Dig a little deeper and the unexpected surge in feedlot placements that shook markets at the beginning of this week are less negative than indicated by the initial reaction.
For context, last Friday’s monthly Cattle on Feed report indicated 2.6% more placements in August of this year than last. That was 5-6% more than the trade was expecting, saying as much with limit-down moves in Cattle futures on Monday.
“What may be overlooked is the continued strong marketings pace,” says Derrell Peel, Extension livestock marketing specialist at Oklahoma State University, in his weekly market comments. “Marketings outpaced placements in August and pulled down the year-over-year increase in feedlot inventories, though not as much as expected.”
For the first eight months of the year, total placements are up 1.16 million head, an 8.4% year-over-year increase. “However, total marketings were up 0.847 million head, 6.1% more than last year, largely offsetting the increased placements. As a result, the September 1 on-feed inventory was up a modest 369,000 head year over year.”
Likewise, David Anderson, Extension livestock economist at Texas A&M University, explains in the most recent issue of In the Cattle Markets, “Total placements were 49,000 head above August 2016. That’s not a large number compared to total placements of 1.9 million. The 65,000 head increase in the heavier categories marketed over a likely two-month period is about 1,500 head per day, likely early in 2018, with maybe a few in late 2017.”
Plus, Peel notes that lighter carcass weights and continued strength in beef demand are offsetting some of the impact of increasing numbers and beef production.
For the year to date, steer carcasses averaged 14.1 pounds lower than last year, according to Peel. Heifer carcasses are 12.3 pounds lighter.
The August Choice beef price (retail, $5.94 per pound) was nearly 1% more than August of last year, Peel says. The All-Fresh beef retail price was fractionally higher than one year ago.
“It’s worth remembering also that current prices reflect the current market,” Anderson says. “The Cattle on Feed report contains information about supplies that will affect prices some months down the road. If anything, there is some fundamental market information that would suggest $108 fed cattle might be underpriced.”
“Clearly the supply challenges will continue for the foreseeable future,” Peel says. “However, 2017 has demonstrated very well that strong domestic and international demand for U.S. beef can mitigate much of the price pressure from growing beef production. Continued strong beef demand can limit 2018 cattle and beef price changes to modest declines.”
Consider last week’s USDA Cold Storage report indicating that total frozen beef supplies were 10% more than the previous month, but down slightly from last year. Total red meat supplies in freezers were 7% more than the previous month, but 3% less than last year.
“Even with very large tonnage being produced, most products (red meat) have continued to flow through marketing chains at a brisk pace and stocks have not increased year-over-year,” say analysts with the Livestock Marketing Information Center, in the latest Livestock Monitor.