Breather

By Cassie Fish, http://cassandrafish.com

CME cattle futures are trading modestly red today, take a rest after a big two-day rally. Right on cue, the focus shifted to the negotiated fed cattle trade, which has commenced in earnest at mostly $124, but a range from $123 to $125, mostly to one major packer. North, cattle are trading at $200 dressed. All in all, it’s a mostly steady trade. One major packer remains absent from activity while others have participated this week. It is far from a brisk pace, but at least cattle are moving.

Tis the season for cooler cleaning and at least two big plants have plans to be dark a Friday and Saturday in the coming few weeks. The limited fed cattle slaughter pace continues to frustrate cattle feeders and end users alike, as both would like to see beef processing plants running harder. This remains the single most important fundamental factor limiting the upside in fed cattle prices and keeping wholesale beef prices record high.

Speaking of beef prices, the government released retail prices from August and beef posted the second highest retail price in history, behind an extreme reached during the heart of the pandemic. What’s also true is that retail prices will rise in September. So far, prices have been inelastic. Remember, 2021 U.S. beef production will be record large by the time we reach December 31, thanks to the second heaviest carcass weights in history. Beef export demand continues to be a solid driver too.

These facts continue to frustrate the cattle feeder who can not access the huge value in the beef marketing chain, as the packing industry captures most of it week after week. The shift in the cattle feeding business model to a corporate rate of return, insists on high occupancy at all times, which continues to support feeder cattle prices. So the cow/calf producer is not being penalized by the cattle feeding segment, as feeder cattle prices continue to be well supported. Below is a weekly feeder cattle index chart. Spot feeder cattle futures have traded to the highest level since 2016 this summer.

Cash fed cattle prices on the other hand, have not exceeded 2019 levels. Ever since the problems at the Finney County plant in August 2019, cash fed cattle prices have struggled. Tighter numbers over the late fall, winter, and early spring ought to make a difference.

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