June 16, 2009

US feeder cattle prices are seen to buck the upward seasonal trend that usually occurs for this time of year.

The recent downturn in US feeder cattle prices was due to the decrease in feedlot purchases of feeder cattle as the likelihood of escalating feed prices mounts and profit margins for feedlots remain very much in negative territory.

The latest USDA World Agricultural Supply and Demand Estimates report reveals that total US corn use is projected to exceed US corn production by 525 million bushels for the 2009-10 marketing year (beginning 1 September 2009). This will draw down US corn stocks sharply, with ending stocks forecast to fall 32 percent on the previous year.

The supply-demand imbalance is projected to result in season-average corn prices for 2009-10 of US$3.90 to US$4.70/bushel. This compares with the record US$4.20/bushel in 2007-08 and US$4.10 to US$4.30/bushel estimated for 2008-09.

The prediction for higher feed grain prices is bearish for the US meat industry. US based market information provider, Cattle-Fax, foresees feedlot cattle placements in June to be smaller than last year. USDA is also forecasting lower US beef production in both 2009 and 2010, as fed cattle slaughter is expected to slow down and cattle are marketed at lighter average carcase weights. Weak red meat demand is also forecast to pressure livestock prices lower, with Choice steer prices predicted to average 84US cents/lb to 88US cents/lb cwt for the third quarter of this year - the same time last year saw Choice steer prices average 98.45US cents/lb cwt (hundredweight).

The above factors are fairly bearish for US feeder cattle prices over coming months, particularly as feedlots and processors will be looking to secure some sort of margin. The CME Feeder Cattle futures price for the August 09 contract settled on Wednesday at 96.175US cents/lb lwt (liveweight) - feeder cattle prices on the physical market in August last year averaged 112.56US cents/lb.