Market Activity & Analysis
The hide market concluded the week with fewer hides traded than over the past several weeks, and likely, under the hides generated. Most of the business was done for steady money as buyers showed no interest in chasing prices any higher, claiming sluggish shoe leather business couldn’t justify any increases. The cow market continued to outperform steers on decent demand from upholstery and fairly stable auto leather.
The week’s estimated cattle slaughter was 628,000—the second highest of the year, coming in under 630,265 on April 27. The previous week’s kill was 622,000 and the same week last year it was 605,596. Year-to-date slaughter at 14,294,262 is up 5.7% from 2016.
There were only four sales quoted today, including big packer BBS from $66 to $67 and HNS at $67.50.
HNS 60 MIN @ $67.50 OR 0.8775
BBS 62/64 @ $67.00 OR 0.8300
BBS 62/64 @ $66.00 OR 0.8175
BBS 62 MIN @ $63.00 OR 0.7925
June 3 (Week 21) Actual Cattle Slaughter by Classification
This USDA data is published every Thursday by the USDA Agricultural Marketing Service and reflects actual week-to-date cattle slaughter by classification for the week ending two weeks prior to document release day.
Livestock, Dairy, & Poultry Outlook
Third-quarter commercial beef production is expected to be 6.8 billion pounds, an increase of 5% from the same period last year. Beef production for 2017 is revised downward slightly at 26.2 billion pounds, but remains 4% above last year. Beef-trade forecasts for 2017 and 2018 are unchanged from last month. Prices for 1,100-1,300 pound Choice steers are expected to average $118-$124 per hundredweight (cwt) for the third quarter and $122-$126 per cwt for the year.
Dressed Weights Limit Beef Production on Higher Slaughter
Commercial beef production for April 2017 was fractionally below a year ago. However, with 1 less slaughter day in the month, meatpackers slaughtered 2%, or 54,000 head, more cattle than last year. According to the USDA/NASS Livestock Slaughter report released in May 2017, dressed weights for steers and heifers slaughtered under Federal inspection declined 25 and 22 pounds, respectively, year over year. The decrease in the average carcass weight more than offset the increase in the number of cattle slaughtered and kept production from increasing. The USDA report on beef production under Federal inspection for the week ending May 27 indicates that average dressed weights for steers and heifers continue to decline, falling another 9 and 13 pounds, respectively, from the week ending April 29. Weights are expected to move higher seasonally, but gains will likely be limited while there are incentives to market cattle as rapidly as possible.
Loads sold for delivery in 22 to 60 days averaged above year-earlier levels through mid-April. For meatpackers to meet their commitments as dressed weights decreased, they likely increased slaughter late in the month and into early May. According to the USDA weekly recap of the 5-Area weighted average fed steer price (LM_CT 150), the price experienced a spike in the first week of May to $144.60 per cwt. The demand by meatpackers likely contributed to that price surge. Relative price strength is likely to persist as demand for beef remains strong. However, as summer demand winds down, packer margins will likely decline and cattle prices will be pressured. Third-quarter fed prices are expected to decline seasonally, averaging $118-$124 per cwt, up from $113.26 in third-quarter 2016.
Retailer demand for featuring Choice beef at the start of the summer holidays widened the spread between wholesale prices for Choice and Select beef to historic levels at $30.38 per cwt in the week ending June 9. However, the spread typically reaches its seasonal peak around mid-June, as indicated in the chart below. As demand for grilling-type cuts diminishes and supplies of Choice beef increase seasonally, the spread is expected to decline through late summer.
Third-quarter production is forecast at 6.8 billion pounds, and USDA revised its 2017 commercial beef production down slightly to 26.2 billion pounds. For 2018, beef production was adjusted upward to 27.1 billion pounds on the expectation that more steers and heifers would be available for slaughter next year due to the higher forecast 2017 calf crop.
Feeder Cattle Supply Outside Feedlots Tightens
According to the May 2017 USDA/NASS Cattle on Feed report, year-over-year net placements increased by 12% to 1.78 million head during April, surpassing marketings that totaled 1.70 million head. The large placement number would imply proportionately greater steer and heifer marketings late in the third quarter or early in the fourth. The sharp increase in placements can be attributed to a few factors. First, producers reacted to the unexpected price increase for feeder calves by marketing their calves. Second, higher than normal wheat graze-out likely occurred in the Southern Plains as a result of very low wheat prices. Then those calves on wheat pastures were likely marketed in April, allowing for wheat producers to plant a summer crop. However, according to the ERS estimate of feeder cattle supplies outside feedlots, on April 1 there was only a 0.42% year-over-year increase in the supply of feeder cattle to be placed in feedlots. Large placements of calves during April would likely have further tightened the number of feeder calves available outside the feedlots.
Returns to feedlot operators improved during 2017 as bids for fed cattle moved higher through much of the year and feedlots were marketing calves bought at relatively low prices during the second half of 2016. With expectations of moderate feed prices, feedlots have shown a willingness to bid higher for feeder calves. Although feeder calf prices are expected to decline from their second-quarter peak, they will remain above year-earlier levels into early 2018.
Beef Exports Up, Imports Down Through April 2017
U.S. beef exports for April 2017 increased by 15% to 218 million pounds over the same month a year ago, which was supported by growth in four major destinations-Japan (+18%), South Korea (+8%), Hong Kong (+7%), and Canada (+4%). Increases in exports are likely fueled by higher domestic production and lower beef prices. The U.S. dollar has weakened slightly over the past 2 months relative to most of its trading partners, making it less expensive to buy U.S beef. Exports for the first 4 months of 2017 are also 20% higher than the same period last year, totaling 869 million pounds. Japan remained the number one export destination throughout this period.
In April 2017, U.S. beef imports totaled 250 million pounds, down 8% from the same month a year ago. U.S. beef imports from January through April 2017 totaled 950 million pounds, 11% lower than the same period last year. Increased imports from Canada and Mexico were outweighed by the heavier than expected decline in imports from Oceania through April 2017. Beef supplies remain tight in Australia as herd rebuilding appears to be continuing. As a result, the second-quarter 2017 import forecast was left unchanged, at 775 million pounds.
Cattle Imports Declined and Exports Increased Through April 2017
First-quarter 2017 cattle imports were 5% above the same period a year ago. April 2017 cattle imports were 153.9 thousand head, a 28% decline from the same month a year ago. Declines were seen in both Mexico (-20%) and Canada (-37%). These were the lowest April numbers since 2005. Lower imports during March and April have contributed to 4.5% lower cattle import numbers for the first 4 months of 2017 compared to the same period a year ago. Cattle imports so far this year have totaled 672 thousand head. At the same time, cattle exports increased to 44 thousand head for the first 4 months of 2017, 60% more than the same period a year ago. Higher shipments were made to both Canada and Mexico.
Link to complete USDA report: LIVESTOCK, DAIRY, & POULTRY OUTLOOK
The International Market
This week, some of the major packers shortened the offer list. A few raised the asking price by US$1-2 per hide, but not many Chinese buyers are willing to follow a firm-up market to pay more than the last price. Several buyers did purchase, although for only limited volume to test water.
Many tanners claim leather demand remains disappointing. Also, since they have been buying hides for a number of weeks, they are not in much hurry to keep booking hides, especially when some packers are asking for more money. Except for CBS, all packer steer hide price on the offering list are already above or well above $70 C&F. It seems that both sides this week are feeling comfortable to just let the week go without much going on.
**Visit our International Hide & Leather Bulletin to see market news for additional countries across globe.**