May 19, 2008

 

US market welcomes higher cattle-on-feed numbers

 

 

The USDa's monthly cattle-on-feed report Friday was called friendly to bullish for futures and cash markets.

 

Market analysts and traders said the marketings number, at 111 percent of a year ago, was the most bullish number, especially to nearby contracts. It showed a willingness among cattle feeders to sell cattle and remain current in their marketings, they said.

 

However, they disagreed about whether the marketings number signaled that cattle were being pulled forward and sold before their scheduled time. High corn prices and continual losses would encourage early sales to slaughter, but then carcass weights are record high, indicating cattle are not being pulled forward for early sale, said David Hales, market analyst with Hales Cattle Letter.

 

Brian Hoops, market analyst at Midwest Market Solutions, said the higher-than-expected marketings number suggests that with the high feed costs, feeders are willing to keep marketing cattle. They likely will keep this up in the near future as well, he said.

 

Mike Zuzolo, market analyst at Risk Management Commodities Inc., called for live cattle futures to open 50 to 75 points higher on Monday and for feeder cattle to open 25 to 50 points higher.

 

Zuzolo said the cattle marketings number being above the pre-report estimated range and the fact that the Argentine market is closed would likely support nearby contracts.

 

Zuzolo and Hoops said the higher-than-expected placement number could be rationalized by looking at the basis with the August and October futures contracts. Deferred futures were attracting feeder cattle into the feedlots, they said.

 

That being said, though, the placement number was expected to cap rally attempts in October and beyond futures contracts, market analysts said. Bull spreads should be popular Monday, they said.

 

"The placement number being a little higher than the forecasted average is not positive but it's not exactly bearish either," a trader said. "The marketing figure topping the high end of expectations might be bullish enough to offer spot-June support and forward spreads on Monday."

 

The trader said CME live cattle's retreat before the report's release may take some of the sting out of the placement result. The unresolved issue surrounding Friday's fed cattle trade and the survey's bullish marketing result might have more influence on June's direction than the placement figure, he said.

 

Hoops, who is in South Dakota, said cash trading was "disappointing" this week. Sellers were hoping for more bullish momentum, but packers seemed to have enough contract cattle for late-month use and were able to wait out the sellers

 

Dan Vaught, analyst with Wachovia Securities, anticipated a 25-point spot-June live cattle gain due to this week's potential cash outcome and the report's marketing data. However, he suspected back-month cattle may slip due to the placement figure and current board premiums.

 

The April 98 percent placement figure is a reflection of the encouragement being provided by the huge premiums built into deferred live cattle futures, said Vaught.

 

Ron Plain, a University of Missouri livestock economist, considered the report's 99 percent May on-feed result "rather unexciting" because it was nearly in line with the industry's forecast average.

 

Although placements were higher than some had expected, Plain said it was the second consecutive month that placements were below year-ago levels. Also, he said, placement of light-weight calves was down 16 percent from last year, which was "fairly good news."

 

Plain was also "encouraged" by the April marketing number saying that it appears that the industry did a good job of pulling cattle out of feedlots during April.