Cattle Report Likely Seen Bearish

Cattle market analyst reports are coming in, and most expect the USDA’s semi-annual Cattle Inventory report Friday to be construed as bearish for cattle futures, especially for deferred delivery months.

The USDA’s National Agricultural Statistics Service made some adjustments inventory totals, but the report exceeded the average trade estimates plus the revisions in a couple of key areas.

The Jan. 1, 2015, all cattle and calves number was reduced 657,000 head to 89.143 million head from the original estimate of 89.8 million.  The number of cows last year was revised downward by 391,000 head to 38.609 million, while the calf crop reported a year ago was cut 378,000 head to 33.522 million.

However, the report confirmed estimates of a significant increase in the 2016 US cow herd as the industry works to rebuild from an extended, drought-driven decline.  The USDA estimated the number of beef cows at 30.331 million head, up 3.5% from the year-ago number of 29.302 million.

 

NUMBERS VERSUS EXPECTATIONS

 

But the market always seems to work its way through erroneous estimates from the USDA, establishing a value to commodities based on available supply and demand at innumerable trade points.  Thus, the new USDA numbers should be compared with analysts’ pre-release estimates to predict the market’s reaction to the report.

In this case, trade expectations for beef cows and all calves exceeded trade estimates, which could be bearish for the futures market, which trades beef animals.

This NASS chart compares key elements of the report to trade estimates, showing the larger number of all cattle and calves on hand, the number of beef cows and the total number of calves.  In all cases except the number of milk cows, NASS estimates exceeded the estimates.

 

NASS ESTIMATES COMPARED TO TRADE EXPECTATIONS

PERCENT OF PREVIOUS YEAR

 

Inventory         NASS    Trade     Trade

Items              Est     Avg      Range

All Ctl & Clvs    103.2%  101.8% 101.1–102.3%

All Cows          102.7%  102.3% 101.3–103.8%

Beef Cows         103.5%  103.0% 101.7–105.1%

Milk Cows         100.1%  100.2%  99.9–100.5%

Calf Crop         102.3%  102.1% 101.0–104.1%

All Ctl on Feed   101.2%   98.8%  98.6– 99.0%

 

Market analysts credited historically strong margins for the cow/calf producer for the expansion.  Some have estimated average returns for the cow/calf producer at $300 to $500 a head for the last couple of years.

 

FEEDER SUPPLIES UP

 

Total feeder cattle supplies, on feed and outside of feedlots, were reported at a 3-year high of 39.09 million head, up 1.462 million, or 3.89%, from 37.6 million a year ago.

It is interesting to note that the number of calves grazing on pastures in Kansas, Oklahoma and Texas was down 30,000 head, or 2%, from 2014 at 1.9 million.  So it seems the cattle feeding industry will be drawing on supplies outside of the Central and Southern Plains at least until summer.

Regionally, the Plains states added 293,000 cows while the Midwest added 146,000.

Total cow and calf inventories rose in all but 12 states.  Inventories declined in Maine, Delaware and Louisiana, and held steady in Washington, Texas, Wisconsin, Ohio, North Carolina, New Jersey, Rhode Island, Massachusetts and Vermont.

 

CASH CATTLE QUIET

 

Cash markets Friday traded about $4 higher at $138 per cwt on a live basis as packer bids rose to meet seller asking prices.  Trades in Nebraska’s dressed market were reported at $210 to $212, up $8 to $10 from the previous week.

The USDA reported mixed wholesale beef prices Friday, with choice down $1.36 per cwt at $218.76, and select up $1.70 at $217.13.  The choice/select spread narrowed to $1.36 from $4.60 Thursday, and there were 101 loads of fabricated product sold into the spot market.

For the week, the choice cutout was down $6.07 per cwt, and select was off $3.55.

The CME Feeder Cattle Index for the seven days ended Thursday was $161.24 per cwt, up $0.28. This compares with Mar’s Friday settlement of $157.25, down $2.17.