Happy Thanksgiving – No Prime Cuts Next Week
We will not publish Prime Cuts next week in observance of Thanksgiving. The report will return on Friday, December 1. We wish you a safe and blessed holiday!
Cattle futures recovered from last week’s multi-month lows as analysts say short-covering and lower cash prices prompted buying earlier in the week. December 2023 live cattle futures settled at $175.75 per hundredweight on Friday, a $1.58 climb from last week. But the feeder cattle rally ran out of steam, with November contracts dropping $1.23 per hundredweight to close at $228.50.
Five-area average cattle prices declined $5.11 to $177.00 per hundredweight for the week ending November 17.
Cash cattle prices continue to fall week-over-week. The CME Feeder Index dipped $2.64 from the previous Friday to $228.76 per hundredweight.
Unlike last month’s version, the latest USDA Cattle on Feed report did not offer any major surprises. As of November 1, USDA estimated 11.931 head of cattle on feedlots of greater than 1,000 head, up 1.7% from year-prior levels and just a bit short of expectations for a 1.8% increase. October placements came in at 103.8% of last year’s total, below the consensus call for 104.9%, while marketings landed at 97.5% compared to expectations for 97.9%. Initial reaction from analysts: neutral.
Wholesale beef prices have steadily declined over the past eight weeks on reports of tapering demand. Choice-grade cut-out prices slid $4.46 on the week to $295.69 per hundredweight. But purchases should ramp up between Thanksgiving and the New Year.
Export traffic remains soft. USDA reported current year net export sales at 8,891 metric tons, down 165% on the week and down 35% year-over-year. Through week 45, calendar year accumulated exports totaled 700,479 metric tons, down 13% from the same period a year ago.
In a clear sign that times remain challenging for packers and processors, Tyson reported a net loss of $450 million in the third quarter compared to a net profit of $538 million a year ago. In the beef segment, the company recorded a loss of $323 million compared with operating income of $375 million last year. CEO Donnie D. King said, “Coming in to fiscal 2023 we expected beef to be under pressure due to limited cattle supply. This trend held true as cattle costs appreciated at a faster rate than the wholesale price of boxed beef… We also expected to see signs of rebuilding of the herd to surface as cattle prices moved higher. However, this did not materialize.”
Commentary by Stephen Hardison: Will Seasonal Patterns Hold?
November feeder cattle expired Friday, bringing the nearby to the January 2024 contract. Interestingly, the November contract followed long-term seasonal patterns closely. Low beef cattle inventories fueled as meteoric rally in mid-September as prices reached all-time highs of $268.12 per hundredweight. Following this high, feeder cattle shed a bit over $40 per hundredweight, pausing and offering small rallies in line with seasonal tendencies. November feeder cattle prices tend to give up between 50% (30-year) and 70% (15-year) of their yearly high-to-low price range beginning August 1 through contract end. This year was no different, with the contract losing over 15% from its highs and giving up 62% of its $65.10 per hundredweight price range.
Seasonals do call for consideration when managing risk. With that in mind, does the seasonality of the January feeder cattle contract offer any expectations for the next two to three months? Looking at the 30-year pattern, January feeders tend to make their autumn low around November 12 followed by a small rise into November 28. The 15-year pattern mostly follows the 30-year pattern but makes a lower low on December 9 before making a sharp rally into the end of the year. Yet, prices tend to fall right into the contract end on January 26.
All in all, from this week until the end of the January contract, feeder cattle prices ebb and flow only picking up around 9% of the contract’s low-high range of $58 per hundredweight. So seasonally speaking, the possibility of capturing $5.22 per hundredweight to the upside exists throughout the rest of the January feeder cattle contract. Just note it may be a choppy ride as the rise from the December 9 trough to the December 31 peak is 51% of the low-high range, or $29 per hundredweight. Hence, look at rallies as opportunities to layer in downside risk management protection.
Deadline Approaching: Pasture, Range, & Forage
The deadline to purchase Pasture, Rangeland and Forage coverage for the 2024 calendar year is December 1. If you would like to learn more about mitigating your risk from lack of rainfall click here. Our final PRF newsletter for 2023 can be found here:
Futures and options on futures trading involve significant risk and are not suitable for every investor. Information contained herein is strictly the opinion of its author and not necessarily of Ever.Ag and is intended for informational purposes. Information is obtained from sources believed reliable but is in no way guaranteed. Opinions, market data and recommendations are subject to change at any time. Past results are not indicative of future results. Trey Freeman, Matt Wolf and Cole Adams maintain financial interests in the commodity contracts mentioned within this research report at the time it is published. Antonio Corona, Brad Lyle, Stephen Hardison, Michael Todd Rowen, Dan Johnson, and Colton Vondra do not maintain financial interest in the commodity contracts mentioned within this research report at the time it is published. This report is in the nature of a solicitation. Reproduction or redistribution is prohibited by law. Ever.Ag Insurance Services is an affiliate of Ever.Ag and is a licensed insurance agency in the following states: AZ, CA, CO, CT, FL, GA, ID, IL, IN, IA, KS, KY, LA, ME, MD, MA, MI, MN, MO, MT, NE, NV, NH, NM, NY, NC, ND, OK, OH, OR, PA, RI, SD, TN, TX, UT, VT, VA, WA, WV, WI, WY. This agency is an equal-opportunity employer.