Cattle Traders May Be Missing Something

Live cattle futures investors may be missing an important point contained within Friday’s USDA Cattle on Feed report, said a market analyst after the report was released.

Narciso Perez, owner of Zia Ag Consultants in Albuquerque, NM, said it was apparent that cattle are stacking up in the feedlots.  But while ample supplies of fed cattle may be around for a few months, at some point slaughter-ready supplies will run low, and prices will accelerate rapidly.

And the changeover may already have begun, Perez said.

 

VERY FRIENDLY TO BACK MONTHS

 

Friday’s Cattle on Feed report was the eighth straight month in which actual feedlot placements exceeded marketings to packers, Perez said.  Eventually, things have to even out.

Feedlot placements over that period have been up because of a combination of extended drought in major portions of the contiguous 48 states, a stronger US dollar and unexpectedly strong beef demand, he said.  The drought forced many cow/calf operators to wean calves early and sell them to feedlots because there was nowhere else for them to go.

That meant a couple of things.  If cattle enter the feed yard at a younger-than-optimal age (lighter weight), they tend to be lighter-than-optimal weight at slaughter, producing less beef per head than they might have if they had been able to graze and grow a little longer first.

If those calves are going to be the same size they would have been after normal grazing, they have to spend more time in the feedlot.  This means more cattle on feed longer than 150 days but likely less beef production.

USDA data showed weekly 2023 beef production was less than the same week in 2022 in all but three weeks – the first week of January and the first two weeks of December.  And it was less than the 2017-2021 average from June on.

It’s that last two weeks that become interesting since federally inspected steer slaughter was consistently less than the 2022 week from April on.  Yet it exceeded last year in the first week of the month at the same time that steer slaughter moved above last year.

 

WHEN WILL IT CHANGE?

 

As to when fed cattle numbers will get tight, is anybody’s guess, Perez said, but when it finally does, the beef industry will be tight for years to come.  Seasonalities say any early placements would have been on feed by now.

Calves placed in November at 700 pounds will have to gain 686 pounds to equal last week’s average slaughter weight, he said.  At an average gain of 2.5 pounds a day, they will have to spend 274.4 days on feed, going to slaughter in August.

 

CATTLE, BEEF RECAP

 

The USDA reported formula and contract base prices for live FOB steers and heifers last week ranged from $163.80 per cwt to $171.51, compared with the previous week’s range of $165.82 to $173.08 per cwt.  FOB dressed steers, and heifers went for $266.16 per cwt to $271.15, compared with $268.50 to $27.

The USDA choice cutout Friday was up $1.80 per cwt at $292.93 while select was off $0.12 at $261.15.  The choice/select spread widened to $31.78 from $29.86 with 67 loads of fabricated product and 23 loads of trimmings and grinds sold into the spot market.

The USDA said basis bids for corn from feeders in the Southern Plains were unchanged at $1.28 to $1.38 a bushel over the Mar corn contract, which settled at $4.73 a bushel, up $0.00 1/2.

No delivery intentions were posted for Dec live cattle Friday.

The CME Feeder Cattle Index for the seven days ended Thursday was $219.81 per cwt, up $0.01.  This compares with Friday’s Jan contract settlement of $222.75, up $1.05.