July’s fed cattle market shows market strength
More product and stronger prices are a winning combination. Will that continue for August?
Nevil Speer, BEEF Magazine
Aug 08, 2019
July proved to be another good month for fed cattle prices. The market didn’t improve dramatically but it did gain some ground, all the while cutout values were drifting lower. That’s a positive turn, given we’re in the heart of a summer market and working through some big volume.
Looking back, June closed the month at $110 per cwt. But prices jumped to $111 at July’s outset. And then the fed market tacked on another $2-3 from there and largely traded $113-114 over the next four weeks. Meanwhile, the Choice cutout worked in the other direction and slipped from $219 around the Fourth of July to mostly $213 for the remainder of the month.
July’s fed steer average is about $1 ahead of last year’s market. What’s more, it comes on slightly bigger production in 2019 vs. 2018. Weekly beef tonnage in 2018 averaged 501 million pounds, but bumped up against 504 million pounds in 2019.
More product and stronger prices are a winning combination. July’s move higher looks even more favorable considering cattle feeders have consistently been sitting on big inventory.
The July 1 on-feed inventory totaled 11.485 million head, a new record for July in the series and the fourth consecutive month for a series record. Meanwhile, the 120-day inventory was pegged at 4.076 million head – also a July record and 11% ahead of the five-year average.
Feedyards are current
Cattle feeders, though, have been highly disciplined about marketing cattle and have remained relatively current. That’s partially due to higher feed prices – the feeding sector has been incentivized to market cattle on a timely basis. Hedging strategies have also played an important role in keeping up with front-end supply.
That brings us to the issue of the cutout. As noted last month, the cutout has bounced about $10 on either side of the $220 mark since last fall. Moreover, “If the cutout can reestablish support at $210-215, that’ll provide a target for a fed bottom/worst-case scenario from here.”
And that seemingly has indeed occurred. As noted above, the cutout established support around $213 during July; assuming that level stands firm, the market has built a base of support to work from going into late summer and early fall. And a better base versus last year (Figure 1).
Then there’s the futures market ...
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