US - Fed cattle futures have been buoyed in recent days on firm cash prices and hopes for a more positive outlook for beef demand going into Thanksgiving and Year End holidays, according to the latest Daily Livestock Report published by Steiner Consulting Group, DLR Division, Inc.
There were indications of higher cash prices paid over the weekend and early this week, which were then further confirmed by the results of the latest Fed Cattle Exchange.
We know that some of our readers follow the exchange sale results in real time but for those that do not, you can find the results of the latest auction results (as well as previous sale numbers) by going to: https://www.fedcattleexchange.com/page/SaleResults.
The volume traded on the exchange was relatively light when it got started again in September but in the last two sessions the number of cattle coming through has been quite significant, especially given the dearth of market discovery that we often saw in mid-week.
The exchange showed a total of 5,280 steers sold with a weighted average price of $103.3/cwt. Some steers traded as high as $104.74. Heifer sales were 3,891 head and a weighted average price of $104.3/cwt. These sales are notably higher than the 5‐area average at the end of last which was quoted under $100.
The question among market participants at this point is whether the current rally is sustainable going into December and possibly even into spring.
Last year we saw a similar rally in Dec fed cattle futures only to see it crash and burn by early December. December 2015 fed cattle futures rallied from $130/cwt in early October to the mid-140s by the end of October, a 10.5 per cent rally. However, fed cattle futures steadily lost ground and by mid December were as low as $117, an 18.5 per cent decline from late October prices.
Will this time be different? Those that hold a more bullish view of the market could point to a number of factors that should be supportive of fed cattle values in the short term.
For one, fed cattle supplies are more current than a year ago. As of October 1, the supply of cattle that have been on feed for more than 120 days was 3.579 million head, 7.5 per cent lower than a year ago.
However, if you have a bearish view of cattle the counter argument to this would be that feedlots continue to place cattle on feed heavier weights, which means they need to spend less time on feed in order to get market ready. Since June, placements of +700 pound cattle have been +9.2 per cent higher than the previous year. Steer weights continue to move up, as well.
Also consider that the monthly report only covers feedlots with +1000 head capacity. What we do not know is the supply of cattle coming from smaller feedlots relative to previous years. In a market where cash trade is quite thin, the flow of cattle from smaller operations with arguably less bargaining power and in certain parts of the country (IA/MN for example) could skew prices more than one would expect.
In our view, what will be critical for fed cattle prices for the next two months is beef demand. Prices of competing proteins are extremely low but will retailers and foodservice operators find enough value in beef to run promotions for the holidays?
That was the speculation last year, which helped fuel the modest rally in October (see bump in the choice cutout last year) but those hopes were dashed in November and December. Middle meats are particularly important and they will depend greatly on retailers putting ribs on sale as well as foodservice operators seeing improved foot traffic and better holiday parties.
We think retail sales will be robust as retailers know consumers are willing to spend a bit more at this time of year and beef provides an opportunity to bolster revenues (much more so than pork and chicken). Foodservice business so far has been week and any improvements there will be welcome news for cattle producers after several months of prices steadily grinding lower.
TheCattleSite News Desk