Year To Year Change In On Feed Total
FED STEER PRICES STEADY AT $66
Prepared by Hales Cattle Letter
Cattle On Feed Report Bearish
In the Cattle on Feed report released last Friday, the USDA estimated that there was a total of 9,121,000 head on feed in the U.S. Of this, 7,020.00 were located In the four major feeding states. On feed inventories increased 1,170,000 head from last year in the four states while all other states increased only 120,000 head.
Year To Year Change In On Feed Total
Most feedlots are full with many turning away customers. Feedlots that aren't full now will be by the first of November after the last of the grass cattle mow in October. This means there will be pressure on feedlots during the next 30 days to sell cattle aggressively to open up pen space for the incoming grass cattle. As always, this type of pressure tends to limit the ability of prices to move higher.
Placements And Premiums
One of the most interesting as well as puzzling aspects of this years market is the massive premium to cash of December and February futures contracts.
Placements during July and August last year were 391,000 head above 1995 and 167,000 above 1994. December futures were $5.00 under cash with February $7.00 under. This year July and August placements are 414,000 above 1996, and 805,000 head above 1995. December futures are $5.00 over cash this year with February $7.00 over. The December basis chart clearly illustrates this point.
December Contract Basis
Why are December and February futures maintaining a huge premium this year with placements larger than last year when the futures were at a discount? Is it the fear of a severe winter as a result of the powerful El Nino? Is it the belief that placements will decline for the rest of the year because all the feeder cattle have been placed? Maybe. But, winter is still 60 days away and the southern plains grass cattle are just starting to move.
Regardless of what people believe about the future, the market must deal with the record heavy placement already on feed and a host of other negative factors. Carcass weights are climbing and could be at a new record by late October. Exports to Mexico are good but imports from Canada more than offset this benefit. Hide and offal values are below last year with the export outlook poor. Pork and poultry production continues to increase. Fed steer prices went to $65 by December of last year. Why not $62 this year?
Drop Credit Increase Doesn't Help
Even though hide and offal prices have increased in the last few weeks, it has made little, if any, impact on packer margins of fed cattle prices. At $1.13/cwt. under last year, the value per head has declined $13.56 on a 1200 pound steer. All other factors being equal, this means that the cash price of $66 this week is the equivalent of $67.13 last year. With cow slaughter increasing seasonally and over 500,000 more fed cattle projected to be marketed in the fourth quarter, it is doubtful that the hide and offal prices will shoot up like they did last summer.
Hide And Offal Value
Steer Carcass Weights Continue To Climb
Steer carcass weights are now two pounds above lat year's peak. They will continue to climb through October this year in a normal seasonal fashion.
Steer Carcass Weights
The Steer Carcass Weights chart shows the rapid decline, in carcass weights last year during November and December as cattle feeders pushed fed cattle out the gate two to four weeks faster than normal. High-priced grain and the massive discount of the December and February futures created this intensely aggressive sales posture. This year those factors are not present and the decline in weights will be more like the 93-95 average than last year. If there is a surprise, it will be that weights stay above the three-year average, creating a significant increase in beef production this fall.
September 26, 1997David Hales and Tom Horton
Hales Cattle Letter
P.O. Box 1623, Amarillo, Texas
Copyright 1997, by Consensus Inc. All American and Pan American rights Reserved. editor@consensus-inc.com
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