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112316

Producers Push Heifers Into Feedlots

Supply push expected through next spring.

Today’s Cattle on Feed report is unlikely to change anyone’s mind. USDA estimated that July inflows of calves and feeder cattle into feedlots, or placements, totaled 1.572 million head. That was 1.6% over last year’s July. This will be considered very slightly bearish as it was over the +0.5% trade expectation (ALDL +3.4%). The slightly bearish characterization can also be noted here as it is the largest July run in three years. Bulls may attempt to point out that this now represents two months in a row of only minor placement increases. February through May saw placements 7.9% over last year. June was up 3.0%, July up 1.6%. We strongly disagree with that viewpoint. The 1.6% year/year increase that you see here comes after a 7.5% reduction due to the calendar issue: the number of weekdays and the number of Saturdays. The true story about cattle supply is that calf/cow producers are no longer in expansion. They are moving those heifers from the field to the feedlot, so we’ll have to deal with this supply push through next spring at a minimum.

The number of finished cattle leaving feedlots in July, or marketings, was pegged at 0.7% under last year. This will be viewed as slightly bearish since it was under the trade estimate for a 0.3% decline (ALDL -1.5%). If we left a few behind in July, this means a few extras for early August. The marketing total, 1.713 million, would be the smallest in any previous July. As with our note about placements, the number that you see here is after the calendar adjustment. The actual steer and heifer kill in July was 7% – 9% higher than last year using the weekly dataset. With the placement and marketing numbers plugged in, along with the never discussed category called other disappearance, the total cattle on feed went from 1.2% over last year on July 1 to now 1.6% over as of August 1.

For general cattle, trading this week would be considered a disappointment. October futures lost 4.27. Cash dropped $1 to $2 to $117/$118. The COF report was slightly disappointing but hides the true nature of our supply problem. There is an open gap on the charts that chart traders will suggest needs to be filled. On top of this, we still have the looming issue of September supplies. They should surpass the current peak in supply from June. It should be obvious here that we are bears from now until mid-September. We see cash falling to $110 before rebounding.

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 Inc.’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. 

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