The beef complex is set up for "explosive" markets next year thanks to the drop in supplies ahead implied by a plunge in the number of cattle being taken on to feedlots, a leading broker said.
A little over 2.0m head of cattle were placed last month for fattening on US feedlots, down 18.8% year on year, the US Department of Agriculture said.
The placements figure, the lowest for a September since the USDA began collecting the data in 1996, was also well below the number expected by investors, who had forecast a 14.9% drop.
The decline was attributed to the impact of high grain prices in curtailing feedlots' appetite for taking on further animals
"The report showed us that the price of corn is slowing down demand," Paul Georgy at broker Allendale said.
'Viewed as bullish'
And it was viewed as likely to boost prices of live cattle – those ready for slaughter – besides feeding through into higher prices of beef,
"The bottom-line on the report has to be considered bullish," Mr Georgy said.
A report from Paragon Economics and Steiner Consulting said that the report "will almost certainly be viewed as bullish by live cattle futures markets, especially for the deferred contracts".
In fact, the reaction on markets was fairly muted, with Chicago's spot October contract losing 0.05 cents to at 126.25 cents a pound, while the best-traded December easing 0.075 cents to 127.20 cents a pound.
'Going to be a supply shock'
However, this calm looks unlikely to last for too long, given the tightness in beef supplies next year implied by last month's lower placements, FCStone's Ryan Turner said.
"When we get into spring next year, and we have a look at what production will be, there is the potential to have some explosive markets," Mr Turner told Agrimoney.com.
"There is going to be a supply shock – there is no doubt about it in my mind."
The degree of the market response depended on the reaction of consumers to paying more for beef.
"If beef prices are high enough, people will stop using it," Mr Turner said.
Key price level
Indeed, broker US Commodities noted how beef prices appeared "to be stalling", despite a rise of $2 a hundredweight to $127 a hundredweight in cash cattle values last week, flagging that when choice beef approaches $200 per hundredweight or so on a dressed basis "the demand slows".
However, cattle supply looked like "being tight enough" to break through that level, and might have done so already were it not for the extra weight of animals, which has made up for weak slaughter rates, Mr Turner said.
He put Monday's relative weakness in cattle values down in part to the lack of a "shock factor" in the cattle on feed report.
Other investors cited caution amid a continuing sell-down by funds of their net long position in Chicago live cattle futures and options, with the number falling for a fourth successive week to less than half levels a month before, regulatory data late on Friday showed
The Denver-based Livestock Information Centre sees US beef output falling 4.2% next year, with a drop in cattle slaughter of 4.5% offset in part by higher slaughter weights.