By Howard Packowitz
and Curt Thacker
CHICAGO (B)--Bears have been in hibernation lately as bulls tightened their grip on the cattle market. However, some traders and analysts think.
Jan. 19's cattle-on-feed report might serve as the bears' wake-up call. Others think the data are only an aberration in a market that has seen $80.00 per cwt cash prices and wholesale beef values jump to record levels.
The U.S. Department of Agriculture's seven-state survey revealed a record number of cattle on feed for Jan. 1, rising 3% compared with the same period a year ago. Placements, or the number of cattle on feedlots during December, were above analysts' estimates, jumping 2% from the same time last year.
It broke a string of three consecutive months in which placements declined, compared with year-ago figures. Marketings, or the number of cattle sold last month, dropped 6%. However, the bulk of that decrease can be attributed to one less slaughter day, compared with December 1999.
Cattle feeders placed more animals on feedlots last month because they had the financial incentives to do so, given high cash cattle prices and cheap feed costs, said Chuck Levitt, senior analyst at Alaron Trading Corp.
Analysts and traders offered differing opinions about the impact the USDA data will have on futures. Some suggested the market would open steady to 25 points higher Monday to correct a huge sell-off on Jan. 19's close. Others predicted a steady to moderately weak call on the higher-than-anticipated placements and lower marketings.
Trader Pete Overholt said the report signals a temporary halt to the bull market.
"There seems to be plenty of supply," Overholt said.
"Unless you get some help from the weather, it will be difficult to find buyers at these price levels on the basis of this cattle report," he added.
Levitt called February steady, supported by the strong cash market. He said Jun will feel the most heat, falling an estimated 50 points because of the increase in lighter-weight cattle that would be ready for slaughter in late spring or early summer.
Levitt is not ready to mark the conclusion of the bull run. He anticipates a 5% to 10% decrease in placements in January. A trader, who asked not to be identified, said the bullish "buying break" mentality still exists.
Jim Clarkson, analyst with A&A Trading, said futures are undergoing a "needed correction" after February saw a nearly $5.00 rally in only one week. Clarkson said the talk has been bearish lately.
"This report puts a stamp on that opinion," he added.
Cash cattle markets next week probably will not be affected by the cattle-on-feed data, said Paul Georgy, president and livestock analyst for Allendale Inc. With the sell-off in futures Jan. 19, plenty of weakness was already built into the market. Futures' decline may lead to some lower bids from packers, Georgy said. However, the tight supply situation could keep them hungry enough for cattle to limit declines in cash.
Darrell Axtell, commodity broker for Bump Investor Services, said beef demand has been very good for an extended period, but that there is a great deal of uncertainty in the market.
Weather has been a significant factor this winter, as consumers face higher heating bills while boxed beef prices are still very high. Axtell said he expects cash cattle prices to slip a bit from this week's $80.00 level, then bounce around in the upper $70s.
Axtell agreed with Georgy's assessment that the futures market already had built in a lot of the negative aspects of the report. He added that "bulls looking for $81.00 cash next week will be disappointed" by the data, but anticipates futures will trade for about 30 minutes on the report before attention turns to other factors.