Cattle futures ease, as feedlot numbers beat forecasts

Cattle futures eased as investors assessed data showing not only a surprise increase in the number of animals placed for fattening on feedlots, but at higher weights too, implying some easing in market tightness.

Live cattle futures for June, the best-traded lot, stood down 0.6% at 150.375 cents a pound in early afternoon deals in Chicago, with August feeder cattle down 1.0% at 213.625 cents a pound.

The decline followed data on Friday showing that the number of cattle on US feedlots held at 10.8m head as of the start of this month, rather that showing the 100,000-head decline year on year that investors had expected.

The dynamic was driven by an unexpected, if small, increase to 1.81m head in the number of animals placed on feedlots in March.

Investors had expected a drop of some 80,000 head in placements.

'Recurring theme'

Furthermore, the weight of animals placed on feedlots was, at 734.2 pounds, higher than a year ago too, by more than 13 pounds and up 7.7 pounds on the weight in February too.

The theme of higher weights, and improving supplies, of feeder cattle (ie animals ready to be placed on feedlots) tallied with ideas of them being left for longer on wheat pasture, a theme highlighted by two weeks ago.

Signally, placements in Texas, the top cattle state, where using winter wheat as grazing for cattle is particularly common, rose 47% month on month in March, well ahead of the national average of 17%.

The trend of heavier feeder cattle weights "is a recurring theme in recent months that will likely have the effect of widening the spread between summer and fall/winter futures", said a report by Paragon Economics and Steiner Consulting.

Animals are typically on feed for about six months, meaning the animals placed last month will likely in autumn come to the market as fattened, or so-called "live", cattle.

'Mildly-to-moderately bearish'

Paragon Economics and Steiner Consulting added that the USDA report "is being viewed as mildly-to-moderately bearish for trade, given that each of the key figures is larger than both one year ago and the respective average of analysts' pre‐report estimates".

Morgan Stanley said that that the USDA report "skews bearish for prices," adding that the data appeared "modestly more bearish for feeder cattle than for live cattle, as increased placements - despite relatively poor feedlot margins - hints at our long-awaited increase in feeder cattle availability".

While futures in feeder cattle last week outperformed those of live cattle, "we expect this relative outperformance to reverse" this week.

'Had to come to feedlots'

At Texas A&M University, livestock economist David Anderson also said that the report was "viewed as bearish in that it shows that there are more cattle on feed than the pre-report expectations".

But Professor Anderson noted that a move onto feedlots had been predictable to some extent, given estimates of the total US inventory.

"I think we all thought those numbers of cattle were out there," Professor Anderson told

 "Sooner or later those cattle had to come to feedlots"

Professor Anderson also noted the potential, with feedlot cattle weights increasing, for animals to continue to come to slaughter at elevated weights.

However, long-term dynamics still suggest a thin supply of beef.

"Those longer-term trends are with us," he said.

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