On-Feed Report Reaction Overrides Cold Storage

Bullish inferences from Friday’s monthly Cattle-On-Feed report Monday overrode any bearish implications from the monthly Cold Storage report, taking several contract months up the daily limit of $300 per cwt.

The report showed total pounds of beef in US freezers as of July 1 was up 5.15 million pounds, or 1.15% from June 1 at 451.23 million pounds but 23.04 million, or 4.86%, below last year.  Market analysts expected something closer to 428 million pounds to be reported.

Frozen pork supplies were down 5% from a month ago and down 8% from last year.  It is above the 2010-2014 average, but it is following the seasonal trend of last year and the average.

A graph shows the beef supply rising in June when it should have declined.  Even last year, supplies essentially moved sideways in June.

There is a tendency for beef demand to go down during the dog days of summer.  With outdoor temperatures uncomfortably high, maybe even dangerously high, consumers have less desire to stand over a back yard grill.  Appetites often decline at this time as well.

The 2010-2014 average shows a strong tendency for beef supplies to decline in July as spot demand for product heats up.  Grocers are filling in for the upcoming Labor Day holiday, and government purchases are heating up for the resumption of school lunches.

 

SUPPLIES AN ISSUE

 

During much of the 2010-2014 period, beef production was decreasing with a declining herd size.  This would have made any extra demand a greater drag on frozen supplies than it was this year.  In coming years, a steady-to-rising stored beef supply on July 1 may be more common.

Preliminary cattle slaughter for last week totaled 595,000 head, down slightly from the previous week’s 598,000 but up 60,400, or 11.3%, from the 534,600 in the same week last year.  Slaughter remained below the previous five-year average, as it has all year.

That resulted in more beef production than a year ago, overrunning the slight rise in seasonal beef demand, especially since beef production has been above last year for most of the year.

Beef production last week totaled 484.6 million pounds, up 44.5 million, or 10.1%, from 440.1 million a year ago.  However, it was down 19.84 million, or 3.93%, from the 2010-2014 average of 504.44 million.

The overall trend also appears to be following the five-year average, so a little downturn in production and a leveling can be expected through August where it may turn up to the annual high the last week of August.

 

CASH CATTLE MARKET QUIET

 

Cash cattle markets Monday were quiet with no credible bids or offers reported.

Cash markets last week traded $2 per cwt lower at $115 on a live basis.  In dressed markets, prices were $2 to $4 lower at mostly $185 with some in Iowa at $184.

The USDA’s choice cutout Monday was $1.50 per cwt lower at $198.59, while select was off $0.13 at $189.44.  The choice/select spread narrowed to $9.15 from $10.52 with 98 loads of fabricated product sold into the spot market.

The USDA said volume was light to moderate.  Ribs, chucks and rounds were mostly steady, while loins were weak to lower.  Trimmings were weak to slightly lower on light demand and heavy offerings.

The CME Feeder Cattle Index for the seven days ended Friday was $139.15 per cwt, down $0.07.  This compares with the Aug settlement Monday of $141.70, up $4.50.