Cattle futures basically gave back gains from the previous session on Monday with position squaring and spillover pressure from the plunge in equity markets.
Live Cattle futures closed an average of 75¢ lower (37¢ to $1.15 lower).
Feeder Cattle futures closed an average of $1.12 lower (75¢ to $1.45 lower).
Choice boxed beef cutout value was 33¢ higher on Monday afternoon at $209.43/cwt. Select was 71¢ higher at $204.16.
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On Wall Street Monday, investors continued the massive selloff that began on Friday, but to an even larger degree. Many analysts credited the purge to ongoing concerns about rising interest rates and inflation. Even so, fundamentals remain the same; the stunning degree and speed of the reversal certainly comes with more than a whiff of computerized algorithmic trading.
The Dow Jones Industrial Average closed 1,175 points lower. The S&P 500 closed 113 points lower. The NASDAQ closed 273 points lower.
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“The decrease in beef replacement heifers (Cattle report) is generally taken as a sign that herd expansion is over. That may well be, but a look at the absolute numbers suggests that a limited amount of additional beef herd expansion is possible in 2018,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “The Jan. 1 beef replacement heifer inventory was 19.3% of the herd inventory. This is down from record levels the past three years but it is still higher than the average level of 17.3% for the 25 years prior to the beginning of herd expansion in 2014. You have to recognize just how unusual the current herd expansion has been.”
Peel explains beef heifers, as a percentage of herd size, jumped above 20% in 2015-17 for the first time in history. It peaked at 21.0% in 2016.
“Thus, the current level of 19.3%, while down from recent years, is still above the levels seen in the previous full herd expansion in 1990-1996, with an average of 18.3% in the years 1993-1995,” Peel says. “Any beef herd expansion in 2018 would likely be limited to less than 1%, but a rate of 0.5% for the year is quite consistent with all the numbers in my analysis. I expect market conditions that play out in 2018 will determine whether any additional herd expansion is forthcoming.”
Moreover, Peel says the recent Cattle report indicates there is 2.3% less cattle supply outside of feedlots year over year.
“Large feedlot placements in 2017 pulled the feedlot inventory up 7.3% year over year, meaning that more of those feeder cattle were already in feedlots Jan. 1,” Peel explains. Aggressive feedlot placements and marketings were key factors in the strong 2017 market performance and will be again in 2018. The deceased feeder supply also reflects drought conditions at the end of 2017 that forced many lightweight cattle into feedlots early at the end of 2017. The point is that this tighter feeder supply will help support feeder cattle markets in the coming weeks and sets us up to deal with the still growing cattle numbers in 2018 in the best possible shape.”