It is still possible that supplies of fattened cattle will be "very tight" in the US towards the end of the year, despite a jump in placements in April at twice the pace that the market expected, a leading analyst said.
Prices of live cattle - that is, those ready for slaughter - tumbled the maximum daily limit in Chicago to a five-month low on data showing the number of animals placed for finishing in US feedlots jumping 9.9% last month.
The rise was way above a market forecast of a 4.3% increase, and put placements at nearly 1.8m head, the second-highest April figure since the US Department of Agriculture began publishing this data series in 1996.
Market sentiment was further damaged by separate statistics showing a rise of 20%, year on year, to 442.8m pounds in the amount of beef in cold storage as of the start of this month – the highest figure for 37 years.
We have nothing but bad news as we start another week of trading in cattle. Longs in the cattle are throwing in the towel today," Jerry Stowell at broker Country Futures said.
However, Steve Meyer, at Paragon Economics, said that the robust growth in placements could not continue given the declines in feeder cattle – those suitable for putting into feedlots - identified in separate USDA sector inventory reports, and falls in US calf numbers.
An alternative was that the inventory data themselves would prove erroneous.
"But most of us still think these [placement] numbers are going to go down pretty sharply," Dr Meyer told Agrimoney.com, adding that rebounding corn costs offered a disincentive for feedlots to take on animals too.
With the cattle placed on feedlots last month set to come ready for slaughter in October, there was still potential for numbers of fattened animals to dip into Christmas.
Dr Meyer said that he still expected the "'supplies are going to get very tight' idea" to come true later this year.
Drought and imports
The jump in April's placements was attributed in part to the deterioration of pasture conditions in America's drought-struck southern states, responsible for about one-third of the US cattle herd, and where winter wheat crops and cotton sowings have also suffered.
Placements in Kansas surged by 21%, in Texas by 28% and in Oklahoma, where some areas are suffering drier conditions than during the 1930s Dustbowl, by 33%, as farmers gave up on grass-finishing their animals.
Higher supplies from Mexico also played a role, although they "do not go anywhere near close to explaining all the difference" between the actual USDA number and market expectations, Dr Meyer said.
Live cattle for June stood down the daily exchange limit of 3.00 cents at 101.975 cents a pound in late deals, their lowest since the run up to Christmas, and down 17% from last month's record high.
Later lots, up to and including next year's April contract, stood limit down too.