So much for Monday’s limit-down moves in Cattle futures, on the heels of more August feedlot placements than expected. Stability returned yesterday; today, prices were on a tear to the upside, except for spot contracts. There was likely short covering, but there seems little fundamental explanation for the surge. Perhaps funds are returning, or maybe enough folks are coming to rational conclusions about the higher placements noted in last week’s Cattle on Feed report (see below).
There were only 1,342 head offered, and no sales, in the weekly Fed Cattle Exchange auction. That might have plenty to do with the surge in futures prices and increasing expectations for at least steady cash fed cattle trade this week, if not higher.
After 30¢ higher in spot Oct, Live Cattle futures closed an average of $1.09 higher (67¢ to $1.42 higher).
Feeder Cattle futures closed an average of $2.48 higher ($1.82 to $2.87 higher).
Choice boxed beef cutout value was $1.48 lower Wednesday afternoon at $195.30/cwt. Select was $3.20 lower at $189.91. Both are still higher week to week.
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Major U.S. financial indices closed higher on Wednesday, with many analysts crediting much of the optimism to the tax reform plan announced yesterday.
The Dow Jones Industrial Average closed 56 points higher. The S&P 500 closed 10 points higher. The NASDAQ closed 73 points higher.
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“Before we all freak out about placements being above the average expectation, a little perspective is in order,” says David Anderson, Extension livestock economist at Texas A&M University, referring to last Friday’s Cattle on Feed report. “Total placements were 49,000 head above August 2016. That’s not a large number compared to total placements of 1.9 million. The 65,000 head increase in the heavier categories marketed over a likely two-month period is about 1,500 head per day, likely early in 2018, with maybe a few in late 2017. And remember, marketings exceeded placements in August for the first time since 2013, pulling down on-feed inventories. Feedlot marketings continued at their rapid pace, up 6%, which is preventing backed up supplies.”
Moreover, Anderson emphasizes that fundamentals remain strong.
“It’s worth remembering also that current prices reflect the current market,” Anderson explains, in the most recent In the Cattle Markets. “The Cattle on Feed report contains information about supplies that will affect prices some months down the road. If anything, there is some fundamental market information that would suggest $108 fed cattle might be underpriced.”