By : Stephen R. Koontz, Department of Agricultural and Resource Economics, Colorado State University
The week of May 9 is looking like the low point for Federally Inspected Commercial Fed Steer and Heifer slaughter numbers. That week saw 203,400 and 114,800 head. The most recent data, which are two weeks prior, is for May 16 and those numbers are 253,300 and 139,300 head. A steady improvement but below the peak this year, to date, from March 28 of 339,400 and 209,800 head. This is the question for the rest of the year. How close to the high volumes seen in early 2020 do slaughter numbers return? There are very large supplies and substantial inventory of long-fed cattle on feed. There has been a steady improvement in fed cattle and feeder cattle prices through last month and into the current. Continued improvement hinges on any further disruptions and steady elevating on slaughter numbers.
FI Commercial slaughter is a little better than 71% of the prior peak weekly volume and the low point was approximately 60% of that peak. And be careful with the Memorial Day week numbers going forward as there is one less day in that operations week. These slaughter numbers will determine when the cattle and beef markets return to more normal relationships. Packers running reduced kills do not have typical costs or demand needs.
Boxed beef composite values have returned from the stratosphere valuations above $400/cwt. (I’ve printed that chart in color to go with my Estimated Average Cow Calf Returns from 2014.) The current Choice and Select values are $341.15 and $316.83, both are off greater than $20/cwt. The Choice-Select spread is on it’s seasonal tear higher and doing so earlier. Recession threats have not moderated this demand indicator. Does this spread persist through the summer, like last year, or show seasonal weakness later? The 5-Market weighted average fed cattle price is above $115 from lows, to date this year, below $100/cwt. Feeder cattle prices for 7-8 weight animals are close to $135 from lows of $120, and 4-5 weight animals are close to $170 from lows of $162. Downstream disruptions appear persistent – as is expected with many local economies with limited opening – but the fed cattle and feeder cattle markets are much more familiar. It’s too soon to talk too much about markets returning to normal but the steady improvements associated with the packing industry facing fewer obstacles is a relief. But let’s not forget those steer and heifer slaughter weights are in a contra seasonal increase and are no less than 40 pounds per animal above last year. That’s a 4.8% increase in beef supplies due to carcass weights. And there are 4.8 million head of cattle on feed over 120 days based on the last report. Working through these supplies will easily require the rest of the summer.
What do the technicals say? The charts are showing steady improvement. The selloff in March and volatility leading into April ended with a hook reversal bottom on many cattle charts the day of April 6. Futures have rallied steadily since then with brief sprints ahead and periodic retracements or corrections. The technical charts look more than a bit like those of late last year. The market has rallied off a clean bottoming pattern, but the up move is a bit steep for a comfortable trend line. Nonetheless, draw that and look for sell signals. Perhaps a rally through June will provide the more typical early summer forward pricing opportunities.
|Week of||Week of||Week of|
|Data Source: USDA-AMS Market News||5/29/20||5/22/20||5/31/19|
|5-Area Fed Steer||all grades, live weight, $/cwt||$115.71||$117.06||$115.74|
|all grades, dressed weight, $/cwt||$183.83||$183.35||$186.08|
|Boxed Beef||Choice Price, 600-900 lb., $/cwt||$374.04||$405.40||$223.40|
|Choice-Select Spread, $/cwt||$25.45||$19.08||$14.15|
|700-800 lb. Feeder Steer||Montana 3-market, $/cwt||—||$138.74||$146.85|
|Nebraska 7-market, $/cwt||$137.74||$140.25||—|
|Oklahoma 8-market, $/cwt||$133.90||$130.19||$137.89|
|500-600 lb. Feeder Steer||Montana 3-market, $/cwt||—||$170.38||$172.77|
|Nebraska 7-market, $/cwt||$173.17||$166.93||—|
|Oklahoma 8-market, $/cwt||$156.31||$151.20||$157.05|
|Feed Grains||Corn, Omaha, NE, $/bu (Thursday)||$3.16||$3.03||$4.19|
|DDGS, Nebraska, $/ton||$134.50||$155.30||$126.50|