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CME: Latest COF Report Labeled Neutral to Bearish

25 September 2018

US - Earlier this week, the DLR went through analyst expectations ahead of the "Cattle on Feed" report. Friday’s release of the actual data has been labeled neutral to bearish in deferred contracts with plenty of cattle supplies moving through the supply chain, reports Steiner Consulting Group, DLR Division, Inc.

Cattle on Feed inventory came in at 11.1 million head, 5.9 per cent above a year ago and slightly higher than the analyst average expectations of 5.5 per cent. This is also the fourth month in a row to be a new record high. So far this year June, July, August, and now September have set new records for corresponding months since the series began in 1996.

Placements surpassed analyst expectations, coming in at 2.1 million head, the largest August placement number since 2011 and 7.3 per cent above a year ago. The highest analyst range was 7 per cent above a year ago. This a rather normal uptick in the number of head placed relative to July placements. Large placements in July and August will undoubtedly draw conversations to September and if there will be as many cattle left to place compared to a year ago.

An aggregate look at the placement numbers suggest there should still be plenty of cattle for placement in September. The first is that Mexican feeder cattle moving across the border have been up all year. Through the latest week of data, its up 6.2 per cent or 47,000 head. Second, feeder cattle from Canada year to date are up 56 per cent, or 53,000 head. Lastly, USDA NASS estimated the 2018 calf crop to be 692,000 head higher than a year ago, and about 75 per cent of those calves dropped in the spring.

Using above estimates that would indicate that since the beginning of the year, there was up to 619,000 additional head available for placement from January through August (75 per cent of current year calf crop plus feeder cattle imports) than last year. Calculating the year-to-date number for cattle actually placed in 1000 head and larger feedlots, those numbers are only 163,000 head above a year ago, leaving 456,000 head of the 619,000 to be placed in the future.

Winter grazing opportunities will likely take a few more head than last year, but this is a difficult number to assess with little data available. A large portion of these animals have also ended up in feedlots with less than 1000 head of inventory, and therefore not captured by cattle on feed numbers. The 1 July cattle inventory report provides the point estimate of 13.3 million steers and heifers on feed. The 1 July Cattle on Feed inventory in 1000 head and larger feedlots was 11.3 million head or about 85 per cent of feedlot supplies.

Compared to 2017, figures outside of large feedlots were about 2 million head, and 1.7 per cent larger than last year. This point estimate does not provide a complete picture of those feedlots throughout the year, but if the ratio of cattle in feedlots 1000 head and larger to smaller feedlots holds, that would indicate only 15 per cent of the additional available cattle would end up in farmer-feeder pens.

Additionally, if heifers from 2017’s calf crop are making their way through the system that would indicate even larger cattle numbers available for placement than are indicated in the preceding paragraph.

Marketings were slightly above last year, coming in at 100.2 per cent of a year ago. Canadian imports of slaughter steers and heifers slowed in August, leaving more room to market US cattle on feed above the slaughter data levels. Still, this number leaves wanting for marketings to continue at a steady pace after September set another record high for that month’s cattle on feed inventories.

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