Cattle futures shrug off 'bearish' feedlot data

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 March".

'Supplies are still tight'

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

"Supplies are still tight, and will remain so for a while."

Limiting factor

"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 least 2015."

'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 Roose said.

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

"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.

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