Linked In
News In
Linked In

You are viewing your 1 complimentary article.

Register now to receive full access.

Already registered?

Login | Join us now

Wheat quirk questions case for getting bearish on feeder cattle

Twitter Linkedin eCard

Investors should be wary of getting too bearish on feeder cattle prices – thanks in part to a knock-on effect of weak wheat prices earlier this year.

Futures in feeder cattle, animals ready to be fattened on feedlots, have fallen sharply in the last 10 days, undermined by ideas of a seasonal easing in beef demand ahead, following the father's day boost to demand.

Meanwhile, strong placements of feeder cattle on feedlots of late have been taken by some investors as a sign of ample supply.

In the last session, some feeder cattle futures contracts tumbled the 4.50-cents-a-pound limit in Chicago, down in the last session, with the spot August lot ending down 2.6% at 146.125 cents a pound, down 9% over the 10-day slide, and reporting its weakest finish in nearly two months.

"Both live and feeder cattle markets are now looking decidedly wobbly," said Tobin Gorey at Commonwealth Bank of Australia, flagging that funds, "heavily long, have been selling but are likely to have still more to sell".

The managed money net long in Chicago feeder cattle futures options, at 17,368 contracts last week, was among the highest of the last five years.

Wheat grazing

However, US Department of Agriculture officials cautioned against getting too downbeat on feeder cattle prices, questioning whether the period of strong placements, which were up 12% year on year in April, can last for long.

April's surge in placements on feedlots compared with only a modest rise, of 0.4%, in the number of feeder cattle outside feedlots as of the start of that month.

The extent of the jump in numbers of feeder cattle heading to feedlots reflected in part the lure to producers of strong prices, but also a temporary spike in availability as animals were removed from winter wheat pasture, to free up the land for spring plantings.

'Tightened supplies'

"Higher-than-normal wheat graze-out likely occurred in the southern Plains as a result of very low wheat prices," the USDA said.

"Then those calves on wheat pastures were likely marketed in April, allowing for wheat producers to plant a summer crop."

In fact, the "large placements of calves during April would likely have further tightened the number of feeder calves available outside the feedlots".

"Although feeder calf prices are expected to decline from their second-quarter peak, they will remain above year-earlier levels into early 2018."

'Already moved'

The thinking on feeder cattle supplies was echoed too by livestock analysts at Steiner Consulting, who said that so far this year, feedlot placements have exceeded year-ago levels by 595,000 head, equivalent to an 8% increase.

That is more than the 565,000-head increase in the total 2015 calf crop.

"Most of the increase in calf crops that has been registered for 2016, or earlier, has already been moved into feedlots," Steiner Consulting said.

"From this point forward, it becomes difficult to see how the supply of calves or yearling cattle will support any increase in feedlot placements relative to a year earlier."

By Mike Verdin

Twitter Linkedin eCard
Related Stories

Evening markets: Soybean futures gain, cotton prices jump on US data

Initial USDA forecasts for crop supply and demand for 2018-19 lift soy and cotton prices, but are not so well received in the cotton market

US soy exports to rebound to record top in 2018-19 - but corn, wheat volumes to fall

The USDA, in much-anticipated forecasts, sees a boost to soybean trade from Argentina’s woes. But corn, wheat exports face strong competition

Demand for US soybeans, soymeal tumbles, as prices soar

US export sales of soymeal hit a 2017-18 low, and those of soybeans turn negative. But in cotton, buyers step in as prices fall

World wheat output to fall this year - but not barley, corn, rapeseed harvests

But corn stocks, like wheat inventories, look like declining over 2018-19, the IGC says, in its first forecast for the grain
Home | About | RSS | Commodities | Companies | Markets | Legal disclaimer | Privacy policy | Contact

Our Brands: Comtell | Feedinfo | FGInsight

© 2017 and Agrimoney are trademarks of Agrimoney Ltd
Agrimoney is part of AgriBriefing Ltd
Agrimoney Ltd is registered in England & Wales. Registered number: 09239069