Feeders Clearing Plus-Size Cattle?

There are signs the glut of plus-sized fed cattle is getting cleared up, but the next few weeks will show whether these signals are temporary or more permanent.

Cash fed cattle prices made a significant turnaround last week, and those who chart cash prices might have noticed the turnaround left a one-week island reversal higher on the charts.  In futures charting, such chart patterns represent a very bullish outlook because it indicates that sellers may have exhausted their supply of burdensome inventory.

On a more fundamental note, slaughter rates have jumped the last two weeks as cattle feeders market more cattle to the packers.  This is all the more important to the current scenario of cleaning up feedlot inventories of extra heavy cattle because much of the increase has been steer and heifer slaughter and not cow slaughter.

Slaughter steer dressed weights also declined in the latest USDA weekly data to 920 pounds per head from the 923-pound peak the week before.  This could be the start of a decline in fed cattle weights as feedlots reduce their inventory of these cattle in light of rising packer discounts for excess fat and animal size.

 

THE NEXT TWO WEEKS CRITICAL

 

Derrell Peel, Oklahoma State University extension livestock marketing specialist, said in a market comment this week that the combined signals of increasing steer and heifer slaughter and a dip in carcass weights could signal fundamental reasons for a cattle price bottom.  They also may be just a sideshow.  It all depends on what happens in the next two weeks.

“If the heavy cattle are thoroughly cleaned up, there is good potential for a significant rally and fundamentally stronger cattle markets for the rest of the year,” Peel said.  “However, the quickest way to make sure a rally never materializes is to start waiting for it too soon.”

It will take time for the additional beef tonnage produced over the last few months of extra heavy slaughter cattle to work through the system, and there could be stumbling blocks along the way (Thanksgiving turkeys and hams).  However, it is good that beef demand and prices have turned higher, as they indicate good movement into consumer hands.

 

A WARNING TO THE INDUSTRY

 

Peel added that the latest buildup in cattle sizes demonstrates the potential of new genetics and production technologies, but it does not show how well giant steaks will be received by consumers.

“At the very least, there will have to be changes in the way products are marketed,” he said.  Novel cuts or marketing names may materialize to move extra product.

“There may be a Jurassic Park lesson for the beef industry in all of this:  just because you can, doesn’t mean you should,” he said.

 

CASH FED CATTLE QUIET

 

Cash fed cattle markets this week remain undeveloped with estimated showlists mixed to lower.  Bids of $125 per cwt on a live basis were heard, but asking prices were around $135 per cwt on a live basis, versus sales last week from $123 to $127.

On a dressed basis, cattle traded last week at $195 to $202.

Wholesale beef prices Wednesday were sharply higher, with the USDA reporting its choice cutout value at $210.61 per cwt, up $2.15 on the day, and its select cutout at $205.62, up $2.28.

The choice/select spread narrowed to $4.90 from $5.12 on Tuesday, and there were 91 loads of fabricated product moved into the spot market.

CME Feeder Cattle Index for the seven days ended Tuesday was $186.35 per cwt, up $0.83.  This compares with the Oct settlement Wednesday of $190.80, up $1.10.