Calf and stocker prices continue higher

Calf and stocker prices continue higher

Bearish feedlot placements and sluggish fed cattle sales helped to pressure futures prices at the end of the week.

Warmer weather and greening grass across wide swaths of the nation continued to boost demand for calves and feeders this week.

Calves and stocker-weight cattle traded mostly firm to $5 per cwt higher, with instances of as much as $10 higher, according to the Agricultural Marketing Service (AMS). Yearlings weighing more than 800 pounds sold mostly $2-$5 higher.

“Signals from last week’s higher fed cattle market, cattle futures staying in positive territory and surging boxed-beef values helped to keep the uptrend intact,” AMS analysts explained.  

At least that was true until Friday afternoon.

Cattle futures unraveled late Friday, pressured by technical correction, positioning ahead of the monthly Cattle on Feed report (more later) sluggish fed cattle trade and softer wholesale beef values.

After spot Mar, Feeder Cattle futures were an average of $3.55 lower on Friday. Week to week, they were $1.90 lower, except for the spot month.

Live Cattle futures closed an average of $1.48 lower on Friday. They were mostly lower week to week; an average of $1.23 lower in the back three contracts.

Although $7.76 per cwt higher week to week at $231.81, Choice boxed beef cutout value was $2.83 lower Friday afternoon (see “Consumers showing price fatigue” below). Select was $7.21 higher week to week.

“Demand is limited as cattle futures closed lower for the second consecutive day, slaughter weights have not gotten any lighter and demand for beef trimmings has faltered at the retail level,” AMS analysts explained.

Cash fed cattle trade showed some initial promise Friday afternoon. A few live sales in the Texas Panhandle were $2 higher than last week at $140 per cwt. Scattered dressed sales in Nebraska were $3-$5 higher at $223-$225; $2 higher in Iowa-Minnesota at $222. But there were too few transactions to trend in any region.

Feedlot placements higher than expected

At the same time, the markets are at the beginning stages of dealing with increasing cattle numbers wrought by herd expansion.

“Recent auction receipts indicate year-over-year larger feeder cattle sale runs in many areas, which in the Southern Plains could indicate that feeder cattle are coming off wheat pasture in significant numbers,” say analysts with USDA’s Economic Research Service (ERS) in the monthly Livestock, Dairy and Poultry Outlook released this week. “However, given that feeder cattle supplies outside feedlots on January 1 were 5% higher year over year and forage supplies in much of the country were adequate for over-wintering cattle, these large runs could reflect sales of more than just wheat cattle…this could boost year-over-year cattle on feed inventories over the near term, exerting downward pressure on feeder cattle prices.”

The monthly Cattle on Feed report issued Friday suggests as much. It will likely be viewed bearish with February placements (1.71 million head) 10% more than a year earlier. That’s about 1% more than the average estimate of analysts surveyed by Urner Barry ahead of the report. Len Steiner and Steve Meyer shared survey results in their Daily Livestock Report. Feeder cattle weighing 800 pounds and heavier were 37% of the placements.

Feedlot marketings in February (1.59 million head) were 5% more than a year earlier. That was also a little higher than pre-report estimates of 4.6%. Keep in mind that there was an extra marketing day in February this year.

Feedlot inventory of 10.8 million head on March 1 was 1% more than a year earlier. Estimates ahead of the report projected an increase of less than 1%.

Although continued herd expansion—fewer heifers available for feeding—may limit feedlot placements in the short-term, ERS analysts expect placement to increase sooner rather than later.

“In addition to the higher number of cattle outside feedlots, the length of time cattle are kept on feed before being marketed is a factor in determining feedlot inventories,” ERS analysts explain. “This has led to higher inventories of cattle on feed during much of the last year, despite lower year-over-year net placements of cattle on feed.

“Since November of 2014, cattle on feed numbers have been relatively inflated, in part because cattle were kept on feed for longer periods. The inflation occurred even as cattle continued to be placed on feed at lower year-over-year rates, which resulted in the large inventories of over-finished, extremely large cattle in much of 2015. Keeping cattle on feed for longer periods has been a rational decision up to this point because of relatively inexpensive feed, high prices for feeder cattle to replace marketed fed cattle, and inconsequential discounts for large carcasses or excess fat.

“To some extent, the backlog of over-finished cattle has been reduced, aided somewhat by the impact of cold winter weather on weight gains and the greatly reduced calf crops of recent years (a result of ongoing drought and resulting reductions in U.S. cow inventories),” ERS analysts say.

There’s sure to be plenty of wonderment surrounding the futures swoon on Friday, as well as the Cattle on Feed report. But grass fever appears to be hitting its stride and outside markets appear willing to provide a positive backdrop.

Crude Oil futures (WTI-ICE) were up an average of $2.03 per barrel week to week on Friday. That’s close to $5 higher in the last two weeks.

The Dow Jones Industrial Average was up another 388 points week to week, with the broader S&P 500 up another 27. Compared to two weeks earlier, that’s 535 points higher and 49 points higher, respectively.

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