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CME: Key Numbers in Latest COF Report Higher Than Expected

27 March 2018

US - All key numbers in the latest 'Cattle on Feed' report were higher than analysts were expecting and the results may be construed as moderately bearish for futures when they open on Monday, reports Steiner Consulting Group, DLR Division, Inc.

Futures were down sharply last week and it is possible that the bearish implications of the inventory survey may already be in the market.

Total on feed supplies as of 1 March were estimated at 11.715 million head, 8.8 percent higher than the previous year.

Prior to the report analysts were expecting total on feed supplies to be 8.1 per cent higher than last year. This is the largest on feed March inventory since March 2006.

USDA reported that feedlots placed 1.817 million head of cattle on feed in February, 7.3 per cent more than a year ago and 12.9 per cent higher than the five year average.

Analysts on average expected placements to be up 4.5 per cent although there were some that expected placements to be quite large given reports of still very high placement rates in Texas.

Cattle placements in the Southern Plains have been higher than expected, as drought conditions pushed light calves into feedlots last fall and also limited wheat pasture feeding in January and February.

In this latest report, placements in Texas were up 45,000 head (+14.1 per cent), placements in Kansas were up 10.5 per cent and placements in Oklahoma were up 12.2 per cent.

The combined increase in placements from these three states, which are struggling with drought, accounted for almost 75 per cent of the overall increase in February placements.

The bulk of the increase in placements came from cattle that were 700 pounds or heavier, which was the case last month as well.

Deteriorating conditions appear to have cut short winter wheat feeding programs and caused producers to push cattle into feedlots earlier than normal.

However, this also implies that fewer cattle will now be available for placement in March, April and May. Ultimately, however, the increase in placements is driven by two major factors: a) the larger calf crop and; b) deteriorating profitability pushing more female calves into feedlots.

The main concern of market participants in recent weeks is the pace of slaughter relative to the supply of cattle on feed.

The marketing rate in February (ratio of cattle marketed relative to inventory) was 14.4 per cent compared to 15.3 per cent last year.

March marketings have not been much better and there is growing concern that we could see a significant supply of market ready cattle in May, June and July.

Based on initial USDA data, we estimate fed cattle slaughter last week at 480,000 head, 2.3 per cent lower than a year ago. In the last three weeks fed slaughter has been 1.8 per cent lower than last year.

If this trend conditions, we could see March feedlot marketings 3.7 per cent lower than last year (with one less marketing day). Marketing rate for March could be 15.8 per cent.


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