Cattle futures drop after record buy-ins by feedlots


Live cattle futures turned lower on the news that US cattle placements were at multi-year highs for the time of year.

But the premium for near-dated futures remains resilient, on signs that many of those cattle still have some months to go before they can be slaughtered, meaning markets will remain tight in the coming weeks.

April live cattle futures, which will be traded until the end of this week, were down 0.7% in morning deals, down from the seventeen-month-highs the contract made on Friday.

But the best-traded June contract was down 1.4%, at 114.975 cents a pound, with August futures falling even faster and lower.

Rising placements

The total number of cattle on feedlots was pegged at 10.90m head, up 0.5% year-on-year, and the largest April inventory since 2012.

But Steiner Consulting noted that despite the large numbers of cattle, "near term supplies of market ready cattle are tight and packers continue to bid up prices in order to fill orders ahead of the start of the grilling season".

In fact, Steiner noted that based on the USDA figures, the number of cattle that have been on feed for more than 120 days is down 15.4% year on year, and the number of cattle that have been on the lot for over 150 days is down 40%, indicating that supplies of heavy cattle are far from ample.

The supply of cattle that on April 1 had been on feed for more than 120 days calculates to 3.122 million head, 15.4% less than a year ago. The supply of 150 day cattle is down 40%. This is the largest on feed inventory for the month of April since 2012.

Slaughter-ready cattle will arrive sooner or later

"The bears in the market continue to point out that eventually the higher placements will catch up with the cattle market, maybe in early May... maybe in late May... maybe in June," said Steiner.

"Those that hold a more bullish view of the market, on the other hand, continue to point to robust beef demand and the fact that packers are sending cattle to market at a rapid clip in order to fill orders. "

This rapid marketing, combined with light placing late last year, have created a "marketing hole" in the near market," Stenier said.

And the big March placement figure was mainly driven by that of cattle below 800 pounds, which would have some way to go before they reach marketing weight.

Premium of near to late dated cattle

As a result the market remains "backwardated," meaning prices for later dated contracts are trading at lower levels than near contracts, until the end of the year.

And this trend is only increasing. The premium of the April contract to the June has risen from about 8 cents a pound, to nearly 14 in just two weeks.

And the premium of April to Augst has grown even faster, from 12 cents to over 18 cents over the same period.


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