LIVESTOCK MARKETS: Cattle markets show some technical improvementLIVESTOCK MARKETS: Cattle markets show some technical improvement
Fundamental analysis continues to suggest caution for beef production.
March 11, 2016
Cattle futures markets have provided some cautious optimism over the past several weeks, according to Colorado State University agricultural market expert Stephen Koontz. While volatility has persisted, he said lower beef prices are doing what they are supposed to do: increase product moment and consumption.
From a technical standpoint, Koontz said down-trends were established with the market turn last summer and into the fall, which hasn't happened for a number of years. Additionally, trends were in place for contracts in the live cattle and feeder cattle markets. “Those trends have been broken, so further sustained pushes downward are unlikely until the seasonally larger slaughter shows up later this summer.”
Prior to the down-trends being broken, Koontz said support was established in all of the spring and early summer contracts: They have been tested twice and have held both times, he added.
“Live cattle attract a lot of buying interest at $114-118 and feeder cattle at $145-150 (per hundredweight). While the down trends have been broken and support established, suggesting a firming up of market prices, resistance is also in place to limit (upward) moves,” Koontz said.
He added that live cattle attract a lot of selling interest at $128-130/cwt. and feeder cattle at $160-165/cwt. — “and that's where we are. I think we'll have reasons to trade higher in that range — with greening spring grass — and reasons to trade lower in that range — with demand issues and seasonal increases in supply come summer — and we'll trade that range until the underlying fundamentals change.”
As for the fundamental side, Koontz said in the short term, the cash market-only red ink associated with cattle feeding has begun to moderate.
“We have retreated from the record-large losses that are a hair's breadth from $500 per head to a modest loss of $270 per head," he said. "These figures are historically $50-100 per head and do not account for hedging. Feedlots have marketed their way through the most expensive feeder cattle, and this improved cash position will strengthen current feeder markets.”
Koontz said showlists also appear to be somewhat cleaned up, even though it's hard to tell from the data because the number of cattle on feed for more than 120 days displays historically large seasonal increases in February and March.
“The increases are there, but it is not as large as last year or the typical seasonal increase. Thus, there is continued news that the number of long-fed cattle are being whittled down,” he said.
However, Koontz added that marketings refuse to show strength.
“This cattle market wreck was managed in the fashion that can happen: with the industry placing its way out of excess market-ready cattle," he said. "Of course, that takes months, and winter weather has brought slaughter weights down sharply — all in time for spring.”
Koontz said he is not counting on a strong seasonal spring rally because the beef demand index, updated with fourth-quarter consumption data, showed its first softening in six years.
“Domestic consumers appear tired of record-high retail beef prices,” he said, adding that beef demand has shown strong growth over the past several years, especially in the fourth quarter of 2014 and first quarter of 2015. According to Koontz, this demand kick added strength to already high prices, reflecting tight supplies and herd building.
“Domestic demand will be worth watching through 2016, as will be the beef trade numbers,” he said.
Beef exports rebounded and imports were reduced in the fourth quarter, a situation Koontz said appears to be in response to lower wholesale beef prices. However, he added that there is no reason for the U.S. dollar to remain anything but strong.
“It appears to me that demand news has a higher chance of being bad news through 2016. Again: caution,” he warned.
While the cattle market wreck appears to be over, Koontz said unlike prior years, this does not suggest that higher prices are imminent.
“Slaughter weights remain heavy, and fed cattle marketings remain sluggish. Many market analysts have forecasted higher beef production commensurate with herd expansion through the remainder of the year. We have not seen that in terms of placement yet. The fundamentals continue to suggest caution, while technicals provide some limited optimism,” Koontz concluded.
Cattle markets were mixed this week but still made gains over the previous week. April live cattle future markets closed lower Monday at $135.95/cwt. but finished higher Tuesday at $137.125/cwt. After a lower finish on Wednesday, they recovered the losses to close higher Thursday at $138.30/cwt.
March feeder cattle futures closed lower Monday at $157.95/cwt. but climbed through Thursday’s higher close of $161.55/cwt.
For the beef cutouts this week, Choice closed at $225.24/cwt., up from $219.75/cwt. the week before, while Select closed slightly higher at $213.85/cwt.
Lean hog futures were higher this week. April contracts closed lower Monday and Tuesday but rose Wednesday and into Thursday’s close of $72.175/cwt.
Pork cutout values were mostly higher this week. The wholesale pork cutout finished higher Thursday at $76.65/cwt. Loins also closed higher at $78.10/cwt., while hams were slightly lower at $55.20/cwt. Bellies closed higher at $132.13/cwt.
Hogs delivered to the western Corn Belt were up this week, closing Thursday at $63.54/cwt.
In the poultry markets, the Georgia dock was lower Wednesday at $1.115/lb. Breast meat prices were lower at $1.345/lb., while leg quarters were unchanged at 32.5 cents/lb. Wings fell from $1.645/lb. to $1.635/lb.
According to USDA, egg prices have been steady, with a barely steady to usually steady undertone. Offerings have been moderate in most areas. Demand ranges from light to fairly good but mostly moderate to fairly good, USDA said. Supplies have been moderate to heavy.
Large eggs delivered to the Northeast were unchanged from last week at 96 cents to $1.00/doz. Prices in the Southeast and Midwest were also unchanged at $1.02-1.05/doz. and 92-95 cents/doz., respectively. Large eggs delivered to California were slightly higher at $1.94/doz.
USDA said the turkey markets were steady to firm. Offerings were light to moderate, with light to moderate demand. Prices for hens and toms were nearly unchanged at $1.10-1.18/lb. and $1.10-1.38/lb., respectively.
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