CHICAGO (B)--The U.S. Department of Agriculture's monthly cattle-on-feed report offered a silver lining to a market saddled with record large supplies. Industry analysts and futures traders agreed that higher-than-expected marketings showed signs that feedlot owners made progress last month in moving cattle from their pens.
Marketings, or the number of cattle sold, went up 8% from August of last year, according to USDA's seven-state survey released Sept. 15. The data showed placements in August were stable from the same time last year, while on-feed numbers on Sept. 1 were 10% above last year's level.
Dale Benson, of Crystal River Capital, said the marketings figure favored feedlot operators for the first time in about a year, even though there was one extra slaughter day last month. He suggested rival packers paid more for cash cattle this week because they anticipated higher marketings.
Futures traders and most analysts described the report as "neutral" overall, as marketings boosted Oct 15 to 30 points at Monday's opening bell. Bull-spreading would be the main feature, as deferred months faced pressure from plentiful supplies.
Chuck Levitt, senior analysts with Alaron Trading Corp., noted that August placements were still the second-largest in history at 2,091,000, while front-end supplies--the number of cattle on feed 120 days or longer, have never been larger.
"We're not going to run out of cattle anytime soon," Levitt said.
Dan Vaught, of AG Edwards and Sons, thought the placement number was inflated by cattle coming in due to drought conditions. Nonetheless, this survey was the 18th in a row in which the total feedlot population set a record for its date.
Chris Haverkamp, analyst with Paragon Investments, said the report underscored recent gains in futures and cash but provided little potential for upside movement, given the premium already factored into futures.
Haverkamp said retail demand must pick up, which would be difficult in November and December, when turkey and pork become featured items.
Cory Hall, president of Broker Professions, Commodity Investment Group, looked to the weight breakdowns as a key factor in the report. All of the increase came in the lighter weights, he said, and this means there may not be as many up-front cattle as the on-feed number would suggest. He said the cash markets next week have a chance of going up.
Hall also looks for export demand to be supportive. Foot-and-mouth disease problems in South America could result in increased demand for U.S. beef.
Paul Hicks, market analyst with Producers Trading Co., said he was not surprised by the on-feed or placements numbers. He also said the large on-feed number was primarily due to more light-weight cattle being placed. Drought has pushed more light-weight animals off pasture and into the feedyards.
Hicks said he was hopeful that the larger light-weight placements would take some of the premium out of the deferred live cattle futures contracts. He said that could be supportive in the long run by providing cattle feeders with less incentive to hold cattle too long, which would keep marketings going at a better pace and reduce carcass weights. He also pointed to a revision in the Texas placements numbers for July, in which USDA moved 20,000 cattle from the 800-plus pound category to the 600 to 699 category.
The placements of lighter-weight animals should spread shipments over a longer period when the animals reach slaughter-ready status, Hicks said.