Deferred-Delivery Sales Hint At Cattle Market Fears

Plains feedlots are beginning to sell cattle for delivery beyond the customary week to 10 days, hinting that fears of lower prices to come are beginning to permeate the trade.

Friday’s USDA Cattle on Feed report showed the total number of cattle and calves munching grain in US feedlots was slightly above a year earlier at 10.9 million head.  But the surprising part of the report was that new entries into the feedlots, called placements, totaled 2.10 million head, 11% more than last year and the highest for March since the series began in 1996.

However, as bearish to prices as that number might have been, the markets shrugged it off and proceeded to move higher.  Nearby Apr set a new contract high Wednesday at $132.02 per cwt.

To say the least, live cattle futures have had a tremendous run lately.  From its cycle low of $117.50 to Wednesday’s high of $132.15, prices have risen $14.65 in just 21 days, leaving two gaps on daily bar charts.

Cattle feeders are making an estimated $473.95 on each animal sold, according to Sterling Marketing’s Beef Profit Tracker.  This is down from $505.25 a month ago, but a year ago, they were making just $14.57 a head.

And with more cattle on feed and more coming due for slaughter in coming months, feeders may be feeling more inclined to book some cattle, especially some lower-quality cattle, now, even if prices wind up being lower than for immediate delivery.




One feedlot manager said mid-May is a rule-of-thumb time when beef packers back away from the market because meat buyers have most of their needs for Mother’s Day, Memorial Day and Independence Day booked.  After they get their expected advance sales needs covered, they will back off and fill in with some more immediate-delivery purchases.

The mid-May date, however, appears to be more of a rule-of-thumb than a line in the sand.  Data show that the average annual peak in the USDA’s five-market cash fed cattle price comes the last week of March.

Even though the market appeared to ignore the bearish implications of the larger-than-expected placement number in the On-Feed report, some market analysts felt at the time that the effect was only being deferred.

Such fears may be showing up in the deferred-delivery sales last week and this week, trade sources said.




Cattle traded on the livestock exchange Wednesday at an average of $131.14 per cwt, up $2.54 from the previous week.  Deferred sales ranged from $125.37 for steers and $125.48 for heifers.

Cash cattle trade was isolated so far this week, with Texas at $126 per cwt on a live basis and Iowa at $125 on Tuesday.  Both were said to be forward sales.

Subsequent to the auction, a few cattle began to trade in Kansas and Oklahoma at $129.75 to $132.25 per cwt, on a live basis, up $0.75 to down $0.75 from the general trade last week.

Cash cattle last week traded in a range from $129 to $133 per cwt on a live basis, mostly $130 to $133, up $4 to $5, and at $210 on a dressed basis, steady to up $2.

The USDA’s choice cutout Wednesday was up $0.17 per cwt at $219.18, while select was down $0.55 at $205.72.  The choice/select spread widened to $13.46 from $12.74 with 97 loads of fabricated product sold into the spot market.

The CME Feeder Cattle Index for the seven days ended Tuesday was $139.44 per cwt, up $0.13.  This compares with Wednesday’s Apr settlement of $139.85, up $1.12, and May’s at $142.07, up $4.40.