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Reports stoke fed cattle supply fears

Cattle and Beef Markets
Aug 11, 2017
by WLJ

— Market watchers try to divine future

Are there too many cattle coming on the horizon? Hereford calves at the feed bunk in 2007 during a Kansas State University (K-State).
K-State Research and Extension

Economics is often called a science. Sometimes it seems far more like superstition and soothsaying than science, however.

“Some cattle numbers crunchers believe August is the timeframe for peak market-ready fed cattle supplies, while others steadfastly predict September/October encases a ‘wall’ of fed cattle that will take the market down hard, regardless of front-end currentness,” commented Cassie Fish of the Beef Report last Tuesday.

“Some even say the supply will be so large, it will swamp the available fed cattle capacity, though it’s important to point out, not everyone agrees with this assessment.

Still, the drumbeat of this worry has grown louder since turning the calendar to August and yesterday’s unexpected and cheaper out-front smattering of cash cattle sales were apparently a response to that worry.”

Recent reports do a lot to stoke such fears. Placements of cattle onto feed throughout the year paint a potentially foreboding picture, for instance.

“USDA Cattle on Feed reports have shown heavy relative-to prior-year placements since March,” reported Dr. Stephen Koontz from Colorado State University’s agricultural and resource economics department. “Placements over this four-month span have been 11-16 percent above the prior year.”

The timing of cattle placement is another brick in the worrisome wall. Koontz pointed out that the inventories of cattle on feed for more than 90 days, and for more than 120 days show the volumes that are coming.

“Both of these calculated inventories are well below last year, communicating that marketings have been timely to aggressive through summer,” Koontz explained. “However, the inventory of animals on feed [more than] 120 days dropped sharply while the inventory [on feed for more than] 90 increased sharply. Showlists are clean but very big numbers are coming.”

“Aggressive marketings” was the reoccurring prescription to ward off sharp downside price risk according to more than just Koontz.

“By November, front-end fed cattle supplies will begin to increase rapidly,” prophesized Andrew Gottschalk of Hedgers Edge early last week.

“This buildup, relative to the prior year and the previous fiveyear average, should extend into the second quarter of 2018. It is imperative to maintain an aggressive marketing rate to prevent a serious backlog of fed cattle from developing. Such a backlog could take cattle below the $100 mark next year.”

The CME Daily Livestock Report last week speculated at some supply relief going forward, however.

“Weekly data on feeder cattle trade volumes for July could be indicating an end to the surge in placements of cattle going into feedlots that has been so notable for the last five months,” it predicted last Thursday.

“Feedlot placements in June were up 16 percent from the prior June, pushing up placements for the April-June quarter by 12 percent from a year earlier. Placements during the January-March quarter were up 8 percent.”

However—true to Fish’s observation of market watchers—Gottschalk reported that the Hedgers Edge estimates for the August Cattle on Feed report include a 10.2 percent year to-year increase in cattle placements during July.

“Needless to say, cumulative placements above yearago levels have long-term bearish fed cattle price implications and negative product value outlooks.” — WLJ

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