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Beef Bullish on Markets

25 November 2014

US - Cold storage implications are Bullish for beef and pork but neutral to negative for chicken, write Steve Meyer and Len Steiner.

The USDA survey showed total on feed supplies as of 1 November were 10.633 million head, 0.5 per cent higher than a year ago.

Prior to the report, analysts were expecting the feedlot inventory to be down 0.4 per cent from a year ago.

In addition to placing more cattle on feed than expected, feedlot marketings were also down 7.8 per cent , compared to pre-report estimates looking for a 6.9 per cent decline.

Placements in October were 2.357 million head, just 0.9 per cent lower than a year ago. Please note that placements last year were relatively large considering overall feeder stocks.

What explains the larger than expected placements at a time when all indications are feeder supplies remain tight?

Limited placements over the summer certainly have played a role. Given record high feeder prices, some of those feeder cattle are entering feedlots, and they are doing so at heavier weights.

This becomes clear when looking at the breakdown of cattle placed on feed.

Placements of heavy feeders (+800 lb) were up 60k head (+10 per cent ) compared to a year ago.

On the other hand, placements of light feeders (under 600 lb) were down 30k head or 4.2 per cent.

The fact that we are placing heavier cattle on feed than a year ago implies that a larger number of cattle will become available for marketing earlier, which could impact the spread between spring and summer cattle.

Despite the modest increase vs. year ago levels, the main issue in the fed cattle market is the fact that forward contracts hold a premium and provide feedlots with an incentive to feed cattle to heavier weights. 

This has slowed down the flow of cattle.

Feedlot inventories are slowly increasing but it is unclear how much of the cattle currently being placed on feed are for sale to packers and how many heifers are being placed in breeding programmes.

This could skew the overall expected supplies for next spring and summer.

Taking the report at face value, we should expect more cattle to become available in late winter and spring.

Cold storage Implications: Bullish for beef, pork; neutral to negative for chicken.

Total beef inventories at the end of October were 374.9 million pounds, 14.8 per cent lower than a year ago but slightly higher than the previous month.

While the movement in inventory was in line with normal flows for this time of year, the fact is that inventories remain significantly below year ago levels and this continues to be supportive of the beef market in the short term.

Pork inventories as of October 30 were down 7.1 per cent from a year ago and also down 3.7 per cent from the previous month.

The draw down in total pork stocks was larger than normal for this time of year.

Ham inventories declined 16 per cent from the previous month, a larger than normal decline.

Belly stocks also were 17.5 per cent lower than the previous months when normally we see belly stocks actually start to increase in October.

It appears users are drawing down pork inventories in anticipation of higher supplies.

We think the smaller pork inventories create notable upside price risk, especially if end users shift some of their features after the holidays to pork.

Pork production is expected to increase but it may not increase as much or as fast as some expect.

Chicken inventories were 659.3 million pounds, 8.6 per cent lower than a year ago but 5.4 per cent higher than the previous month.

The increase in inventories was higher than normal for this time of year.

Inventories of breast meat are up 20 per cent compared to a year ago while inventories of leg quarters increased 10.2 per cent from the previous month when normally they are steady to lower in October.

Further Reading

You can view the full report by clicking here.


Daily Livestock Report - Copyright © 2008 CME. All rights reserved.


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