PRINTABLE VERSION   EMAIL TO A FRIEND   RSS FEEDS 17:48 UK, 24th Mar 2014, by Agrimoney.com
The 11% rule helps cattle prices beat bearish data

The 11% rule helped cattle futures rebound despite data showing a surprisingly large rise in placements of animals on feedlots, implying a bigger supply of beef ahead and in theory a setback for prices.

Live cattle futures indeed opened weaker in Chicago, after the US Department of Agriculture revealed late on Friday that domestic feedlots hiked placements by 14.7% year on year to 1.65m head last month, well ahead of market expectations of a 9.1% increase.

The number, equivalent to an extra 80,000 head of cattle placed on feedlots above market forecasts, was viewed as "bearish" by many brokers, including Country Futures which said that "in our opinion, both June and August live cattle futures have forged spring highs and will be trending lower into June".

The broker added: "We are short the June and August live cattle [futures contracts] and likely long feeders right now," feeder cattle being animals ready for placing on feedlots, with live cattle those fattened for slaughter.

The 11% rule

However, live cattle futures recovered ground to stand higher in late deals, when the best-traded June contract was up 0.2% at 136.425 cents a pound.

USDA March Cattle on Feed report and (market forecast)

On Feed, March 1: 99.5%, (98.8%)

Placed on feedlots in February: 114.7%, (109.1%)

Marketed in February: 96.6%, (97.1%)

Figures expressed as percentages of year-ago levels

The rebound reflected ideas that a seasonal drop in spot cattle prices seen between now - when values are being supported by the prospect of demand spurred by events such as father's day and early summer grilling and a seasonal mid-summer low had already been priced.

"Typically, what happens that the market drops 11% from the cash tops out to the summer lows," Don Roose, president of Iowa-based broker US Commodities, told Agrimoney.com.

With the cash market peaking at the equivalent of 153 cents a pound, so far, an 11% retreat implies a level of 136 cents a pound where the June contract is already.

The August contract, at 133.725 cents a pound, "may be a bit on the downside", Mr Roose said.

He also flagged the discount of futures markets to cash markets as a support, and the high prices of rival meat pork, being supported by the dent to US production from the outbreak of porcine epidemic diahorrea virus (PEDv), of which more will be gauged from a quarterly report on Friday.

'Supply hole'

Separately, Paragon Economics and Steiner Consulting urged investors to keep the data "in context", saying that, with feedlot population still low by historical standards, "there will not be a flood of market-ready cattle come summer relative to historical levels.

"Just more than there have been, and the futures market obviously knows that already."

Furthermore, with the US cattle herd small, and the number outside feedlots starting the year at the lowest on record, there will be limited supplies of feeder cattle to keep boosting the numbers on feed.

"Placing cattle now means they cannot be placed in the future and the spring calf crop will not be available until fall or winter," the groups said, adding that this dynamic echoed that of this year, when a shortage of animals has helped drive live cattle prices to a record high.

"The bottom line is that these placements are likely setting us up for low placements once again this summer," and another "hole" in supplies of fattened cattle come the first quarter of 2015.

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