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CME: Low Cattle Feeding Returns Affecting Feedlot Placements

22 December 2015

US - The Federal Reserve added 25 basis points (0.25 per cent) to the Federal Funds rate (their key short-term interest rate) and the world economy did not collapse, write CME analysts Steve Meyer and len Steiner.

In fact, the value of the US dollar did not surge, interest rate differentials between the US and other countries were already reflected in the value of the dollar. The Argentine peso dropped because of economic policy changes that have quickly happened in that country.

Closer to the livestock sectors, it was another volatile week in the futures markets for cattle and hogs, then on Friday cattle markets were limitup.

Huge US hog slaughter levels continued last week’s preliminary number was the largest since the week ending December 22, 2007, according to the LMIC maintained database of USDA data. Large carcass weights pulled weekly US Federally Inspected (FI) pork production to an all-time record high.

Beef production was large by 2014 and 2015 standards but not compared to levels posted just two years ago.

FI dressed steer weights reported on Thursday (for the week ending December 5th) were down 10 pounds week-on-week and were only 12 pounds above 2014’s. That was the smallest increase compared to a year ago for any week since the end of February of this year.

USDA’s National Agricultural Statistics Service (NASS) released their monthly Cattle on Feed report this Friday, compared to the average of industry pre-report estimates the report is “bullish”, at least for the first six months or so of 2016, compared to recent fed cattle (Live Cattle contract) price levels.

However, futures market prices after Fridays close and another day or so could reflect most of the upside potential unless more of a spark occurs than this one report.

What stands out in the report is: first, an 11 per cent year-over-year drop in placements of cattle into feedlots happened during November. Clearly, the disastrous cattle feeding returns on cattle sold in recent months continued to dampen enthusiasm and ability to buy feeder animals and calves to place on-feed.

Second, marketing of cattle by feedlots was at the top of the expected range, still that increase compared to 2014 was mostly due to one additional slaughter day.

At 10.8 million head, the NASS on-feed count was essentially equal to a year ago as of December 1st, the last time it did not have a significant year-over-year increase was as of April 1st of this year.

On the flip side, four consecutive months of year-over-year declines in cattle placed nationally have occurred and the number of head put onfeed has been below a year ago for nine of 11 months so far this year. That points to the fact of growing supplies of cattle outside of feedlots that will need to be placed sometime.

The January through November drop in cattle placed into the surveyed feedlots (those with 1000 or more head capacity) totaled just over 1 million head or 5 per cent.

The US calf crop increased in 2014 and did again in 2015 (the mid-year USDA-NASS estimate was 400,000 head above 2014’s), few of which have been placed into feedlots, yet.

By historical standards the number of cattle outside feedlot is not overwhelming and nationwide forage/hay supplies are good, but that number is increasing and will help cap the upside in feeder cattle and calf prices in the next few months.

In terms of steer and heifer marketing trends and beef production in 2016, head slaughtered will likely post rather modest year-over-year gains supported by faster marketing rates than in 2015. Watch for the biggest year-over-year increases in beef production to be in the second half of 2016.

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