Report apt to show tight fed cattle inventories

Report apt to show tight fed cattle inventories

Analysts expect USDA to report tighter fed cattle inventories, while Cargill's latest feedyard closure illustrates an ongoing problem in market.

AFTER more than two weeks without livestock price and slaughter data from the U.S. Department of Agriculture, where does the market stand?

Pretty much right where everyone thought it did, with tight cattle inventories and acceptable demand keeping prices on a bullish tilt.

The first Agricultural Marketing Service (AMS) data released after federal workers returned to their desks last week confirmed what private industry sources had been reporting: that the Choice beef cutout remained firm and that cash cattle prices have increased consistently over the past couple of weeks.

USDA reported that cash cattle last Thursday traded at $127-131/cwt., with an average of $129.76. While trading was fairly light, reports from the countryside indicate that packers have been willing to pay for cattle, and sellers aren't afraid to ask for more money.

The prior week's trading had established prices near $126, and prices continued to move upward. Throughout the federal shutdown, a survey of industry analysts conducted by Dow Jones estimated daily cattle slaughter near 123,000 head — an estimate USDA reported in its first daily slaughter reports for last Wednesday's kill, although slaughter fell to 116,000 head on Thursday.

Given the extended shutdown, it will take a few days to fully evaluate how closely private industry sources pegged the markets compared to what USDA establishes from its network of sources. The Choice cutout was marked at $196.03/cwt. last Thursday, fairly close to what analysts had expected, which means that boxed beef prices have firmed nearly $3/cwt. since the beginning of the month.

What's interesting is that an AMS official said in a conference call last week that the agency would ask USDA leadership to place AMS Market News reporters on the "excepted" list in case of future funding lapses — something the market would greatly support.

 

Supply worries continue

Any way you slice it, the cattle market is extremely tight right now and probably is getting tighter. Simply looking at the futures market, the trade is clearly anticipating continued short supplies, with another $4/cwt. of upside priced into the November and December contracts.

USDA will not release its monthly "Cattle on Feed" report until Oct. 31 — a two-week delay necessitated by the extended shutdown — and the trade is expecting the report to show a sharp reduction in the number of cattle on feedlots as of Oct. 1.

Analysts predicted a more than 7% drop in the inventory figure, although they are expecting slightly larger September placements than last year and a more than 4% hike in marketings (Table).

"Supplies in feedlots are particularly tight, with September inventories down 7.2% from the previous year," economists Steve Meyer and Len Steiner said in the "Daily Livestock Report." "While feedlot inventories were tight as of Sept. 1, placements in the summer months were skewed toward heavier placements, implying that the marketing window will be front-loaded."

Add to that observation last week's news that Cargill will close and sell its 62,000-head feedlot in Lockney, Texas, as the latest casualty of the multiyear drought in the region.

While the news itself wasn't all that surprising given that the yard largely supplied the company's now-idle beef processing plant near Plainview, Texas, it underscores the fact that the number of cattle in the Texas Panhandle is far, far smaller than the supply available just a few years ago.

An open question for the market is the impact of the unexpected blizzard that rocked South Dakota and parts of surrounding states earlier this month. With USDA offices offline and available information largely based on anecdotal sources, it is hard to know exactly how many cows and calves were lost to the storm.

South Dakota's state veterinarian could only certify several-thousand head last week, though he acknowledged that producers' reporting of such losses is a lengthy process and that the true extent of the damage to the state's cattle inventory may not be known for some time.

Suffice it to say, however, that if the number is as large as some speculate, it would be yet another reason to assume that a robust rebuilding of the nation's cattle herd is still years away.

Continued supply woes mean that prices should be supported for some time, but feeders who have been bleeding red ink for more than two years should closely watch beef demand as cash-strapped consumers might eventually balk at paying record prices for beef.

According to one relatively new indicator — Oklahoma State University's "Food Demand Survey" — that might already be happening.

 

Analysts' cattle on feed predictions, % of year ago

 

Average estimate

Range of estimates

On feed as of Oct. 1

92.66

91.6-93.7

Placed in September

101.01

97.5-107.0

Marketed in September

104.23

100.1-106.7

Source: Dow Jones.

 

Volume:85 Issue:43

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