Cattle prices pared losses, overcoming data showing that
feedlots raised placements by more than three times the rate expected,
encouraged by elevated beef prices and moderated feed costs.
Live cattle futures struggled in early deals in Chicago,
reacting to data showing that US feedlots took in 2.03m head of cattle last
month for fattening, up 160,000 head year on year.
That equated to an 8.6% rise, well above the 2.8% that investors
had expected, and implies that more animals will be available for slaughter in
the summer than had been thought.
The briefing was indeed seen as "bearish" by brokers such as
CHS Hedging, and "moderately bearish" by commentators Paragon Economics and
Steiner Consulting, with Country Futures forecasting that near-term contracts
will fare better than further ahead ones.
"The first thing that entered my mind was that the bull
spreads should, and I might add, need to work this week after looking at the placement
number," Country Futures' Jerry Stowell said.
"That should be the trend into early March."
'Very tight supplies'
The near-term February futures contract indeed proved the
best performer on Monday, standing 0.6% higher at 145.425 cents a pound in late
deals, having earlier hit a record high for a spot contract of 145.50 cents a pound.
The contract was spurred by data in the report showing that
the number of cattle on feed for more than 120 days, ie potentially approaching
finishing, as of February 1 was 19% down year on year.
"Supplies of market-ready cattle remain very tight," Paragon
Economics and Steiner Consulting said.
While this decline was lower than the 22% seen a month
before, it "still says that finished cattle numbers will be very tight through
'Supplies are still
However, contracts for later delivery pared losses, with the
June contract faring worst with a drop of a modest 0.4% to 132.25 cents a pound,
remaining 2.5 cents from its contract high set a month ago.
The resilience reflected ideas that, even with the extra
cattle placed on feedlots, populations on feed remains relatively low, implying
beef supplies will remain tight.
"Fed cattle numbers on feedlots have for 17 successive
months been below those of a year ago," Don Roose, president at Iowa-based
broker US Commodities, told Agrimoney.com.
"Supplies are still tight, and will remain so for a while."
"The limiting factor" for the rally live cattle futures was "the
price consumers are willing to pay for beef", rather than supply issues.
The US Department of Agriculture last week forecast a drop
of nearly 6%, to 24.4bn pounds, in commercial US beef production this year,
thanks to a reduction in the overall cattle herd and a growing willingness by
some ranchers to rebuild herds now feed prices have fallen.
"Despite the expansionary signals, both the US cattle
inventory and beef cow herd are expected to continue contracting during 2014,"
the USDA said.
"The biology of cattle implies that even breeding decisions
made this year will likely not be reflected in an increased calf crop until at
'Number is finite'
The rise in placements on feedlots also probably partly
reflected the impact of drought in some areas, such as California, prompting
livestock farmers to sell feeder cattle, those suitable for fattening, rather
than keep them for breeding and bear the cost of feeding them themselves, Mr
The rise in placements was actually particularly high on Nebraska
feedlots, soaring 17.2% year on year in the state.
Nonetheless, "the number of feeder cattle is finite", Mr
Roose told Agrimoney.com.
"The number of feeder cattle in the US is down about 675,000
on last year. Feedlots will likely rely more on imports from Canada and Mexico."
Even so they may find imports hard to find, with the USDA
foreseeing a 4% fall this year to 1.95m head, "as the Mexican herd, also diminished
by drought, enters its rebuilding phase".
Feeder cattle for April, the best-traded contract, were 0.3%
higher at 171.675 cents a pound.