In the Cattle Markets
Assessing the May USDA Cattle on Feed report.
The USDA Cattle on Feed report released May 19 appears to be rather neutral, with continuing evidence of smaller numbers ahead.
Focusing on the most important piece of information first, placements were lower than the prior year and were modestly lower than anticipated. Pre-report expectations suggested placements would be 96.4% of the prior year, with a range of 91.8% to 99.6%. Actual placements during the month of April were 95.8% at 1.748 million head.
The futures market reacted lower, but the weakness was in the nearby, as opposed to the deferred, contracts.
There has been some recent relief to the dry weather in the Southern Plains, but it is likely too little too late to have much effect on movement of feeder cattle. It was anticipated placements through the spring would be more modest than typical. Thus, both the intermediate and long-term — or outlook into the fall and winter — remain optimistic.
Fed-cattle marketings have been modestly softer than anticipated. Week-to-week fed-animal slaughter has been off. Pre-report expectations anticipated marketings would be 90.2% of last year, with a range of 89.0% to 91.0%. Actual marketings during the month of April were basically in line and 89.9% of the prior year at 1.701 million head.
The cattle-feeding and meatpacking industries continue to move forward with lighter weekly and monthly marketings and slaughter. There have been very modest Saturday kills, and no incentive for the packer to run this additional day given the much tighter wholesale margins. The beef supply chain appears to have no problems related to throughput.
The inventory of cattle on feed more than 150 days was up modestly compared to the prior month and down compared to the prior year. The number of cattle on feed more than 120 days is up very modestly; and the number on feed more than 90 days is seasonally up compared to last month, but down the most compared to the prior year.
Marketings were clearly slower, and while the inventories of animals are tighter than the prior year, they are larger than the prior month. This is only long-term bullish for the market outlook.
Cattle-on-feed inventories continue to tighten from the peaks in 2022. The beginning of May saw an inventory of 11.608 million, roughly even with the April 1 inventory of 11.612 million head. For the first time this year, the inventory of cattle on feed is below the prior year. There will likely be more of this to come with calculated days-on-feed inventories, the level of heifer slaughter, and beef cow liquidation.
The Markets
What does the technical picture say? The live-cattle futures contracts have been in a strong rally since this time last year. The market has broken into record highs, but has not been able to hold those levels. Long-term, the market is at resistance. This is a sell signal. However, in the short term, all live-cattle contracts maintain strong up trends. These trends need to be watched, and when those trends are broken, that produces additional sell signals. Those signals have not yet happened, but this is the time of year when live-cattle prices tend to peak. Higher prices into the late summer, with heavier slaughter weights, are tough to maintain.
Live-cattle contracts, both nearby and deferred, are also at resistance. During the next several weeks, trends and resistance should be watched. One of the two must break. If resistance breaks, that is what is needed for the market to move higher. If the trends break, that is a signal that the market is topping. Watch your charts.
Editor’s note: Stephen Koontz is a professor in the Department of Agricultural and Resource Economics at Colorado State University. Reprinted with permission from the Livestock Marketing Information Center at www.lmic.info. [Lead photo by Lindsey Sawin.]
