Rabobank casts cloud over prospects for live cattle prices

10.04.2017

Rabobank raised doubts over a revival in the rally in live cattle futures, citing the potential for elevated slaughter rates to weigh on values, at a time when the fallout of bird flu could lift US poultry meat supplies too.

Chicago futures in live cattle - that is, animals fattened for slaughter – closed on Thursday at 118.80 cents a pound for April delivery, rising for the first time in six sessions.

However, Rabobank raised doubts about futures extending a revival which saw them in late February top 127 cents a pound for the first time in 10 months – and take to 35% their revival from a six-year low touched in October 2016.

"Fed cattle prices are near a peak," the bank said, flagging the prospect of buoyant supplies of animals for slaughter, "reflecting increased cattle placements [on feedlots] late autumn and winter".

The number of feeder cattle that feedlots bought for fattening up reached 5.61m head in the November-to-January period, according to official data – a 14.3% rise year on year.

With cattle taking, as a rule of thumb, some six months to fatten for market, that implies a surge in cattle coming to market ahead.

Beef vs chicken

And this at a time when higher beef values, which popped back above $220 per 100 pounds late last month for the more expensive "choice" grade, could prompt retailers "to back away from aggressive spring grilling" promotions for beef.

Cattle placements on US feedlots and (year-on-year change)

February 2017: 1.694m head, (-0.9%)

January 2017: 1.981m head, (+11.4%)

February 2017: 1.785m head, (+16.9%)

February 2017: 1.843m head, (+15.0%)

February 2017: 2.171m head, (-5.0%)

Sources: USDA, Agrimoney.com

Heavy marketing of steaks were a particular feature of the Memorial Day and Independence Day holiday markets last year, adding extra zest to seasonal support for beef and cattle prices.

This year, retailers could be directed towards poultry meat in their offerings, depending on the progress of the bird flu outbreaks which, in prompting curbs by some importers on supplies of US meat, has raised the prospect of increased domestic supplies.

Rabobank said: "The cases in the US have thus far been confined to a small number of states," most lately reaching Georgia, the top US poultry-producing state, late last month.

"But they could influence market access and lead to more US poultry on the local market, pressuring beef prices," the bank said, adding that the US typically exports some 15% of its poultry production.

'Outlook for exports an issue'

The comments found some echo among researchers at US-based Steiner Consulting, which said that US supplies of pork, as well as chicken supplies, "are plentiful, offering the retailer a lot of protein feature options.

"This becomes more of a concern for late summer and early fall," after the peak grilling season.

"And then the outlook for exports is always an issue," Steiner Consulting added.

"We think beef exports were up in double digits in March but… April could be flat," to judge by weekly official data released on Thursday.

Weight factor

Meanwhile, at broker Country Futures, Jerry Stowell, thinking in particular of the cash market, forecast that US cattle prices "will continue to decline for the next three weeks" under the weight of a beef value which has come off from its late-March high.

The wholesale value of boxed beef, the so-called "cutout", stood at $207.90 per 100 pounds for choice grade as of Thursday afternoon.

However, hopes of higher prices have been supported by the lower weights of cattle being slaughtered, as feedlots have accelerated marketings of animals to exploit relatively buoyant prices.

The weight of steers slaughtered in the week to March 25 was, at 868 pounds dressed weight, down 4 pounds week on week, and 19 pounds year on year.


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