US - Fed and feeder cattle futures were higher on Monday. Market participants viewed the latest cattle on feed report as generally supportive of prices in the short term, according to the latest Daily Livestock Report is published by Steiner Consulting Group, DLR Division, Inc.
Also, reports of packers paying higher prices over the weekend added to the bullish tone from the inventory survey and gave rise to hopes that, at least for now, current on feed supplies, a slow down in the rate of placements, and holiday demand will help bolster prices.
The USDA 5‐area report (LM_CT100) noted 29,451 head traded on Friday. The weighted average price for live steers was quoted at $100.48/cwt, almost $3 higher than prices the previous week.
Fed steer prices on a dressed basis were traded at $158.57/cwt, which on a live basis is roughly $100.7/cwt. Some market participants have noted that even higher prices may have been paid in the cash market but we have yet to see a confirmation from the Mandatory Price Reporting system.
Packer slaughter remains quite robust for this time of year. Total fed slaughter (steers + heifers) last week was reported at 481,000 head, about the same as the previous week but 8.4 per cent higher than the same week a year ago.
In the last four reported weeks fed slaughter has averaged 487,400 head, +8.4 per cent higher than year ago levels. The rapid pace of marketings and smaller placements of heavy cattle (+800 pounds) generally are seen positive for the market going into late fall and winter. At this point building a weather premium has been an afterthought but it may start to get more consideration.
Worth noting is that while the beef cutout has been pressured lower in recent weeks, there are signs of some seasonal support starting to emerge. The rib primal value declined sharply in the first two weeks of October but it jumped almost $13/cwt on Friday and closed above $3/cwt again yesterday, the highest price in two weeks.
Seasonally rib prices move up in Q4 and market participants will pay close attention this year as well. The value of chucks also has increased by more than $6/cwt in the last two reported days and the value erosion in the loin complex appears to have stopped.
As holiday demand starts to come more into focus there is renewed hope that, similar to a year ago, fed cattle values will find a modicum of support. But as it has been demonstrated clearly for the past 12 months, however, there are significant structural issues that will continue to weigh on fed cattle and beef prices.
Competition from other proteins is part of it but more broadly we still need to consider the notable improvement in calf supplies and significantly lower feed costs, with producers in some parts of the country looking at big negative basis levels for corn.
As we noted in our discussion of COF pre‐report estimates, the October report also provides a quarterly update on the structure of placements. Basically it tells us not just how many cattle were placed on feed in the last three months but also what the sex of those cattle was.
This is a critical piece of information when trying to evaluate where we are in terms of herd rebuilding. If placements of female calves (heifers) relative to overall placements are running below normal benchmarks it indicates that producers are still retaining more heifers into the herd and thus bolstering future cow inventories and eventually calf crops.
There has been a lot of talk recently that herd rebuilding may be coming to an end but, judging from the latest feedlot survey, those calls may be premature. While heifer placements have increased, the ratio of heifer placements to total placements is hovering at 33.5 per cent, up from just 31 per cent in April 2015 but still one of the lowest in the last 20 years.
USDA expects the cow inventory as of January 1 to be 40.2 million head, 1.4 per cent larger than the previous year. The larger beef cow herd has bolstered the calf crop in 2016 and it is fair to expect an even larger calf crop in 2017.
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