According to some cattle market analysts, feedlots may be setting themselves up to be overstocked with slaughter-ready cattle, or front-end loaded, in the fourth quarter, something that could pressure the prices feeders receive from beef packers.
Besides showing fewer feedlot placements in July than last year and the previous five-year average, even coming in at fewer than many expected, Friday’s USDA monthly Cattle on Feed report showed July feedlot marketings fell below a year ago and the average.
But it may not pan out the way they expect, especially if consumer demand remains stronger than expected.
MARKETINGS PACE FALLING OFF
The pace of marketings actually fell off last year and the previous five-year average in July, but it largely was unnoticed. While they dropped at a sharper-than-normal rate in July, the monthly rate of decline virtually mirrored the average.
July marketings, however, wound up being below the average and the July 2022 rate, something that’s not at all unusual. After all, April’s marketings were well off last year and below the average.
What was unusual in August was a continued steeply declining monthly marketings rate. Marketings usually increase from July, and last year, the increase was notable.
FRONT-END LOADED?
Some analysts see the marketings decline as a harbinger of being front-end loaded in the fall. They see a steep two-month drop in monthly fed cattle marketings as a percent of cattle on feed as their indicator.
They also say prior placements of light-weight feeder cattle project fall marketings to have the potential to be much larger than many expect.
The number of cattle on feed for 90 days declined only slightly in the August report from July, while those on feed for more than 120 days actually rose counter-seasonally like it did last year.
If the pace of marketings doesn’t pick up, there is a real danger of feedlots becoming oversupplied with market-ready cattle, or front-end loaded, in a short period of time, say fall, if there is a limited outlet for the beef.
However, feedlots currently are so current with their planned marketings that the projected oversupply may not materialize, especially if consumers buy more beef starting in September like they usually do. It is not beyond the realm of possibility for the number of long-fed cattle to stay within historical boundaries through the fall.
CONSUMERS THE KEY
Consumers remain key. Beef demand usually picks up in the fall, although tastes usually migrate to the end cuts rather than the middle meats until the holidays approach where there is an infusion of demand for ribs and steaks.
CATTLE, BEEF RECAP
The USDA reported formula and contract base prices for live FOB steers and heifers this week ranged from $180.54 per cwt to $180.42, compared with last week’s range of $180.00 to $191.12 per cwt. FOB dressed steers, and heifers went for $285.10 per cwt to $287.35, compared with $283.74 to $293.54
The USDA choice cutout Monday was down $0.55 per cwt at $315.56 while select was down $1.03 at $287.33. The choice/select spread widened to $28.23 from $27.75 with 55 loads of fabricated product and nine loads of trimmings and grinds sold into the spot market.
The USDA said basis bids for corn from feeders in the Southern Plains were down $0.20 at $1.70 to $1.90 a bushel over the Sep corn contract, which settled at $4.69 1/4 a bushel, down $0.10 1/4.
No contracts were tendered for delivery against the Aug cattle contract Monday.
The CME Feeder Cattle Index for the seven days ended Friday was $245.23 per cwt, up $1.19. This compares with Monday’s Aug contract settlement of $246.77 per cwt, up $1.20.