The pool of available feeder cattle in the Plains may be diminished by previous high monthly placements, which in turn, possibly were fueled by dry pasture conditions.
Based on the latest USDA Cattle on Feed report, net feedlot placements in January were 3.7% higher than last year and were expected to be up 4.2% in February, according to a Reuters survey of market analysts.
To the extent that drought conditions in the Southern Plains have diminished pasture availability, more cattle have been placed in feedlots in late 2017 and early 2018 than in the prior year, said the USDA’s Livestock, Dairy, and Poultry Outlook report. This likely diminishes the pool of cattle available for placement throughout first-half 2018.
The price forecast for 750- to 800-pound feeder steers was adjusted lower in the Outlook report for the first quarter to a range of $146.00 to $149.00 per cwt based on January and early February price movements.
In the second quarter, it is likely that fewer calves will be available for placement, which could keep prices relatively strong in a range from $144.00 to $152.00 per cwt.
PACKER MARGINS STRONG
Packer margins have recently improved as wholesale beef prices stayed above 2017 levels and fed steer prices retreated from the mid-February high of $130.00 per cwt, the report said.
Based on current cash cattle prices and expectations of wholesale beef prices expressing continued demand strength, the USDA’s expected fed steer price forecast for the first quarter was adjusted higher to a range of $124.00 to $127.00 per cwt.
FUTURES DECLINES DAMPEN PRODUCER OUTLOOK
However, losses of $9 to $12 on spring and summer feeder cattle futures contracts over the last month have dampened many producers’ attitudes, said University of Tennessee Agricultural Economist Andrew Griffith in the weekly “Tennessee Market Highlights.”
While fall and winter contracts have only declined $7 over the same period, the sentiment would be that they have time to fall even more, Griffith said.
The May contract is now below former major support just above $139 per cwt, and this has placed major pressure on the cash feeder cattle market, Griffith said. But the same cannot be said for the calf market.
Warm temperatures, significant rainfall in the last few weeks and days have pastures greening up and stocker operators in heated competition to secure calves for spring and summer grazing, Griffith said. In fact, many of the prices being paid today for calves will be difficult to turn into positive margins unless the feeder cattle market reverses and begins strengthening.
But if feeder cattle supplies are tightening, as previous months of high feedlot placements imply, then feeder cattle futures could be led higher by strengthening cash markets, a market analyst said.
CATTLE, BEEF RECAP
A total of 113 fed cattle sold last Wednesday on the Livestock Exchange Video Auction at $127 per cwt, up $1 from a week earlier.
Cash sales this week were getting started at $126 per cwt on a live basis, steady with early trade last week.
Cash sales last week were steady to $1.00 per cwt higher at $126 to $128 on a live basis. Dressed-basis trading was reported at $205 to $207, up $1 to $2.50.
The USDA’s choice cutout Tuesday was down $1.52 per cwt at $223.35, while select was off $0.55 at $216.74. The choice/select spread narrowed to $6.61 from $7.58 with 108 loads of fabricated product sold into the spot market.
The CME Feeder Cattle index for the seven days ended Monday, was $141.25 per cwt, down $0.48. This compares with Tuesday’s Mar settlement of $137.77, down $0.67.