Cattle futures lost over $10.00 in early October due to ample beef production and continued COVID-19 lockdown measures across the country, which diminished restaurant demand for beef.
In late October prices found a burst of fundamental and technical support, leading to a two-week price surge resulting in a $10.00 recovery in futures prices.
At the moment, December live cattle futures are near the $113.00 price point, and back near the price highs the futures market saw back in early August and late September. Cash trade is quiet so far on the week, but beef prices are on the rise. In fact, Choice beef has risen over $12/cwt. in one week alone, and traditionally futures prices have a seasonal window, suggesting prices should work higher into December.
Overall, U.S. beef production is large; slaughter numbers are current and weights are high. The recent average dressed steer weight for the week ending October 24 was 931 pounds, which is up from 906 pounds the year prior. Clearly heavy cattle are coming to market, which simply equates to larger beef production. In a recent USDA report, the USDA pegged third quarter beef production up 5 million pounds with fourth quarter expected to be up 80 million pounds. The supply is there.
Thankfully demand seems to be picking up. With hopes of a COVID-19 vaccine within reach, there are notions that restaurants will be able to re-open sooner than anticipated, and human gatherings of more than 10 people can occur. That vaccine notion lifted prices earlier this week.
Demand seems to be improving
Boxed beef values have improved over the past two weeks, which will likely firm cash cattle prices. Just weeks ago the industry was under fear that because of Covid, holiday parties would be tempered and demand for beef would come under fire.
I have maintained a different outlook. Because of Covid, many families may not have the normal large holiday gatherings with 20 to 30 people. Since you are not feeding 20 to 30 people, you will likely not buy that large Christmas ham that could feed a crowd. Instead, because of a smaller crowd, families may opt to choose a fancier cut of meat, such as steak. It wouldn’t surprise me to see demand for higher quality cuts of steak be served in high unexpected numbers over the holiday season.
Exports demand overall is impressive. Recent Cumulative export sales data for 2020 suggested that 858,395 tons of U.S. beef has been exported, up from 807,555 tons last year. This is also up from the five year average of 726,000.
Higher feed costs
Grain prices have increased. Most times, higher feed costs often eventually translate into higher cattle prices. Remember going forward into 2021 that the supply situation is perceived to change.
Looking back at the spring of 2020, due to Covid complications, fewer cows were bred, the market saw liquidation of cows, and some feel that the extreme drought still being endured in the southwest and western United States led to additional herd liquidation that may not have yet shown up in the market place.
The next Cattle on Feed Report on November 20th may shed further light on that.
Right now technical resistance with December futures is at the $114.00 price point. If December futures can find enough friendly fundamental news in the weeks ahead, and take out $114.00 resistance, the next upside target is near the $120.00 level. If $114.0 cannot be breached, then expect prices to trade in a sideway pattern where $104.00 is support and $114.00 stays as resistance.