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Monday's Internet Edition, 11:51 PM, February 08, 2010.
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Placements were down and marketings were up for the second month in row. Placements were lower than expected and marketings were higher than pre-report estimates in this latest report.
The January 1 on-feed total was 11.01 million head, down two percent from last year and the lowest January 1 total since 2003. The run up in placements last fall is now seen for what it is, a seasonal pattern that has developed since 2006 and not a general increase in cattle supplies.
In fact, feeder cattle numbers continue to shrink and will continue to be generally supportive of feeder prices for the next two or three years at least.
Feeder cattle markets have been generally stronger from the beginning of the year and got a nice boost from USDA’s estimate that the current corn crop is, in fact, a record crop.
Corn prices have dropped roughly 50 cents per bushel in the past two weeks and that, combined with the availability of even cheaper lower quality corn has made feeding margins look better. Better feeder cattle demand was reflected immediately in higher cash and futures prices.
Feeder market bullishness is still capped, however, by the demand realities of the beef and fed cattle markets.
Boxed beef prices were generally stronger through mid-month, partly a result of post-holiday pipeline demand and partly in typical fashion for a mid-month beef rally. The rally stalled this past week and the better test of current boxed beef demand will be in the next two weeks.
Fed cattle prices have remained in the $84 to $85 range in January. Further strength in fed prices hinges on boxed beef prices as we move into February.
Fed cattle prices are actually $2.50 to $3 higher than the same time last year. Virtually all of that can be attributed to the fact that by-product values are also about $3 higher than a year ago on a liveweight basis.
Boxed beef prices are currently down from the same period one year ago
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Theopolis Waters - Last Friday’s U.S. Department of Agriculture cattle-on-feed report was seen as the second very bullish report in as many months and one that could support nearby futures contracts more than it does deferred months. U.S. Commodities analyst Don Roose viewed USDA’s report as “friendly” for futures because the data showed fewer cattle on feed than anticipated. And, he said, the industry marketed cattle aggressively despite inclement weather in the Plains last month. However, Roose warned that beef demand met with resistance this week because retail meat buyers were reluctant to buy beef at currently high price levels. “So the bigger issue next week for futures and cash will be whether or not processors can move beef next week.” The report may not help the cash markets move higher next week, but it certainly won’t hurt them either, market analysts and brokers said. Overall, the report was seen as indicative of tighter numbers of fed cattle and higher prices to come. “The on-feed number was smaller than expected and was the lowest raw number for January since 2003,” sait Bret Crotts, commodity broker at Schwieterman Inc. “It’s also only 91% of two years ago.” “The livestock complex is poker hot,” said Jerry Welch, analyst/broker at Commodity Insite. “You’d be hard-pressed to find commodity markets with more bullish fundamentals than the livestock.” That being said, Welch said next week’s markets still may be pressured by weaker beef prices and a lower stock market. But the lows seen next week could be the lowest prices get for 12 to 24 months, he said. Welch pointed to the USDA’s monthly cold-storage report for further signs that the protein markets in general were tightening. Beef stocks were unchanged from December but were 13% less than a year ago. The stage is being set for the U.S. to have a shortage of beef, pork chicken and dairy for the first time since the 1970s, Welch said. Mike Leheska, market analyst at Amarillo Brokerage, said this week’s $86 cash cattle market in Texas is supportive since it is up 50 cents from the previous week in spite of last week’s strong slaughter rate, the third in a row. Feedlot placements were down in December because of the wintry weather experienced late in the month, Leheska said. Many of these placements were delayed until January, so this months placements could be up, he said |
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