You are here

Bearish Cattle Placement Numbers Show Supply Surge Likely This Summer, Fall

Today’s Cattle on Feed report didn’t confirm the bearish concern we noted in yesterday’s Ag Leaders Conference about third quarter supplies – it likely added to it. USDA’s monthly survey of feedlots found that December placements, new calves, and feeders entering feedlots to start their three- to seven-month feeding visit, ran 17.6% over last year. That blatantly surpassed the +8.4% trade estimate (ALDL +8.1%). This was the largest placement for the month of December in six years. It was also the fourth-largest December placement in 20 years. December placements help determine part of the June-through-October slaughter period. This comes on top of the bearish November placement that was reported the previous month (+15%). You could suggest that these two big months are holdovers from September and October when cattle feeders stopped buying feeders due to the year’s big price low.

Counterintuitively, today’s bearish placement is a clear sign that the base cow-calf producer is in liquidation. They have been liquidating cows since spring of last year. They have also been moving extra heifers to the feedlot. From February through December, our total placements have run 6.4% over last year. The bad news is we will have another supply surge in the summer and early fall. This may encourage us to lower our $98 objective for August futures even more.

The number of finished cattle leaving feedlots in December, marketings, ran 6.8% over last year. That was near the 6.7% trade guess (ALDL 9.2%). These numbers helped push the total feedlot population, Cattle on Feed, up from 1.4% under last year to now 0.3% over last year.

Allendale is slightly bearish to cattle in the near-term and a bit bearish the summer period. The only question here is whether the current uptrend has peaked out or not. It has not yet broken the charts but may on Monday depending on the close. To be honest, if prices go $2 lower on Monday, we could be short-term buyers. On the feeder end, we would still hold feeder hedges placed using bear put spreads (nonmarginable).

Tuesday’s biannual cattle report will appear bearish with larger total cattle numbers and also beef cow numbers. Allendale expects the nation’s total cattle herd at 1.3% over last year at 91.169 million head (average guess +1.3%). Of that we see the beef cowherd at 2.1% over last year at 30.963 million (+1.1%). That is not the whole story, though. Signs of liquidation will be seen in the beef heifer numbers. We see heifers retained for the cowherd at 2% less than last year (average guess -0.8%). We will finally see lower beef cow numbers, likely next year as of January 1. 

december-cattle-placements

 

Rich Nelson
Allendale Inc.
815-578-6161

This material has been prepared by a sales or trading employee or agent of Allendale Inc. and is, or is in the nature of, a solicitation. This material is not a research report prepared by Allendale’s Research Department. By accepting this communication, you agree that you are an experienced user of the futures markets, capable of making independent trading decisions, and agree that you are not, and will not, rely solely on this communication in making trading decisions.

DISTRIBUTION IN SOME JURISDICTIONS MAY BE PROHIBITED OR RESTRICTED BY LAW. PERSONS IN POSSESSION OF THIS COMMUNICATION INDIRECTLY SHOULD INFORM THEMSELVES ABOUT AND OBSERVE ANY SUCH PROHIBITION OR RESTRICTIONS. TO THE EXTENT THAT YOU HAVE RECEIVED THIS COMMUNICATION INDIRECTLY AND SOLICITATIONS ARE PROHIBITED IN YOUR JURISDICTION WITHOUT REGISTRATION, THE MARKET COMMENTARY IN THIS COMMUNICATION SHOULD NOT BE CONSIDERED A SOLICITATION.

The risk of loss in trading futures and/or options is substantial and each investor and/or trader must consider whether this is a suitable investment. Past performance, whether actual or indicated by simulated historical tests of strategies, is not indicative of future results. Trading advice is based on information taken from trades and statistical services and other sources that Allendale Inc. believes are reliable. We do not guarantee that such information is accurate or complete and it should not be relied upon as such. Trading advice reflects our good faith judgment at a specific time and is subject to change without notice. There is no guarantee that the advice we give will result in profitable trades.

Read more about