CoF called bullish all around

Cattle Market & Farm Reports, Editorials
Sep 27, 2004
by WLJ
— Marketings could mean $86-plus feds.
— Placements down third straight month.

Market analysts were quick to call USDA's September 1 Cattle-on-Feed (CoF) Report, released September 17, supportive to both the cattle futures complex and the cash fed cattle market. Leading the optimism was last month's double-digit-percentage drop in August feedlot placements, compared to 2003, and an August marketing figure that was at the top end of analysts' pre-report estimates.
According to USDA, U.S. feedlots placed 2.1 million head of feeder cattle during August, 12 percent below last year and six percent below 2002. In addition, that figure was the second lowest since 1996, which is the first year this specific data series started being collected. The range of analysts' pre-report guesses was 86-98.5 percent, compared to last year, however, a majority of those guesses were over 92 percent. The average guess was 94.5 percent.
USDA said August fed cattle marketings totaled 1.92 million, seven percent below 2003 and 10 percent below 2002. While that is the lowest August marketing figure since 1996, it was at the very top end of analysts' guesses, which ranged between 87-93 percent of last year.
Total U.S. feedlot inventory, as of September 1, tallied 9.97 million head, one percent above last year but two percent fewer than two years ago. Most analysts expected the on-feed figure to range between 102.5-105 percent, compared to 2003.
Several analysts indicated this was the first time in a long time the on-feed report could actually result in some direct impact on the cash fed market, because marketings and placement figures were both better-than-expected.
Most of the time pre-report projections are rather close to USDA's data, and the market has already been adjusted accordingly, several analysts said. This time there were some fairly big surprises that were positive, which should result in better prices the next couple of weeks.
Most analysts said better-than-expected marketings were resulting in finishing weights of cattle discontinuing their significant week-to-week climbs, which were seen most of June, July and August.
Richard Nelson, livestock market analyst at Allendale Inc., said with slaughter weights leveling off, cattle feeders are becoming more comfortable with their marketing position and moving more cattle, particularly front-end supplies.
However, Jim Robb, lead economist at the Livestock Marketing Information Center, said that fed cattle sellers should be "cautiously optimistic."
"Nationally, weights are steadying, however, Kansas and Texas data shows weights skyrocketing," he said. "In addition, we had one more marketing this year than last year, which might be the reason why USDA's figure was better than expected."
The average daily marketing rate for August was approximately 87,400 head, 11,000 head below a year ago and 8,000 head fewer than the average over the previous five years.
"The report was positive, however, there are still some lingering concerns," Robb said.
While marketings appeared good for the near term fed cash market, the decline in August placements had analysts excited about deferred fed cattle futures. Last month marked the third straight month that monthly placements were down from a year ago. In fact the period of June, July and August saw one-third fewer cattle placed in feedlots, compared to last year.
According to Robb, there are very few yearling cattle available and cattle feeders are shying away from cattle that will require more overall expense because of taking longer to finish out. In addition, three months worth of losses has kept feeders from wanting to spend more money than they have to on replacement cattle.
Grazing interest has also picked up as fall grass and forage quality and quantity in the central and southern Plains and the Southwest have been called "unbelievably good to excellent."
"What heavy placements are out there are being placed. In fact, the only placement weight group to show an increase (compared to last year) was the 800 pounders and heavier," said Lance Zuhrmann, M&Z Livestock Analytics. "Every other weight category was down significantly."
There were only 506,000 head of six-weight calves and lighter placed in August, compared to 602,000 last year; 413,000 head were placed weighing 600-700 pounds, compared to 529,000 head last year; and 700-800 pound placements totaled 565,000, compared to 659,000 in August 2003. The heaviest weight category totaled 615,000 head, compared with 594,000 a year ago.
"There are a lot fewer cattle in feedlots that would normally be set for February through April marketings, and that bodes well for those months, futures wise," said Zuhrmann. "A third fewer cattle this summer is significant and should be a positive come late winter, early spring."
There was some concern expressed by analysts that feeder calf prices over the next few months may see some slight struggles because of larger-than-expected supplies being met by more finicky feedlot buyers.
Most analysts are fearful that a colder and wetter-than-normal winter will severely restrict the amount of money cattle feeders are willing to dole out because of the extra time, labor and expense it could take to transition cattle onto full feed and the additional health concerns that arise with extreme winter weather.
"The one thing fewer summer placements means is that more (feeder) cattle will be on the market this fall, and that means buyers can be more selective on what they buy and a little more judicious with the money they want to spend," said Zuhrmann. "However, it's not like the market is going to entirely crater. It's still likely that producers will get $12-15 more (per cwt) than they have in years past."
USDA's report also indicated that fewer placements were needed than last year because there were seven percent fewer disappearances reported this August, compared to last year. In most cases, analysts said feedlots were holding onto their cattle and feeding them through rather than releasing some out to fall pasture. — Steven D. Vetter, WLJ Editor