It’s been a tough winter on everyone in the cattle business. The counting of cattle losses and poor performance will go on for several more weeks. The last Cattle on Feed report had many market analysts perplexed as to just how many cattle were ready for slaughter. With five months of lower placements and a miserable February and March, most assumed that placements into feedlots would be lower again.
This was the big surprise; the average analyst guess was that placements would be down 3.8 percent from a year ago while USDA figured they would up 2.2 percent over a year ago. The pre-report number of all cattle on feed was also expected to be down three-tenths of a percent but were actually seven-tenths higher. Not really a big deal. Fed cattle marketings were a half of 1 percent higher, which was the third highest since 2012, just 87,000 head above the previous five-year average. However, the marketing rate, cattle sold vs. available supply, was the second lowest on record.
Nonetheless, the bearish news sent live cattle futures into a nosedive last week, losing around $3 for the week. Trade broke last Thursday with Southern Plains feeders eager to sell at $125-126, and Corn Belt feeders at $126-129 live and $205-209 dressed. Feeders were motivated sellers and needed to get cattle out that have quit performing and replace them with fresh cattle.
The boxed beef cutout gave way as packers start in earnest to step up slaughter and meet seasonal demand. Slaughter this week was expected to reach 625,000 head. The weather is warming, and grilling season is just around the corner. Many analysts are thinking the winter high has been made.
One would think that ready-cattle supplies are building. But beef supplies have lagged behind due to lower carcass weights. Carcass weights averaged 16 pounds lower last week, which means beef production was down 2 percent. In the big picture cattle slaughter was down just one-tenth of a percent and beef production was down 1.4 percent year to date, illustrating tough winter-feeding conditions and setting the stage for atypical late summer fed markets.
According to Andy Gottschalk at Hedgers Edge, “While carcass weights have been reduced, the number of front-end fed cattle on feed project to remain above prior levels into September. By Sept. 1, this category of cattle projects to approximate the previous year, provided orderly marketings are maintained. A sub-category of cattle on feed 150+ days is measured as those cattle on feed 120 days, or future front-end marketable supplies. This category of cattle project to decline by 2.7 percent vs. the prior year on Sept. 1. Thus, the trend is set for front-end fed cattle supplies to enter the late summer and fall in an improved position versus 2018. The caveat is orderly marketings must be maintained.”
The other wildcard to be watching is the African swine flu situation in China. The Peoples Republic of China’s ag minister said recently that their hog inventory will be down 16.6 percent from a year ago. A couple weeks ago China reported a U.S. pork order of 23.8 metric tons of pork for the week ending March 7; this was the third largest weekly order in history. During the past three weeks the pork cutout has advanced 26.5 percent and hog futures have gone off the chart. August lean hogs were trading at $96 last week. It appears that everyone in the global meat trade is thinking China will be desperate for pork in a few months.
Cassie Fish at Consolidated Beef Producers pointed out that “What many Americans don’t realize is that the EU is the No. 1 exporter of pork to China, followed by Canada. Though stats aren’t available for the last six months, market intel reports state that South America has already stepped in and sharply upped beef, poultry and even pork exports to China. And that is expected to continue. China already imports beef from Australia and New Zealand. Point is China has other sources for protein.” For instance, China pork imports in February were 75% higher than a year sago and 2/3 of the additional supply came from EU countries.
Then there is Japan where U.S. cattlemen are desperate to get a free trade deal done and reduce tariffs on U.S. beef. The Trans-Pacific Partnership has already placed U.S. beef exporters at a huge disadvantage. I realize that the government is working on these trade deals, but they sure don’t seem like they’re completing them fast enough. — PETE CROW
