The futures market had a huge limit down reaction to the most recent Cattle on Feed report. Cattle on feed numbers were just 100.6% higher than last year. We knew more cattle would be available in late October. The cash fed cattle market was trading at the $183 level at mid-week, $3 lower than the week before. I would call the market short-term bearish.
What seemed to trip the futures trigger was September placements, which were 6.1% higher than last year. Futures traders fled for the door and sold the market. But the cash market will adjust fine. Packers still need cattle going into the holidays. The Choice cutout is on the move and was trading at $307, and slaughter levels are picking up. Over 100,000 head of fed cattle traded through the week ending Oct. 22 on the cash market, with a weighted average of $186.33. Packers processed 638,000 head and slaughter should be the same level for the next few weeks.
Derrell S. Peel, Oklahoma State University Extension livestock marketing specialist said, “Higher placements and reduced marketings resulted in an October 1 feedlot inventory of 11.58 million head, 0.6% higher than one year ago. This was the first year-over-year increase in 13 months and the second highest October on-feed total in the data series back to 1996. The October USDA Cattle on Feed report showed September feedlot marketings down 10.6% year over year. This marketing total reflects one less business day in the month compared to last year and was slightly less than average pre-report estimates for marketings. September feedlot placements were up 6.1% from one year ago. Placements were expected to be up year over year, but this total was larger than pre-report estimates.”
The feeder cattle markets have been taking a beating on the futures board. September feeder cattle were trading at $267 in September, the October contract is down to the $238 level and the CME Feeder Cattle Index is at the $240 level. Be reminded there are a million fewer feeder cattle available this year over last year. Beef production will be down again in 2024. Light feeder steers are still bringing over $300 in the markets and 650-pound calves are trading at the $250 level. Cash is king.
The Boys at HedgersEdge.com seem to think we may see new highs: “The feeder and calf supply outside feedyards is estimated to be down 1.096 million head from year ago levels. This is less of a reduction than the 1.3 million drop reported on July 1. Reduced placements during the third quarter (down 132,000 Y/Y) account for the change from July 1. Feeders challenged their historic ‘cyclical’ price ratio high versus fed cattle during September. A price retreat this month was expected. This does not imply feeders have attained their ‘cyclical’ high price for this cattle cycle. However, it does indicate that fed cattle prices need to advance to pull feeders to new price highs. New cyclical highs for both fed cattle and feeders are expected during the upcoming year. “
Beef demand must stay strong for cattle prices to advance. The holiday rib and tenderloin markets typically lift the cutout values, and this year should be no different. Economic reports indicate consumers are still spending. The main drivers for beef demand are wages and employment and there don’t seem to be any problems in that regard. Credit card debt and mortgage debt appear to be the grey clouds on the horizon.
The latest USDA Retail Report for the seven-day period ending Oct. 26 shows beef prices being featured by 63.2% of the 29,200 retailers surveyed. That is 8 percentage points below the prior week and 0.2 points below the same week last year. 80% seems to be the level indicating strong retail demand. Beef production is down 5.3% so far this year and is estimated to be down another 6.5% in 2024.
The number of heifers on feed is about 40% of the fed steer and heifers on feed, which is the highest since October 2001. Monthly slaughter data through September shows that total female (cow plus heifer) slaughter has averaged 51.8% of total cattle slaughter for the past 12 months. This is the highest 12-month average female slaughter percentage since August 1986. The latest slaughter data and the latest Cattle on Feed report both suggest that heifer retention is not beginning in 2023, more like 2025, according to Peel.
There are always curve balls thrown at cattle markets, but this should be a short-lived hiccup due to the heavy placements, this market still has more upside. — PETE CROW
