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268585

Cattle-on-Feed Report Seen Price Unfriendly

January cattle placements reach 12-year high.

On Friday, the monthly Cattle on Feed (COF) report was found moderately bearish.

January placements, new calves, and feeders entering feedlots totaled 2.068 million head. This is the largest January placement in 12 years. Compared with last year, it was 4.4% larger. That was over the +0.4% trade estimate (ALDL -0.4%). January placements help determine a part of the June-through-September slaughter numbers. Placements were huge from September through November, +10.2% to +13.9% year/year, and +0.8% in December.

The cattle market will deal with very large feedlot numbers from mid-March through May. Summer and early fall supplies will be a little more manageable.

For the reason for the trade miss on this report, we would suggest the direct pasture to feedlot trip explains it (dry conditions). Most analysts, including Allendale, use sale barn numbers as the starting point for placement estimates. We cannot count the pasture-to-feedlot movement accurately.

January marketings, the number of finished cattle leaving feedlots, was counted at 6.1% over last year. That is neutral as it was next to the 6.0% trade guess. This number was artificially inflated due to one extra weekday in this year’s January. The 1.858 million-head January marketing is the largest in five years. February 1 Cattle on Feed was estimated at 7.9% over last year. The trade guess was 7.4%. At 11.630 million, we have the largest February 1 total in six years. This is not a surprise. We have been in expansion and are seeing the supplies as a result.

COF is a report to follow covering medium-term supply. For short-term supplies, we’ve been discussing the seasonal increase in cattle slaughter that is waiting around the corner.

We were a bit surprised to see USDA suggest only 572,000 head for this week’s kill. That was a bit under our 586,000 morning estimate. We had heard of trade talk about a cut for Saturday’s kill but didn’t want to believe it. Even considering the holiday, it was a low kill. This was 0.4% under last year in the same week. The past four weeks have averaged 2.6% over last year. A small kill this week, after last week’s high-volume purchase of free market cattle is not positive.

After last week’s big win for cash cattle, trading averaging $130, this week is a disappointment. Cash traded at $128. Yesterday’s weight numbers showed both steers and heifers 1.1% heavier than last year. On top of that, today’s weekly beef exports were 10% under last year. The previous week was also poor at 22% under last year. There is a change in the news flow and given the coming supply push, it may not hold good news for bulls.

We have been a short-term bull but the period left of “tight seasonal supplies” is coming to a close. This week missed our $128 sales targets on the April by 5¢. Yes, 5¢. Expect slightly lower trade on Monday but no major price decline yet. Our expiration price is $124 for the April.
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Rich Nelson Allendale Inc. 815-578-6161
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