Cattle futures plunged fast yesterday—led by Feeder Cattle—for no apparent reason or logic. Arguably, Cattle futures were in oversold territory. Yes, there are larger beef supplies on the horizon, and there’s bound to be positioning ahead of Friday’s Cattle on Feed report. On the other hand, cash fed cattle prices last week were the highest since June, front-end supplies remain snug by all accounts, and wholesale beef value are on the rise with plenty of seasonal upside. So, the best bet for the unforeseeable free-fall is computerized algorithmic trading that tripped some unknown trigger and sent the dominos tumbling.
After 65¢ lower in the nearly spent spot month, Live Cattle futures closed an average of $1.43 lower, (95¢ lower to $1.85 lower).
Feeder Cattle futures closed an average of $2.65 lower ($2.00 to $3.15 lower).
The sudden decline was apparently enough to entice some feedlots to pull the trigger. There were a few early trades in the Southern and Northern Plains at $128/cwt. on slow trade and light to moderate demand. That’s $2 shy of last week’s trade, but there were too few transactions to trend.
That helps explain why there were no takers for the handful of cattle (218 head) offered in the weekly Fed Cattle Exchange auction. One lot of heifers was passed out at $126.25.
Wholesale beef values continued to gain momentum. Choice boxed beef cutout value was $1.45 higher on Wednesday afternoon at $217.37/cwt. Select was $1.52 higher at $211.92.
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Equity markets extended losses for the second consecutive day with major U.S. financial indices closing mostly solidly lower on Wednesday. Softness was widely attributed to the benchmark 10-year Treasury yield reaching its highest level in four years, as well as minutes from the last Federal Reserve meeting that suggest gradual, continued increases in interest rates.
The Dow Jones Industrial Average closed 166 points lower. The S&P 500 closed 14 point lower. The NASDAQ closed 16 points lower.
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Heading into Friday’s monthly Cattle on Feed report, Allendale, Inc. sees January placements at 1.97 million head, which would be 0.4% less than last year.
“There have been 10 months in a row of higher placements (year over year) as cow-calf producers end expansion plans,” say Allendale analysts. “This report may stop that 10-month streak. Finished cattle from January through March are estimated with a $123 breakeven, according to Kansas State University. This increases to $127 and $130 for April and May. From June on out, $120-$124 breakevens are noted.”
Allendale anticipates January marketing at 1.85 million, which would be 5.5% more than a year earlier and the most for the month in five years. “There was one more weekday in January 2018 than January 2017. This artificially increased the actual number,” say Allendale analysts.
Add it up and Allendale sees the total cattle on feed inventory Feb. 1 at 11.51 million head (+8.5%), the largest total for the month in six years.