Apparently, what Friday’s bearish monthly Cattle on Feed report took away from trader optimism, extreme cold temperatures and winter weather helped give back on Tuesday in the form of expectations for lower cattle performance. Perhaps traders also recognized the potential for high placements to moderate beef production down the road (see below). A bounce in wholesale beef values, helped, too.
Choice boxed beef cutout value was $3.04 higher on Tuesday afternoon at $202.60/cwt. Select was $2.95 higher at $190.83.
Live Cattle futures closed an average of $2 higher ($1.20 to $2.90 higher).
Feeder Cattle futures closed an average of $2.65 higher.
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Major U.S. financial indices closed little changed in light trade on Monday. Energy stocks offered some lift, while Apple stocks pulled back on reports that the firm will announce fewer than expected X phones sales in Asia.
The Dow Jones Industrial Average closed 7 points lower. The S&P 500 closed 2 points lower. The NASDAQ closed 23 points lower.
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There’s no doubt traders on Friday saw bearishness in the monthly Cattle on Feed report—issued during trading hours—with both Live Cattle and Feeder Cattle moving lower. Given the bounce higher on Tuesday, though, bearishness appears to gave been tempered by advantages to the significant increase in lightweight placements. The increase in lightweight placements is the product of continued aggressive feedlot marketing, as well as dry conditions in the Southern Plains upending plans for wheat pasture.
“The implications of this report (Cattle on Feed) may not be as bearish as it seems,” explains Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. Specifically, he points to the high percentage of lightweight placements—20.3% more weighing less than 700 lbs. year over year.
“These lightweight placements will be marketed later and are not bunched up with earlier placements,” Peel explains. “Lightweight placements tend to get spread out more over time and winter weather is likely to further spread cattle out over the next few months. Lightweight placements may help moderate beef production as well. Feedlot data shows that lighter placement weights result in lighter finished weights, and thus lighter carcass weights. It’s not a one-for-one relationship but, on average, feeders placed 200 lbs. lighter would be expected to finish about 100 lbs. lighter. Winter weather could further impact finished weights on feedlot cattle and especially these lightweight feeders.”
Moreover, Peel says, “Recent large placements means that feedlots are pulling cattle forward by placing feeders at a faster rate than the growth in feeder supply.”