WLI

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.”

The monthly Cattle on Feed report issued during trading hours on Friday pressured Cattle futures with significantly more placements than expected (see below).

Except for 20¢ higher and 20¢ lower at either end of the board, Live Cattle futures closed an average of 86¢ lower (55¢ to $1.30 lower).

Feeder Cattle futures closed an average of $1.58 lower.

Choice boxed beef cutout value was $1.44 higher on Friday afternoon at $199.56/cwt. Select was $1.01 higher at $187.88.

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Major U.S. financial indices edged lower on Friday. Support included President Trump signing tax reform into law. Pressure included less of an increase in November personal income than investors expected. According to the U.S. Bureau of Economic Analysis on Friday, November personal income was 0.3% higher.

The Dow Jones Industrial Average closed 28 points lower. The S&P 500 closed 1 point lower. The NASDAQ closed 5 points lower.

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Lots more cattle were placed on Feed in November than the trade was expecting.

According to Friday’s monthly Cattle on Feed report from USDA, 2.1 million head were placed in November, which was 13.9% more than last year. That was about 9% more than average estimates ahead of the report. In terms of weight composition, 55.1% were placed at weights lighter than 700 lbs. and 9.3% went on feed weighing 900 lbs. or more.

Marketings in November of 1.84 million head were 3.2% more than the previous year.

The total number of cattle on feed Dec. 1 in feedlots was 11.52 million head (feedlots with a capacity if 1,000 head or more). That’s 8.1% more than last year (+864,000 head), about 1.5% more than expectations.

At least frozen beef stocks shouldn’t add extra pressure, according to USDA’s monthly Cold Storage report, also released on Friday.

Total pounds of beef in freezers Nov. 30 were 4% less than the previous month and 8% less than the previous year.

Frozen pork supplies were 16% less than the previous month and 3% less than last year.

Total red meat supplies in freezers were down 10% from the previous month and down 4% from last year.

Total frozen poultry supplies were 11% less than the previous month, but 15% more than a year earlier.

Although 50¢ lower in Colorado Thursday afternoon, negotiated cash fed cattle trade continued mostly steady on a live basis at $120/cwt. Dressed trade on Wednesday was steady to $2 higher at $190-$191. There could be some cleanup sales, but odds are that the trade is done for the week.

Cattle futures found some stability on Thursday as traders shored up positions ahead of Friday’s monthly Cattle on Feed report and the long holiday weekend.

Live Cattle futures closed an average of 42¢ higher (10¢ to 72¢ higher).

Except for $1.15 higher in spot Jan and marginally mixed in the back three contracts, Feeder Cattle futures closed an average of 56¢ higher.

Choice boxed beef cutout value was 3¢ lower on Thursday afternoon at $198.12/cwt. Select was $1.38 higher at $186.87.

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Major U.S. financial indices settled higher on Thursday. Some analysts credited overall bullishness to reports that some companies plan to channel savings from lower corporate tax rates toward employee wages. The Fed might get the inflation rate they’re after yet.

The Dow Jones Industrial Average closed 55 points higher. The S&P 500 closed 5 points higher. The NASDAQ closed 4 points higher.

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“Fed cattle prices edged higher early in the fourth quarter, but the availability of market-ready cattle—and nearby futures prices, which are likely encouraging cattle feeders to remain current in their marketings—have been pressuring cash prices,” said analysts with USDA’s Economic Research Service (ERS), in the recently released monthly Livestock, Dairy and Poultry Outlook. “In addition, wholesale prices (beef) appear to be at or near their seasonal peak. The November fed steer price averaged $121.37/cwt., but prices in early-December trended lower. As a result, the fourth-quarter fed steer price forecast was lowered slightly to $116-$119/cwt.” Prices did rebound slightly the past two weeks.

On the other side of the trade, ERS analysts lowered expectations for the fourth-quarter average feeder cattle price to $155-$159/cwt.

Likewise, ERS lowered cull cow prices expected in the fourth quarter to $56-$58/cwt.

“Cow prices are seasonally lower during the fourth quarter, but prices have also come under pressure due to higher than year-ago cow slaughter,” ERS analysts say. “Commercial cow slaughter, especially of beef cows, continues to be relatively heavy so far in the fourth quarter.”

Cash fed cattle trade opened the week at mostly steady money. Live prices were at $120/cwt. in the Southern Plains and Nebraska, on moderate demand and trade. That matched the price paid in the weekly Fed Cattle Exchange auction on 239 head sold out of 466 offered (delivery 1-9 days). Dressed prices in Nebraska were steady to $2 higher than last week at $190, with a few up to $191.

Despite cash strength, Live Cattle futures closed lower, pressured by the strong downturn in Feeder Cattle, which was tied in part to wonderments about Friday’s monthly Cattle on Feed report (see below) and the level of fund liquidation through the end of the year.

Live Cattle futures closed an average of $1.34 lower (60¢ to $1.80 lower).

Feeder Cattle futures closed an average of $2.51 lower ($1.17 to $3.55 lower). That cleaved a $10.70 wedge between spot Jan and the CME Feeder Cattle Index of $152.47.

Choice boxed beef cutout value was $3.67 lower on Wednesday afternoon at $198.09/cwt.; about $5 lower in the last two days. Select was $1.17 higher at $185.49.

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Major U.S. financial indices edged lower again on Wednesday with Congress passing the tax reform bill.

The Dow Jones Industrial Average closed 28 points lower. The S&P 500 closed 2 points lower. The NASDAQ closed 2 points lower.

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Perhaps more speculation than usual surrounds the monthly Cattle on Feed report to be released Friday.

On one hand, the cowherd continues to expand.

Plus, David Anderson, Extension economist with Texas A&M University explains, “It is likely that dry conditions in the Southern Plains hindering winter pasture development may have forced more to feedlots. Feeder cattle imports from Mexico were up about 50,000 head in November compared to a year ago. Normally, many of those cattle would be going to winter pastures, but perhaps more went to feedlots given dry conditions. There were also, likely, some good opportunities to place cattle, especially early in the month. The expectation is that many more heifers are being placed reflecting more heifers born to the larger cow herd, but fewer being held back to replace cows.”

In the latest issue of In the Cattle Markets, Anderson says most analysts expect November placements to be higher again year over year, but across a wide range of about 3% to 10% more.

He explains “Placements towards the top end of the range would be the largest since the mid-2000s, while placements up about 6.7% would be the largest since 2011,” Anderson says.

On the other hand, analysts at Allendale, Inc. say, “Despite a $9 rise in fed cattle prices from October to November, cattle feeders have been impacted by profitability concerns. Kansas State University projects breakevens for December through April delivery fed cattle at $123/cwt. November placements supply the May through September slaughter period.”

Allendale expects November Placements to be 0.8% less than last year at 1.828 million head, slightly higher than the five-year November average.

As for fed cattle marketing, Anderson says some signs point to a less aggressive rate than what defined the year so far. Still, he sees November marketings 3.3% more than same period a year earlier.

“That would be the largest November marketings since the Cattle on Feed report began in its current form,” Anderson says.  

Similarly, Allendale anticipates marketings to be 2.9% more than last year.

“Combining marketings and placements leaves expected cattle on feed for December 1 up 6.9% from a year ago,” Anderson says. “That would be the most December cattle on feed since 2011, as the drought was pushing more cattle to feedlots. Beef and live cattle demand will be critical in the coming months to avoid large price declines given this number of cattle on feed.”

Although a little less bearish, Allendale estimates total cattle on feed at the beginning of December to be 5.6% more, the largest Dec. 1 total in five years.