MONDAY’S Labor Day holiday is unlikely to provide a lift to the cash live cattle and wholesale beef markets. A positive cash basis versus the October live cattle futures means cattle feeders will keep selling cattle at steady or lower prices. The week before last saw a sharp decline in the 5-area steer prices. They averaged $185.54 per cwt live and $293.93 per cwt dressed. These were down $3.60 per cwt and $4.11 per cwt, respectively, from the prior week. Prices last week were forecast to be steady but drifted lower again. As CBW has previously reported, Labor Day historically sees sales of largely ground beef/hamburgers, hot dogs and chicken items rather than steaks. This looked likely again this year based on the meat and poultry items featured in retail fliers.
As the summer of 2024 nears an end, a seasonal cash low is likely developing, says Andrew Gottschalk, HedgersEdge.com. Fed cattle price support, basis western Kansas, at $180-$182 per cwt live should begin to attract buyers. A correction to this level would comprise a 5.0% correction from the July high. A price retreat to $180 per cwt would still allow the major uptrend to remain intact. A positive cash basis versus the October live cattle futures (of about $5 per cwt last Thursday) will continue to entice hedgers to sell market-ready cattle. This is especially so as the current basis versus the October futures is a rarity, he says.
Widest Premium Was In 2014
The widest average cash basis premium the October live cattle futures during September for western Kansas occurred in 2014 at plus 2.8%, says Gottschalk. In today’s dollars, this would equate to a $5.18 per cwt average cash premium versus October live cattle futures. The previous seven-year average basis is for cash to average 1% or $1.75 per cwt below the October futures during September. While a premium cash basis should occur this year, it may be less than the premium recorded in 2014, he says.
Fed beef processors last week appeared reluctant to increase their slaughter levels even though their operating margins turned positive the week before last and remained that way last week. The slaughter total the week before last was an estimated 608,000 head, with steer and heifer slaughter an estimated 493,000 head. Total slaughter through Thursday last week was an estimated 477,000, versus 484,000 head for four days the prior week. The cash live cattle trade was largely inactive the first two days of last week. Wednesday and Thursday saw a light trade at $183-184 per cwt live or at $290-292 per cwt dressed.
The main reason for the continued lighter than expected kills is that packers saw cutout values increase the week before last and want to try minimize their likely erosion after the holiday. But they fell sharply last week anyway. The comprehensive cutout (cuts, grinds and trim) the week before last averaged $317.63 per cwt, up $2.29 per cwt on the prior week and up 2.2% on the same week last year. Of note was that formula sales totaled 4025 loads, which was 57.5% of the total volume of 7005 loads (which coincidentally was the same volume as the prior week). Spot market sales accounted for 27.9% of the total, forward sales accounted for 14.7% and export sales accounted for 14.0%.
Last-minute product pricing for Labor Day featuring by the retailers was likely completed last Wednesday, says Gottschalk. Any improvement from Labor Day meat demand may stall temporarily during September unless total product movement begins to improve, he says. The spot market the first four days last week saw the Choice cutout decline $8.68 per cwt to $308.66 per cwt.
CATTLE SHOULD BE SOLD NOT HELD
LIVE cattle should be sold rather than held, which the basis between cash and futures prices is still signaling. Live cattle futures were under stress the week before last but managed to find a temporary bottom. The basis declined in recent weeks but remains stronger than normal for this time of year. So says Kevin Grier of Kevin Grier Marketing Analysis and Consulting, Kitchener, Ont. in his bi-weekly summary of the U.S. markets. Grier notes that fed cattle prices have declined for five weeks in a row and that calf and yearling prices followed the fed cattle and futures markets lower.
The Choice beef cutout has found a footing and has shown stability for the past four weeks, says Grier. (He wrote this before its collapse last week). Packer margins have improved but are still very poor. Consumer beef demand in the first six months of the year was generally good. Current weekly demand signals at the packer level are running greater than year ago levels, which were good levels, so demand is still a positive force. Fed slaughter levels were the same as year ago over the prior four weeks ending August 10. Fed cattle availability is likely to dip 1% in the next two weeks and be down 3% in October. The non-fed slaughter four-week average the week ending August 10 was 15% lower than last year, he says.
Steer carcass weights are trending higher, says Grier. They were 26 lbs over a year ago the week ended August 17. The Prime and Choice grading share of total grading is exceptionally large, while the Choice-Select price spread has dipped below average. There is an ample supply of Choice beef and a tighter supply of Select beef. This made the spread between Choice and Select narrower than usual this spring and summer. Based on purchase data from USDA, packers’ negotiated inventories are lean. Packers do not look to be well covered with contracts for September, he says.
NCBA URGES TRACEABILITY SUPPORT
THE National Cattlemen’s Beef Assn (NCBA) urges all in the U.S. cattle industry to support USDA’s new rule for animal disease traceability. The future of the industry hinges on its ability to swiftly respond to disease outbreaks, writes NCBA president Mark Eisele in an Op-Ed article. Yet some groups and individuals continue to fight the tools that could protect producers’ livelihoods. The most recent rule to come under fire is USDA’s animal disease traceability regulation. Imagine the chaos of an FMD outbreak, with markets shuttered and producers frantically searching for nearly illegible metal bright tags in the pouring rain. This is not a future the industry can afford. Some argue that these changes are unnecessary or burdensome. The reality is that clinging to outdated ideas, practices and technology puts the entire industry at risk, he writes.
USDA’s new rules call for the use of an electronic identification (EID) tag in breeding cattle 18 months of age and older being transported across state lines, writes Eisele. This class of cattle has required an ID tag for more than a decade. USDA is simply changing the technology from a metal bright tag to an updated EID tag. Producer privacy is paramount to this effort. NCBA has long advocated for tag data to be held by private, third-party companies rather than USDA, he writes. Cost is the other factor that NCBA has worked to alleviate. To help lower the costs of USDA’s rule, NCBA was able to secure $15M in funding for the purchase of EID tags to ensure that cattle producers are not saddled with added compliance costs, he writes.
Those whose only answer is “no” and those individuals and groups who would allow perfect to be the enemy of good have created a vacuum that the government is more than happy to fill, writes Eisele. It is past time for cattle producers to create an industry-led and industry-controlled solution to disease traceability. The current system and the ability to rapidly respond to a real disease outbreak is insufficient to protect each producer and their livelihoods. Now is the time for the cattle industry to lead not lag, he writes.
AG RECESSION: More than 50% of economists in the August Ag Economists’ Monthly Monitor say U.S. agriculture is already in a recession. This is their most pessimistic outlook of the year. If it weren’t for strong cattle prices, the ag economic picture would look even worse, they say.
WESTERN VALLEY REACHES JOB SETTLEMENT
WESTERN Valley Meat Co., a subsidiary of Central Valley Meat in Hanford, Calif., reaches a settlement with California Attorney Rob Bonta to maintain at least 700 plant jobs for at least 12 months. Western Valley in May announced the purchase of a Fresno beef plant from Cargill and planned to cut jobs by August. But it now has to wait at least a year. Bonta said Cargill and Central Valley Meat are two of the largest facilities in the San Joaquin Valley that slaughter cows. Both facilities purchase culled cattle from dairy producers. Central Valley currently runs a facility in Hanford.
For dairy farmers, the loss of the Fresno Cargill plant could have meant lower cattle prices and fewer options when selling their cattle, said Bonta. The Central Valley has fed California and the U.S. for decades and he is proud to have secured the continued operation of an important processing plant and protection of 700 jobs for at least 12 months. The Attorney General’s complaint said Cargill’s Fresno facility processed more than 300,000 cull cows annually. That is according to federal government data from USDA. Food is a national security issue, said Representative Jim Costa (D-Calif). By combining resources and expertise, this acquisition will not only support local dairy farmers but also meet market demand and keep the supply chain intact. He is grateful to local and state partners like Attorney General Bonta who worked to sustain good paying jobs in the San Joaquin Valley and find paths forward, he said.
The deal sparked competition concerns because market pressure means processors could suppress prices offered to dairy farmers, or the plant capacity could have disappeared altogether, said Bonta’s office. There was a risk that the Fresno plant could shut down, leading to fewer options to sell cattle. The deal with California and Western Valley Meat also said that workers remain employed and must have wages and benefits equal to or better than those offered before the merger.
U.S. BUYS MORE URUGUAYAN BEEF
THE U.S. is buying increasing amounts of beef from Uruguay as that country lessens its dependence on the Chinese market for its sales of meat and beef in particular. China, as with most other Latin American countries, in recent years has become Uruguay’s main trade partner, absorbing non-processed agricultural commodities and minerals while flooding local economies with Chinese industrial goods, says a report on the MercoPress South Atlantic News Agency website. Uruguay has been no exception and its top quality beef has been exposed to lower prices purchases because of a slowing Chinese economy and probably lower consumption. Faced with this situation, Uruguayan authorities and the private sector are promoting exports to other markets such as North America, says MercoPress.
The retraction of Chinese demand and prices seems to be similar to what is happening with Brazil, Australia and New Zealand, says MercoPress. The exception is Argentina, where most probably Beijing is interested in recovering the many billions of dollars it has invested in that country with previous governments. According to official data from Uruguay’s National Meat Institute, INAC, between January and August 10 of this year, Uruguay’s beef exports, which accounted for 81% of the total revenue from all meat exports, reached $1.223 billion, a 0.1% increase compared to the same period last year. In terms of volume, beef exports rose by 7.1%, reaching 300M metric tons. But the average price of Uruguayan beef fell by 11% compared to the same period in 2023, standing at $4079 per mt.
The big news this year is that China is no longer the leading revenue source for Uruguayan beef exporters, according to INAC. The Asian giant has been overtaken by the North American bloc, with the U.S. playing a major role (Canada and Mexico made marginal purchases of Uruguayan beef). As of August 10, the U.S., Canada and Mexico accounted for 32% of Uruguay’s total beef export revenue, totaling $390.8M for the sale of 97,375 mt, according to INAC. China trailed with a 30% share, totaling $371.5M from 115,324 mt. The European Union ranked third, with 16% of purchases worth $196.1M (27,736 mt). Israel and Mercosur took fourth and fifth place, generating $69.8M (15,077 mt) and $61.6M (9644 mt), respectively.
AUG 1 COF IS FOURTH LARGEST
THE August 1 Cattle on Feed (COF) total of 11.095M head was 0.3% higher than a year ago and was the fourth largest for the date. The total was 31,000 head higher than a year ago. Feedlot placements in July totaled 1.702M head, which was 5.8% higher than last year. But the total was the smallest July number since 2017. July marketings totaled 1.855M head, which was 7.7% higher than last year. But after taking into account two extra slaughter days in the month versus last year, they were more than 1% lower than in July last year. The marketing total was positive and was certainly welcomed, says Andrew Gottschalk, HedgersEdge.com.
Regarding placement weights, all categories except the heaviest had slightly higher placements than last year. The under 600 lb category saw 25,000 more cattle placed than last year (390,000 head). The 600-699 lb category saw 15,000 more cattle placed (265,000 head). The 700-799 lb category saw 15,000 more cattle placed (385,000 head). The 800-899 lb category saw 24,000 more cattle placed (387,000 head). The 900-999 lb category saw 15,000 more cattle placed (200,000 head) and the 1000 lbs plus category saw the same number of cattle placed (75,000 head).
Four states, Arizona (down 4%), California (down 1%), Colorado (down 2%) and Kansas (down 6%), had fewer cattle on feed than a year ago. Texas had the most cattle on feed with 2.740M head, with its total up 20,000 head from a year ago. Nebraska was second with 2.320M head, up 40,000 head, and Kansas was third with 2.210M head, down 140,000 head. Three states placed fewer cattle than a year ago. Arizona placed 24% fewer, Idaho 3% fewer and Minnesota 11% fewer. Texas placed 3% more cattle, Nebraska 6% more and Kansas 4% more. California, Iowa, Kansas, Minnesota and Washington marketed fewer cattle in July than last year. Texas marketed 17% more, Nebraska 1% more and Kansas 6% fewer.
Increased Marketings Are Essential
Going forward, it is essential to increase the pace of weekly marketings from recent levels, says Gottschalk. This is required to slow any additional buildup in front-end supplies. Carcass weight data confirms a front-end loaded supply. Cattle don’t gain weight just by breathing air. The economics of adding additional pounds persists. Front-end supplies project to remain above the prior year into the New Year, provided monthly harvest and marketing estimates are achieved, he says. The drop in numbers for this category of cattle from September-February is projected to decline by 206,000 head. This falls short of the previous five-year average decline of 267,000 head. As for good news, this category of cattle is projected to peak during November and trend lower into February. The decline this year from November through February is estimated at 396,000 head, versus 217,000 head last year and the previous five-year average decline of 260,000 head, he says.
The cattle inventory liquidation cycle year-to-date has mostly been the result of a sharp decline in cow slaughter, says Gottschalk. The harvest rate through mid-year would imply a reduction in the total cow harvest this year to 5.82M head, down 898,000 head from a year ago. This matches closely to the decline of 881,000 head in the past cycle period in 2014. What differs from 2014 is that the heifer harvest year-to-date is essentially unchanged from previous year levels. Contrast this to 2014 when the heifer harvest declined by 764,000 head from the prior year. Thus, the combined reduction in female harvest in 2014 totaled 1.645M head, he says.
The point is that approximately half the expected female cyclical harvest reduction may be occurring this year via a sharply decreased cow harvest level, says Gottschalk. Differing from this year, the reduction in the annual heifer harvest next year may comprise the bulk of the female harvest decline. This is unlike 2014 when cow and heifer harvest declined simultaneously by the aforementioned 1.645M head. A sharp reduction in combined cow and heifer harvest next year is unlikely. Next year’s reduction of the annual female harvest will likely consist of a significant decrease in the heifer harvest, accompanied by only a modest decrease in the cow harvest, he says.