Colorado State University’s Stephen R. Koontz described the markets
Recent Market News From the Department of Agricultural and Resource Economics at Colorado State University, Stephen R. Provided by Koontz. (Photo by Katrina McCarthy on Unsplash)
Lakewood, Colo. Labor Day is behind us, and the fall of the calves is in front. What is the sign for the rest of the months of September and October? Historically, October is a difficult month for feed cattle markets, as the summer demand season subsides and feed cattle weights reach somewhat seasonal highs. Similarly, calves also have a tendency to be plentiful. This year is likely not to follow the trend. Boxed beef costs well above $300/cwt and Choice-Select spread is $25/cwt. These are strong prices compared to the current and last year and are strong seasonally as well. But October is upon us again. The slaughter load is increasing and will continue to be so till November. We’ll have to see if the seasonal climb continues with this summer’s heat. Weekly slaughter numbers were fairly good – except on Saturdays – with some apparent periodic reductions in numbers. Packer margins were very low at certain times of the year and the expected response can only be lower kill volumes. These were seen. But last month’s USDA Cattle on Feed Report came as somewhat of a surprise with regard to the tightness of the feed numbers. The calculated inventory of cattle fed for more than 120 and more than 150 days also increased in August with milder deaths, but remained below recent years.
The essence of the immediate point of view is where will the price of canned beef go? And how much thrust will the feedlot exert? Presently, the feedlot cash return is excellent and has been so for the last four months. Either quote is going to give excellent results. (And those hedges will be hard to explain to inexperienced investors.) Will the Packers return to a more disciplined buy this fall? My bet is yes. And I’m sorry to get it wrong, but April Live Cattle is definitely approaching $2 a pound. I’m going to go over the technical picture but this certainly could be a strong number for resistance. Again, depending on the box value.
Regardless of other fundamentals, the price of replacement female beef cattle has moved significantly higher over the past month. These transactions are 50% higher than last year for the same sectors. There is not much trade now and it is an adverse seasonal trade. But there is some evidence of herd formation, even though the total number of animals is modest.
What does the technical picture say? Live cattle seem to have continued to move up $16-$18/cwt between now and last March. Live cattle contracts were not much higher from July highs. Nearby live cattle contracts show a slight head and shoulders topping pattern. But still, there are no clear signs of a sale. More deferred contracts display more textbook trends. The market is at resistance, but has not broken all but the most extreme trend lines. The technical picture of feeder cattle will make it difficult for us teachers to teach about risk management for years to come. Strong uptrends have existed, which have been tested and broken from time to time, but there has been no subsequent decline. No confirmation of topping of feeder cattle markets. Watch your trend lines and resistance. Will have to give.
These cattle markets clearly have upward momentum but also show signs of slowing this calendar year – and even less next year. And it will be interesting to watch the replacement cattle market in the coming spring.
– Stephen R. Koontz, Department of Agricultural and Resource Economics, Colorado State University
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