USDA clashes with investors over cattle price prospects

20.09.2017

Prices of both feeder cattle and fattened cattle face autumn declines, officials said, citing an "abundant supply of competing meats" - and clashing with price signals from futures markets.

The US Department of Agriculture acknowledged upward pressure for now on feeder cattle prices, which in Chicago closed on Monday at 150.80 cents a pound for the spot October contract, taking gains for this month close to 6%.

The gains reflected improvements in forage conditions, which "have likely" given calf rearers and so-called "backgrounders" who specialise in maximising weight gains on young animals, "with the ability to hold-off selling at less favourable prices", the USDA said.

However, the hold-off would be undermined by the large numbers of cattle awaiting movement in the feedlot system.

Despite the continued "incentives to background calves, placements in feedlots during the [October-to-December] quarter are expected to remain relatively large given the availability of cattle outside feedlots", USDA analyst Mildred Haley said.

Meanwhile feedlots, expected to see a drop in margins for fattening cattle, will likely be encouraged to "bid down the price of calves in the coming months".

'Little price support'

The USDA restated its forecast for cash feeder cattle prices to average $140.00-146.00 per hundredweight in the October-to-December period, extending a decline from the figure of $147.75 per hundredweight recorded for the April-to-June quarter.

And it backed its estimate for a drop in values of live cattle too, to an average of $107.00-130.00 per hundredweight in the last three months of this year for fed steers - a figure which, at the bottom of the range, would be the lowest in seven years on a quarter-average basis.

"Fed steer prices have seen little support over the past month," Ms Haley said, flagging the prospect of a rise in supplies of fattened cattle ahead, with the number of cattle on feed for more than 120 days up 8.6% month on month as of the start of August.

"This likely implies that feedlots will have sufficient cattle to sell going into the fourth quarter, which could depress fed cattle prices."

Price divergence

Furthermore, "an abundant supply of competing meats are also available", with US pork output expected to set records in both the current quarter and the October-to-December period, helped by the opening of two slaughter plants two weeks ago.

Still, the USDA forecast a rise in live cattle prices in the first quarter of 2018, to $110.00-120.00 per hundredweight for fed steers, representing a "seasonal rebound".

Feeder cattle values, however, will continue to decline, to $132-140 per hundredweight.

USDA vs investors

The price forecasts tally somewhat with an assessment from Societe Generale that live cattle represent a better bet for investors than feeder cattle.

However, they clashes with signals from futures markets, which are pricing in small increases in feeder cattle and live cattle values into the autumn. Live cattle futures are seen continuing to rise into June next year.

One hope to cattle bulls comes from data on forward sales of beef by US meatpackers, which maintains an elevated level, at 1,042 loads for the 22-60 day timescale as of last week, according to official data.

Analysis by Steiner Consulting shows that the four-week average of more than 1,100 beef loads sold on this timescale is by far the highest on data going back 2015, exceeding levels in May which helped lift prices of both feeder and live cattle.



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