Live Cattle futures will likely see some follow-through selling, at least through the front end of the week, as packers seek to extend the leverage they gained this past week.
Along with heavier carcass weights, John D. Anderson, the American Farm Bureau Federation's deputy chief economist, pointed out in this week’s In the Cattle Markets newsletter that bullish placements in the previous week’s monthly Cattle on Feed (COF) report were muted by bearish news on marketings.
“August marketings were considerably lower than expected, below even the most pessimistic pre-report forecasts, Anderson explains. “Marketings were down 4.5% from a year ago. Despite soaring feed costs, marketings in August did not look terribly aggressive. This comports with data in last week's Livestock Slaughter report, which showed an 18-lb. increase in steer dressed weights for this August compared with a year ago. Despite the slower pace of marketings, the total on-feed number was about in line with expectations: down just a touch year-over-year. On balance then, the marketing figure may keep some pressure on front-month futures, but the overall story coming out of the COF is still one of further tightening of cattle and beef supplies.”
Feeder Cattle could see an extension to the near limit-down losses of Friday, which were driven by limit-up and near limit-up moves in the corn market. USDA’s quarterly Grain Stocks report released Friday fueled the buying spree. According to the report, old-crop corn stocks are 12% less than a year earlier, a stouter reduction than the trade anticipated.
But supply fundamentals should limit pressure on the calf market.
In his market comments following the Cattle on Feed report, Derrell Peel, Oklahoma State University Extension livestock marketing specialist, pointed out that feedlots have been able to maintain high inventories, relative to the cow herd, largely due to imports, especially from Mexico. Those imports should recede with improving forage conditions south of the border.
“…Feedlots have not placed the large numbers of lightweight cattle that will stay on feed for many months like they did last year,” Peel says. “While lightweight placements will increase seasonally the next couple of months, the weight distribution in feedlots suggests that feedlot inventories will pull below year-earlier levels and stay below for many months. Additionally, feeder cattle imports will drop, if not immediately, certainly in the next few months, contributing to the inability of feedlots to maintain feedlot inventories. Finally, in the absence of drought in 2013, increased heifer retention combined with a still smaller calf crop will further reduce feeder supplies. The short supply of feeder cattle, masked by the impacts of two years of drought, is finally catching up with us.”