session higher, tracing an extended climb in wholesale beef prices.

Cattle futures trimmed overnight losses following USDA's midday wholesale beef price report, which indicated choice-grade beef values rose $1.14 to $232.35. Select also rose, refueling expectations for demand to improve as rising temperatures foster outdoor grilling.

Expectations tomorrow's USDA Cattle on Feed Report will show a small uptick in feedlot inventories offset some gains in the cattle market. If USDA reports more cattle in yards on April 1 than year earlier, it would be the first year-over-year rise in nearly two years. This could produce a small bulge in summer marketings among overall tight beef supplies.

April fed cattle rose 22 cents to $143.92. Most-active June gained 12 cents to $135.10.

Feeder-cattle prices advanced to all-time record highs in April after steadily climbing through February and March. High prices provided more incentive for ranchers to sell lighter animals to feedlots. Recent cash feeder cattle prices show signs of topping.

May feeder cattle rose 27 cents to $178.62. August gained 17 cents to $182.45.

Thus far the CME has listed no tender notices to deliver on the soon-to-expire April fed cattle contract. With April futures $5 to$7 below cash trade, no deliveries are likely.

Cattle on feed pre-report guesses. Round figures, feedlot placements have been up about 600,000 since weaning time compared to a year ago. That suggests a potential bulge in summer fed cattle supply. Traders will get clues on how large that bulge might be in Friday's USDA Cattle on Feed Report. On average, analysts responding to a Wall Street Journal survey expect:

Cattle on feed April 1 to be 100.4% of April 1, 2013, in a range of 99.0% to 101.4%.

March placements to be 101.7% of last year, in a range of 95.3% to 104.3%.

March marketings to be 96.6% of last year, in a range of 95.0% to 100.5%.

Bottom line. Despite higher show lists, rising wholesale beef cutout values encourage feed lots to ask higher prices for cash cattle this week. Friday's Cattle on Feed Report should provide insight into cash fed cattle supplies and potential prices going into summer.

Livestock Call by John Otte

Cash hogs. Compared to Tuesday, on a plant by plant basis, Wednesday's weighted-average base prices were 35 cents lower to $2.52 higher, mostly 25 cents to $2.50 higher. The range was $105 to $124. The market was slow with light demand.

USDA's afternoon reports showed Wednesday's weighted-average:

* National base price up $1.24 at $115.67.

* Iowa-Minnesota up 48 cents $116.20.

* Western Corn Belt up $1.27 at $115.77.

* Eastern Corn Belt was not available.

Price changes are compared to USDA's afternoon report for Tuesday.

USDA estimated Wednesday's hog slaughter at 418,000. Slaughter so far this week of 1.102 million is down 102,000 from last week and down 152,000 from last year. Some plants were closed Monday this week in observance of Easter.

USDA tallied last week's Iowa-southern Minnesota barrows and gilts averaged 286.4 pounds, up from 285.7 pounds the previous week and up from 277.1 pounds a year ago.

USDA reported Wednesday's morning plant cutout up $1.27 at $118.46. Afternoon cutout values were:

FOB plant up 32 cents at $117.41.

FOB Omaha down 10 cents at $115.97.

Based on 460 total loads.

Slipping cutouts erode margins. Based on the new cutout Dow Jones estimated Wednesday's packer margin index at minus $4.71 per head vs. minus $3.10 Tuesday.

Tuesday's CME two-day lean hog index slipped for a fourteenth straight day, sliding 79 cents to $117.69. Its recent peaks are $130.35 on April 2, $81.05 on Jan.10, $82.91 on Dec. 4, $91.48 on Oct. 24, $98.25 on Sept. 20 and $102.56 on Aug. 15. Recent lows are $79.91 on Jan. 20, $79.23 on Dec. 23 and $80.83 on Nov. 25.

Hog futures. Hogs rallied Wednesday after Tuesday's USDA cold storage inventory report indicated a bigger drawdown of supplies last month than market watchers anticipated.

Pork stocks were down 11% from the same time in 2013, compared to an expected 3% drawdown by analysts.

On Wednesday, most-active June hogs settled the daily $3 limit higher to $126.25. July also settled limit up at $124.00.

Bottom line. Hog futures bounce on thoughts cold storage stocks drawdown signals expected tightening of supplies going into summer.

The opinions of John Otte are not necessarily those of FarmProgress.com, Farm Futures.com, or the Penton Farm Progress Group.