April 19, 2004

US Feedlots Placed Fewer Cattle On Feed In March

According to Friday's U.S. Department of Agriculture monthly cattle-on-feed report, discounted Chicago Mercantile Exchange live cattle futures during March combined with a sharp rally in the feedgrain complex to keep feedlot operators from adding as many animals, compared with last year, to their feeding pens for the third straight month.
 
Analysts predicted a friendly futures price response Monday morning.
 
The total number of cattle on-feed as of April 1 was about equal to a year ago, while analysts had expected a 1.6% increase.
 
The placement category came in at a bullish 89% of a year ago, compared with the average analyst estimate of 94.8%, versus last year amid a wide range of estimates from 83.7% to 100%.
 
The average March marketings prediction topped the average 107.9% idea, however, leap year was seen providing a big boost to that figure.
 
"These numbers are supportive of the late summer outlook, especially with the placement weight breakdown showing the 800-pound plus category down 25%, versus a year ago," said Dan Vaught, analyst with A.G. Edwards & Sons in St. Louis. "A lot of calves were placed, therefore the exit dates will tend to space out supplies and avoid concentrations of slaughter ready live cattle supplies."
 
Vaught saw the marketings as "somewhat supportive to the Apr." The total cattle-on-feed figure Vaught characterized as "generally bullish."
 
"There's no reason to be bearish cattle with these supply numbers," Vaught said.
 
"The marketings were obviously helped by the two extra work days," said Bob Wilson, analyst with HedgersEdge.com in Colorado. "That's a good thing too, because thus far April marketings are terrible. Anything March may have helped us with (in marketings), April has already taken back."
 
"Placements are supportive for the deferred futures fall live cattle prices," Wilson said. "It does show how the yearling numbers have dried up. Placements with weights under 700 pounds were actually up over 5%. The on- feed  figure equal to a year ago and below the five-year average is good."
 
"The cattle industry is trying to deal with the uncertainty for the last half of the year," said Chuck Levitt, analyst with Alaron Trading Inc. "There were four reasons cattle feeders placed sharply fewer numbers during March. First, the ban on Canadian live cattle restricted supplies. Second, eight years of cattle herd liquidation means there are just fewer available supplies to replace animals going to slaughter. Also, feedgrains had a sharp March rally. Finally, futures quotes were at big discounts, compared with cash live cattle prices."
 
That said, Levitt cautioned that futures prices during the last three sessions had significantly built-in the report data and expectations by holding Aug through Dec steady, while nearby months fell sharply.
 
Levitt also noted the weight breakdowns and the anomaly of feedlots adding lighter, rather than heavier, animals into pens during a time of rapidly rising grain futures. Several analysts used the phrase "betting on the come."
 
Levitt also pointed to the front-end supply of cattle-on-feed 120 days or longer in the seven states, which stands at only 15% more than a year ago, compared with a 22% figure last month.
 
Despite a bullishly construed cattle-on-feed report, there are enough uncertainties circulating in the cash market that it may not do much to cash cattle markets next week, cash market analysts said after its release.
 
Instead of calling for cash prices to jump from this week's levels based solely on the USDA report, at least two market analysts took a qualified approach and said, "it depends."
 
"I thing the report is flat-out bullish, and it's a boost for cattle feeders, but it may not offset fears over Canada," said Robin Fuller, president of Tall Grass Consulting.
 
There will be continued worry over extra Canadian cattle coming into the U.S. next week, Fuller said. One rumor has the border opening May 1.
 
Cash markets next week will depend on how futures shake out Monday and Tuesday, Fuller said. Trading could come later in the week after J.B. Penn, under secretary for the USDA's Farm and Foreign Agricultural Services, has had a chance to do some more negotiating with Japanese officials about reopening that market to U.S. beef.
 
Mike Zuzolo, market analyst at Risk Management Commodities Inc., said cattle feeders are in good shape with their marketing stance after aggressive marketings the last few months. Weights are down, so cash prices next week should hold at least steady with this week.
 
Boxed-beef values versus live cattle prices could justify prices of $88.00 or $89.00, Zuzolo said. The report, boxed-beef prices and an increase in retailer demand for seasonal beef features could hold cash steady.