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USDA Cattle on Feed Report Very Near Trade Expectations

USDA Cattle on Feed Report Very Near Trade Expectations

No market impact from USDA Cattle on Feed likely on Monday; traders more likely to focus on aftermath of this week's sharp plunge and bounce back.

Update: See the recap of the Jan. 23, 2015, USDA Cattle on Feed report

Cattle and calves on feed for slaughter market in the United States for feedlots with capacity of 1,000 or more head totaled 10.876 million head on Dec. 1. The inventory was 1% above Dec. 1, 2013, but a tad above the average trade guess in advance of the report of 10.853 million.

No market impact from USDA Cattle on Feed likely on Monday; traders more likely to focus on aftermath of this week's sharp plunge and bounce back.

Placements in feedlots during November totaled 1.792 million, 4% below 2013, very close to the average trade guess of 1.794 million. Net placements were 1.72 million head. During November, placements of cattle and calves weighing less than 600 pounds were 550,000, 600 to 699 pounds were 440,000, 700 to 799 pounds were 362,000 and 800 pounds and greater were 440,000. November's placements are the second lowest for the month of November since the series began in 1996.

Despite the 1% uptick in the Dec. 1, cattle on feed inventory, the second lowest placements in 18 years says no surge in fed cattle marketings lies ahead.

Marketings of fed cattle during November totaled 1.475 million, 11% below 2013, and a tad below the average trade guess of 1.492 million. November marketings are the lowest since the series began in 1996.

Other disappearance totaled 74,000 during November, 9% above 2013. Other disappearance can be many things. Cattle moving between lots and death loss are two. Other disappearance also includes cows and heifers that have been in feedlots and go back to cow-calf herds. The 9% uptick suggests that some of the later may be occurring.

Market seeks clearing price level. Feeder cattle futures locked limit down for five straight days before rebounding Thursday and Friday. Fed cattle followed the same general pattern, although not quite as severely.

Thoughts that futures had overdone their price surge to the nose bleed stratosphere triggered the drop. Once panic selling set in, the market ran out of buyers.

The late week bounce suggests the price collapse subsequently overdid the move to the downside. Traders have the weekend to assess what they think market-clearing levels will be going forward. Their conclusions will guide price action going into the Christmas break.

No relief for consumers soon. Average U.S. beef prices continued to trek higher this week as grocery stores promote roasts and steaks for holiday menus, according to the latest Wall Street Journal retail-meat survey.

This week's 15-cut average price for beef rose to $5.62 a pound from $5.45 last week. The year-ago average for beef was considerably less, at $4.12.

The five-cut average price for pork gained just 4 cents a pound, while the price of ham eased, the survey showed. Pork averaged $3.56 a pound this week, up from $3.52 a pound in the prior week. Average pork prices were $3.16 a pound in the same period a year ago.

The two-cut average for chicken prices declined by 40 cents a pound, to $1.82 a pound from $2.22 a pound in last week's survey. The average price of chicken was $1.58 a year ago.

This week's softness in fed cattle futures and plunge in feeder cattle futures and cash market weakness will take a while to show up in the meat case for several reasons:

Price adjustments can take up to six months to work through the system.

Second beef packer margins are deep in the red. Packers will strive to improve margins before trimming wholesale prices, if possible.

Third, retailers like to attract consumers with specials. But they do not like to whipsaw them on base prices. So lags occur in price changes.

Pork and chicken have price advantage. Tight supplies and fears of baby pig losses due to porcine epidemic diarrhea virus launched hog and cattle prices, plus wholesale beef and pork prices into the stratosphere. Hog and wholesale pork cutout values have now dipped to near year earlier levels. Cattle prices, though well off their highs, particularly after this week's slump, still remain at elevated levels. The wide beef-pork spread will eventually make pork a relative bargain at retail.

Overall meat demand appears to be holding strong. Plus consumers still prefer beef. Trade chatter hints that the most price sensitive consumers have been priced out of the beef market, leaving consumers with deep pockets still firmly entrenched in the market. Still, the sizable price spread between wholesale beef and wholesale pork and pork's much lower absolute value means pork will keep trying to draw buyers from beef. Broilers will keep trying to rob buyers from beef using the same tool—much lower relative prices.

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