The latest Cattle on Feed (COF) report, which we hadn’t seen yet ahead of press time, was expected to show more cattle on feed than last year. The big September placements shook the markets pretty good as we watched feeder cattle lose $40/cwt in just a few weeks. This next COF report is expected to show October placements up around 7%, according to the market analysts; is this going to shake the market again? The average analyst guess was 101.9% on feed, 106.1% placed and 98% marketed with one extra marketing day.
The holiday markets usually bolster the rib values and raise the cutout values, but that hasn’t happened yet. Packers were buying for a short processing week with Thanksgiving ahead of us. They have been processing fewer cattle than a year ago, but the cutout appears stuck at the $300 level; it should pick up after Thanksgiving and into the new year.
Futures markets haven’t been kind, the longs started leaving the building several weeks ago and broke both the fed cattle and feeder cattle contracts, but they should return soon. The CME Feeder Cattle Index is now $232.40. However, light steer calves under 550 pounds are selling well, long-weaned calves are bringing the most, and unweaned calves are selling at a big discount—this is pretty common going into winter.
Dr. Derrell Peel, economist at Oklahoma State University, remarked, “Strong feeder prices can also impact live cattle imports. Mexican feeder cattle imports, which were at the lowest level since 2008 last year are up sharply in 2023. The January-September total Mexican cattle imports were up 45.9% year over year. However, the current year-to-date total is down 3.6% from the 2017-21 average for the first nine months of the year. Imports of Canadian feeder cattle are down 24.6% for the year to date from last year and are down 35.7% from the 2017-21 average level.
“Nationally, beef cow slaughter is down 12.6% year over year for the year to date. However, the decrease has been smaller, down just 8.4% year over year in the last eight weeks. The current pace of beef cow slaughter suggests a 2023 herd culling rate of 12%, above the long-term average rate of about 10% and indicates additional herd liquidation.
“Taken together, the feeder marketings, feedlot placements and slaughter data all suggest that the industry continues to extract animals from the system in a manner that indicates continued liquidation. Cattle numbers generally will continue to get tighter in 2024. When heifer retention and herd rebuilding begin, cattle numbers will get significantly tighter very quickly.”
Kirk Donsbach at StoneX said, “There has been a lot of chatter that declining exports and increasing imports caused our recent market collapse. While that statement is factually true, imports are up 7% and exports are down 15%, it has been true for months. It was true when cattle futures were setting all-time highs. I do not correlate imports and exports in the last two weeks of trade. In my opinion, the overly long funds got a bearish Cattle on Feed report, and they took their money and left. Without them, there were not enough buyers to support the market once it started selling off. Stop orders were hit and the market cascaded lower. Packers facing slim margins were happy to take advantage. When the market gets cheap enough (don’t know where that is) the funds will be buyers again.”
It still seems the market is trying to rationalize cattle and grain prices. All the analysts agree that the markets are long-term bullish and herd rebuilding won’t start in earnest until 2024, providing we have good moisture—it’s starting to get dry again.
Cattle feeders will need to move cattle over the next few weeks at a lower price to clear inventory. The COF report never seems to tell us how many cattle are ready at any given time; placement weights will tell us a lot, but we’re loading feedlots for next spring when high demand grilling season starts. — PETE CROW
