Progressive Ag Marketing Report with Lilja
The last few weeks have seen brutal heat through much of the country. Numerous press reports stated that the Kansas Livestock Association confirmed the deaths of at least 2,000 cattle in the Ulysses area. There have been hotter stretches of weather before but what made this one so devastating was the fact that this area had received beneficial rainfall ahead of time. The livestock yards were full of mud and with high humidity and heat indexes over 110 it was a recipe for disaster. The other big problem was that it wasn’t cooling off at night and the cattle could not compensate with the added stress to their bodies. A veterinarian also stated that it had been cooler than normal prior to this heat event and the cattle were still in the process of shedding their winter coats. Most of the cattle were well over 1,000 pounds and market ready. Based on current market prices a couple university economists estimated the loss between $3.7 to $4.0 million to that particular feedlot. The monthly cattle on feed report showed that as of May 1st, the USDA estimated 2.5 million head in Kansas feedlots. 2,000 head is .08% of that.
The livestock markets reacted accordingly to these reports with good gains on the week. Livestock futures had been in a downtrend through much of the spring as more cattle have been culled due to the dry conditions in the southern plains. This will lead to lower supplies in the future and higher prices. The market already knows this as deferred cattle contracts after December 2022 are trading in the $150.00 range while upfront June and August of 2022 contracts are trading in the $136.00 range. This was also indicative in feeder cattle contract spreads as the May contract went off the board at around a $14.00 discount to the August contract. For now, the cattle markets seem well supported by the hotter weather which is limiting weight gains and exports that are running at a record pace. The futures are also trading at a discount to cash. On the potential negative side, there are concerns about consumer disposable income which could cut into demand and the higher costs of feed rations continue to be a concern.
Crude oil futures finally took a breather with sharp losses in the June 17th session. Contracts were down as much as $10.00 per barrel following US economic data that was weaker than expected. There were also reports of more pandemic lockdowns in China and a realization that their economy will be slow to open. Weekly EIA data showed crude oil inventories -14.3% below the seasonal 5-year average, gasoline inventories -10.4% below the 5-year average and distillate inventories -22.5% below the 5-year average.
Implied US gasoline demand declined 1.2% last week to 9.09 million barrels per day or 139.40 billion gallons annualized. Demand was 1.8% below the 5-year average. Weekly Ethanol production was up 2% to 7.42 million barrels. This was 6% above the 5-year average. The recent 4-week production average would equate to 16.04 billion gallons annualized. Stocks declined 1.9% to 23.2 million barrels but are running 7.9% above the 5-year average.
Past 72-hour rainfall maps showed good weekend rains for the northern plains, southern Canadian prairies and Michigan. The 6 to 10 day forecast cooled considerably for the western cornbelt but still shows drier than normal for most of the cornbelt. The 8 to 14 day outlook shows higher chances of stress for the eastern cornbelt but more normal temperatures for a majority of the cornbelt. This put pressure on the grain complex to start the week.