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February 9th: Closing Futures Summary

Live cattle futures saw a choppy day of trade. In the end, February live cattle closed $1.65 lower for the day. Deferred months ended narrowly mixed, with a downside bias. This represented a low-range finish for most contracts. Cattle futures saw a mix of followthrough selling and short-covering today, but in the end the former won out. Yesterday's plunge after a gap-lower start eroded the technical posture of the market. The beef market continues to erode, with both Choice and Select beef down from week-ago levels. In addition, movement has remained stubbornly light. Feeder cattle also traded in a choppy range today, but the market favored the upside on the close. The front-month settled down 32 1/2 cents, but deferreds posted gains of 12 1/2 to 55 cents for the day.

Corn futures settled around a penny lower, which was near the middle of today's trading range. Price action was light and choppy ahead of USDA's February Supply & Demand Report -- and after the data was released. USDA increased its U.S. corn carryover projection slightly more than anticipated. USDA lowered is global corn ending stocks forecast, but not as much as anticipated. While the report data had a slightly negative tone, it failed to trigger active post-report selling since futures dropped the previous four days.

Soybean futures posted small losses through much of the trading day and then firmed to close 1/2 to 3/4 cent higher. Trading activity was limited today ahead of the release of the USDA's Supply & Demand Report. Traders even had a muted reaction to the higher-than-expected carryover pegs. USDA raised U.S. 2015-16 carryover by 10 million bu. from last month to 450 million bu. and raised global 2015-16 carryover by 1.14 MMT to 80.42 MMT. But steep losses in the U.S. dollar index helped to limit losses from USDA's negative reports, as the dollar slipped to its lowest level since Oct. 22. It also signals traders had the bearish USDA data already factored into the market.

Wheat futures saw two-sided trade and ended mid- to high-range. SRW futures ended around a penny lower, with HRW down 1/4 to 3/4 cent. HRS futures closed 1/2 to 2 1/4 cents higher. A weaker tone in the U.S. dollar index helped to limit selling pressure throughout the day from bearish USDA data. USDA raised U.S. 2015-16 carryover more than expected to 966 million bu. and raised global 2015-16 carryover by 6.83 MMT to a lofty 238.87 MMT. Given plentiful supplies, rally attempts will be limited in the year ahead unless there's a major weather threat.

Lean hog futures closed fractionally mixed, ranging from 32 1/2 cents lower to 22 1/2 cents higher. Cash hog bids were mostly steady today as packers, still operating with positive margins, pushed to fill needs. The wholesale market provided some additional positive news as pork cutout values rose 54 cents this morning and movement was a healthy 281.49 loads. Early expectations are for steady bids again tomorrow.

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February 9th: More Feeder Cattle -- But Where Are They?
Derrell S. Peel, Oklahoma State University Extension

The annual Cattle report estimated that total cattle inventories in the U.S. were up 3.2 percent year over year at 92.0 million head.  From various inventories categories we can calculate an estimated supply of feeder cattle outside of feedlots.  For January 1, 2016, this estimate is 25.9 million head, up 5.3 percent from one year ago.  This is a 1.31 million head increase in the estimated feeder supply. This compares to the 2.3 percent year over year increase in the 2015 calf crop, up 780 thousand head.  The ratio of the estimated feeder supply to the 2015 calf crop is 75.5 percent, up slightly from last year and indicates some increase in carryover of feeder cattle from 2015 into 2016.  That leads to the question of where those cattle are.

In general, the states that typically have large feeder supplies on January 1 got bigger with these numbers.  The exception was Texas, which has the largest estimated feeder supply among states but was down 3.4 percent on January 1, from one year ago.  Other major feeder supply states, in rank order including Oklahoma, Kansas, Nebraska, Missouri, California, Iowa and South Dakota all have more than one million head of feeders and all increased from 2015 levels.  Increased feeder supplies in those states accounted for 59 percent of the total increase in U.S. feeder supplies.  Feeder supplies were also up significantly in Colorado, Kentucky and Tennessee.

A bit of a surprise was the sharp increase in feeder supplies in Montana, typically a state with little carryover of feeder cattle through the winter.  The estimated feeder supply in Montana was up 139 thousand head, resulting in the highest feeder supply in the state since 2010.  The ratio of feeder supply to calf crop in Montana, which has averaged 32 percent the last ten years, is estimated at 37.2 percent for 2016.  Additionally, Montana, which typically has a small cattle on feed inventory, posted a 75 percent year over year increase in cattle on feed to the highest level since 2004.  Similarly, South Dakota, the seventh largest cattle feeding state, posted the highest January 1 on feed total in data back to 1965.  Missouri, though a small feedlot state, also posted the highest on-feed total since 2000. 

In summary, the biggest increases in feeder supplies were in the Plains states from South Dakota south through Oklahoma plus Colorado and Iowa. Kentucky and Tennessee also had sharp increases in January 1 estimated feeder supplies.   Kansas stands out with notable increases in both feedlot inventory and estimated feeder supplies.  For several months there has been concern that reduced feedlot placements was resulting in a buildup of feeder supplies in the country.  The estimated feeder supplies do indicate some increase in carryover feeder cattle from 2015.  Most of these are in places that often have large supplies of stocker or backgrounding cattle but also higher feeder and/or feedlot inventories in less typical places, such as Montana. 

The question of how many of those carryover feeder cattle are big feeders that will need to be marketed soon in 2016 is less clear.  The January 1 inventory of steers over 500 pounds was up 4.4 percent.  However, that total includes the January 1 inventory of steers on feed which was up 3.1 percent. Feedlot placements of cattle over 800 pounds has been up has been up 6.2 percent the last four months despite overall feedlot placements being down 4.7 percent over the period, compared to a year earlier.  The implication is that many of the big steers are already in feedlots.  The 2016 estimated feeder supply included a January 1 inventory of calves under 500 pounds that was up 3.3 percent year over year.  The overall implication is that, while there are more feeder cattle on the ground in 2016, it does not appear that immediately available supplies of heavy feeder cattle are likely to be especially burdensome to feeder markets.

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February 9th: Canadian & Mexican Cattle Imports

Cattle imports from Canada (reported weekly by USDA-APHIS) and Mexico (reported weekly by USDA-AMS) have started the year off significantly below 2015’s. 

  • Feeder cattle imported from Mexico were down 33% (down 27,000 head). 
  • Through the first three weeks of January (most current data available), total cattle imports from Canada were down 36% (down 11,000 head). 
We only import feeder cattle from Mexico, however we import both feeder and slaughter cattle from Canada. Within the 36% decrease in cattle imports from Canada, feeder cattle imports were down 16,000 head and slaughter steer and heifer imports were actually up 5,000 head. 
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February 8th: Chasing the Elusive Cash Markets

No problem has remained front and center any more than the loss of reported cash markets. The charts demonstrating this phenomena have been shown over and over and there remains little disagreement over the trend and current status of our cash markets. Traders wanting to enter the cattle futures markets are discouraged from doing so because they are unable to understand how it works or see the cash markets the futures are referencing. A trader in the futures was able to see maybe reports of maybe 1000 head as of Friday morning this past week. This causes liquidity in the contracts to dry up and volatility to increase.

Restoring the reporting of cash markets is no easy fix. Cash markets continue to exist and of the 450,000 cattle slaughtered each week, about half go to market under negotiated transactions. The problem is only about 10% of these are reported. The balance are thrown into pools of trades classified as formula trades and combined in reports that almost impossible to decipher.

There are several efforts underway to remedy this important problem:

Live fed cattle auctions: The internet has provided the world with the tools to bring trading to the web and the cattle industry has been slow to embrace these new technologies that can provide not only simple trade matching through live auctions but trade standards for electronic settlement and clearing of those transactions.

Rule changes at USDA's Mandatory Price Reporting: The cattle industry has yet to present suggested changes to an outmoded reporting system. Both pork and poultry send suggested changes to reporting and they were quickly adopted by USDA. The associations coupled with the beef processing companies need to draft and submit agreed suggested changes.

Appoint a trusted third party to construct a cash index: It is possible to take the current MPR reports and after the fact to construct a cash index number. The cash index would be built from formula results, negotiated grid results, basis trades, and dressed sales which would all be compiled into an index based on standard carcass yields and standard premiums and discounts.

The common denominator for all cattle transactions is a dressed price for the beef carcass at a beef plant. The packer buyer who is negotiating a live transaction at a feedyard is turning in a dressed profile for the purchase to the plant and is judged over how accurately he or she forecasts the dressed results. The most rational end result for all trading is a dressed base for a YG3 Choice carcass and that particular plants premiums and discounts designed to attract the type beef they want to process.

Ag Center Cattle Report

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February 5th: National Feeder & Stocker Cattle Summary
USDA-MO Dept of Ag Market News

RECEIPTS:    Auctions     Direct    Video/Internet    Total
This Week     210,000     27,800        23,600         261,400
Last Week     237,100     56,700          6,900         300,700
Last Year       159,100     61,400        36,700         257,200

Compared to last week, major winter storm moved across the Central Plains on Monday evening and Tuesday with plenty of high winds closed parts of I-70 and I-80 across Kansas and Nebraska with 10-12 inches in many areas.  The storm also affected parts of Colorado, eastern Wyoming and extended back into the upper Midwest across Iowa.  This halted production of several packing plants and a number of auctions cancelled.  Lower undertones were prevalent on most classes of feeders sold throughout the Southern Plains and the Midwest with prices ranging steady to 5.00 lower on calves and yearlings through mid-week; as many feedlots were digging out and trying to get cattle fed.

A number of auctions from mid to late week reported sales steady to 5.00 higher as many feedlots resumed normal operations after the storm.  Some of the better tested markets this week were in the Southeast trading mostly steady to 5.00 higher with instances 10.00 higher on calves.  Last Friday’s Cattle Inventory Report pretty much confirmed that the nation’s cattle herd is expanding, but rebuilding a little faster than anticipated.  Feeder cattle futures struggled the most with this to start the week but Live cattle futures seem to like a winter storm and moved in a higher direction early in the week.  Cattle futures retreated Friday with triple-digit losses cooling on upside potential.  There remains some skepticism regarding the cash strength in the feeder cattle market as theinventory report showed plenty of feeder cattle outside of feed yards and deferred live cattle futures showing discounts.

Late last Friday feedlot saleswere very positive with live sales mostly 3.00-4.00 higher ranging from 135.00-138.00 as fed cattle supplies appear to be tightening.  With the severe winterweather in a great deal of cattle feeding country this should shed some poundsoff fat cattle and will no doubt cut into slaughter schedules this week.  The New Year has started out with the month of January being a profitable month for packers as boxed-beef values increased sharply from December.  January also saw good size slaughter levels along with increased exports to start the year with feedlots staying mostly current. 

Boxed-beef values have responded this week as anticipation of cut back in slaughter numbers has helped to boost prices this week.  Choice boxed-beef closed Friday 2.43 lower at 220.60 compared to last Friday’s close at 218.76.  A historic piece of Kentucky Agriculture was destroyed last Saturday as a massive fire burned down the Blue Grass Stockyards in Lexington, KY.  The stockyards was a 70 year old historic member of the Lexington community and a significant loss to the livestock industry in Kentucky will be sadly missed.  Cattle sales will be relocated to the company’s Mount Sterling and Richmond sites.  Auction volume included 56 percent weighing over 600 lbs and 41 percent heifers.

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"Click Here"to view a Slide Show of Drought Monitor maps for the last 12 weeks
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February 3rd: Robust Beef Expansion Will Slow
Chris Hurt - Agricultural Economics Purdue University

Nothing like record cattle prices and profitability to get an industry excited about expansion. The latest USDA Cattle report shows a rapid expansion is underway with cattle and calf numbers up three percent and beef cow numbers up four percent in the past year.

Record high cattle prices in the last-half of 2014 and first-half of 2015 raised excitement among beef cow producers and they heard the market's expansion call. During that 12-month period Nebraska finished steer prices averaged $162 per hundredweight. Since May 2015, cattle prices have fallen sharply and averaged just $126 in the final quarter of 2015.

Further evidence of the rapid expansion is shown in the three percent increase in the number of beef heifers being retained to be added to the cow herd. In addition, the number that is expected to calve in 2016 is up six percent.

The beef expansion is widespread across the country as all regions increased their beef cow numbers. However, leading the expansion has been the Central and Southern Plains states with 60 percent of the nation's total expansion over the past two years. Drought in those regions through 2013 had been an additional reason for massive reductions of beef cow numbers. Some of the current expansion in those regions, then, represents restocking as the grass returned.

The Southern Plains is the nation's largest beef cow region and they have expanded by nine percent over the past two years. Other important beef cow regions and their magnitude of beef cow expansion over the past two years include: the Central Plains up five percent; the Western Corn Belt up five percent; the Eastern Corn Belt up five percent; the Southeast up one percent; and the Northern Plains up one percent.

Feeder cattle supplies will be rising as well. The number of steers and heifers weighing over 500 pounds that are not being retained for breeding purposes is up four percent. This is a sizable increase in the feeder cattle supply that can go into feedlots and therefore add to slaughter supplies in the last-half of 2016 and 2017.

The industry is two years into beef cow expansion so an interesting question is, "How long will this expansion phase last?" Historically, beef cattle expansions lasted five to six years. However, history is not likely to be a very good guide on this cycle. The reasons are that the current expansion has already been quick and of large magnitude. Secondly, the profit outlook for brood cow operations is already providing much less incentive than a year ago.

Third, beef production in the rest of the world is also expanding and other countries are able to ship increasing supplies of beef to the U.S. and to our foreign buyers. Finally, U.S. pork and poultry supplies are also expanding rapidly providing heightened competition. My best guess is that U.S. cow numbers will continue to rise for only one or two more years, making this a relatively short expansion phase of three or four years.

Available beef supplies in 2015 were higher than had been anticipated at the start of the year. USDA inventory data one year ago indicated that the number of cattle available for slaughter would be down about five percent. In reality, the amount of beef available in the U.S. in 2015 was actually up one percent. How did we go from five percent lower slaughter numbers to one percent more beef? The answer is in higher weights and in higher beef imports. Each added about three percentage points and thus the amount of beef available was up one percent.

For 2016, beef production is expected to rise by four percent. However, USDA analysts believe that trade, particularly beef imports, will be down this year. That is possible since beef prices will be lower and will provide less incentive for large imports. A counter argument is that the exchange rate of the U.S. dollar is currently stronger than for most of 2015. The dollar is particularly strong versus Brazil who is the second largest world beef exporter. These relationships at least suggest some uncertainty for U.S. beef trade in 2016.

The live cattle futures market is not optimistic for finished cattle prices. An estimate of 2016 finished cattle prices derived from current futures suggest yearly averages of around $125. This compares with actual prices of $126 for calendar 2013, $155 in 2014, and $148 in 2015.

The annual 2016 pattern of prices from these estimates for the four quarters of 2016 are $132, $128, $117, and $120 in the final quarter. Live cattle futures have had extreme volatility in the past two years, so their accuracy at predicting forward prices should be suspect. However, live cattle futures are the hedging mechanism for cattle feeders and must therefore be taken as the current opportunity to forward contract finished cattle prices.

Steer calves weighing 500 to 550 pounds at Oklahoma City reached record high prices in May 2015 at $290 per hundredweight. By December, those prices had fallen to $194, a level that provides only modest profits above total costs of production, and therefore small incentives for continued brood cow expansion.

The current futures market estimate of 2016 finished cattle prices might provide prices for those Oklahoma City calves of $185 to $205. This would probably signal small potential profits above all costs. Under this price situation the industry would continue further beef cow expansion plans this year, with the expansion phase more likely to begin leveling off in 2017.

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All Cattle & Calves Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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Beef Cows Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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Replacement Heifers Inventory: January 1, 2016 vs. 2015
Compiled from USDA National Agricultural Statistical Service Data
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February 3rd: El Niño to Subside

Art Douglas, professor emeritus at Creighton University and the CattleFax weather analyst for the last 40 years spoke during the CattleFax outlook session at the 2016 Cattle Industry Convention in San Diego.  Douglas said the current El Niño will mature and begin to wind down over the next three to five months. In the interim, however, drought will continue to lessen its grip on much of the U.S., especially California and the Southwest.

His forecast for February calls for warmer temperatures across the northern tier of states while the southern swath will be slightly cooler. He predicts above-normal precipitation for California and the Southwest, perhaps in the later part of the month. “It’s going to be wet in the Southwest and Southern Plains,” he says, but drier for the Northern Rockies toward the Ohio Valley.

March, he says, could bring storms from the West Coast to the Central Plains. “This indicates we’re probably going to have a lot of blizzards. It will be cold, but it won’t be minus 10, minus 20.” That dies down in April, but as we transition into May it’s going to remain relatively moist in the West, he predicts.

“As we get into April, we have very strong westerly winds across the Plains. We have very cool conditions in the Southern Plains spreading into the Corn Belt, It’s likely we’re going to see delayed planting because of this very cool April.”

“The summer forecast indicates we’re going to have a pretty strong jet stream coming out of the Pacific into the western U.S. It’s going to keep things cool and slightly on the wet side. On the other hand, in the Southeast, we’re going to be building a ridge of high pressure. That’s where we get super hot and dry throughout the Southeast and spread north.”

June will bring more rain along the West Coast, but the monsoons will be a disappointment in the Southwest, leaving it dry. “Pretty heavy rains in the Ohio Valley but dry in the Northern Plains.”

As June transitions to July, the Northwest is very wet, but it dries out from Southern California all the way to the Southeast. Then finally, as we get into August, dry conditions return to the central U.S. “So this is the switch from El Niño to La Niña.”

That poses, as we move through the summer into August, possible problems for the corn crop, he says. “We’re going to have a very hot August. We’re going to have to worry about what this is going to do to the corn crop.”

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February 2nd: Implications of the Annual Cattle Inventory Report
CME Group

In reviewing the annual Cattle inventory report released on January 29th by USDA’s National Agricultural Statistics Service, the total U.S. inventory of all cattle and calves (beef-type and dairy), both on farms/ranchers and in feedlots as of January 1, 2016 totaled 92.0 million head. That was up 3% year-over-year. Importantly, USDA lowered their prior estimates including dropping the size of the 2014 calf crop. The U.S. cattle herd, beef cow count, and the number of heifers being retained for breeding purposes all grew significantly. 

One of the aspects of the report is that it provides the best survey-based assessment of the total number of cattle on-feed in the U.S. Remember, the monthly Cattle on Feed report includes only feedlots that have 1000 head or more capacity. The monthly report showed as of January 1, 2016 that there were 10.6 million head in those surveyed feedlots, slightly fewer animals than a year ago (down 0.5%). In contrast, the annual Cattle report gave a total feedlot inventory of 13.2 million head, 1.2% above 2015’s. The implication is that the smaller feedlots (those under 1000 head capacity and often referred to as “farmer feeders”) after tending to become less-and-less interested in feeding cattle during most recent years jumped back into the game during 2015. The proportion of animals in the larger feedlots actually was below 2015’s as of January 1st of this year, cattle on-feed in 1000 head and larger capacity lots as of January 1, 2016 was 80.2% of all animals on-feed, down about 1% from a year ago. Factors that likely contributed to renewed interest by farmer feeders included lower corn prices and growing trend in urban areas os sourcing locally raised food.

Based on recent cattle industry reports from USDA-NASS, what does the balance of 2016 and 2017 seem to hold in terms of U.S. beef production? A larger calf crop was produced in 2015 (up 780,000 head or 2.3% above 2014’s and the largest since 2011). An even larger calf crop will be produced in 2016. Those numbers suggest that steer and heifer slaughter numbers will clearly be posting year-over-year increases, with the largest percentage increases during 2016 occurring in the second half of the calendar year.

Besides steers and heifers processed into beef, an important source U.S. beef tonnage comes from cull cows slaughtered. The Livestock Marketing Information Center (LMIC) forecasts year-over-year increases in U.S. Federally Inspected cow slaughter in both 2016 and 2017. However, levels of cow slaughter are forecast to remain below the drought-induced huge levels posted annually from 2007 into 2014. So, without another severe U.S. drought, the increase in beef produced from steers and heifer slaughter is expected to be much larger than beef from cows. For example, in 2016, steer and heifer slaughter could increase 3% to 4% compared to 2015’s, while the number of cows processed rises by 2% to 3%.

Given the biological time lags between calf crops and increases in beef production, forecast cow slaughter levels, and forecast dressed weights; U.S. beef production in 2016 is estimated to be 2% to 4% above 2015’s. In 2017, output could grow in the range of another 4% to 5% year-over-year. Still, LMIC expects U.S. beef production in 2017 to be at to slightly below 2013’s. That is important context.

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February 1st: CME Says Cattle Market May Be ‘Broken’ as Volatility Soars
BloombergNews

CME Group Inc., the world’s largest futures market, moved to curb a recent jump in price volatility in U.S. cattle futures while warning that the derivatives may be “broken” because of changes in the livestock industry.

Starting Monday, cattle futures will be added to a CME system that caps how many electronic order updates traders can send in relation to the number of trades they actually execute. CME Chairman Terry Duffy said he’d also push for shorter hours and trading delays to help curb volatility.

Speaking Jan. 29 at a conference held by the National Cattlemen’s Beef Association in San Diego, Duffy denied that high-frequency traders were to blame for the volatility. While the NCBA wrote a letter to the CME last month linking high-frequency trading to volatility, some of its members see another cause: the slumping volume in the underlying cash market where cattle change hands directly between owners and meatpackers.

“Futures, a derivative thereof, need to have a viable cash market, so if it doesn’t, it might be broken,” Duffy said in an interview.

The volatility has meant cattle futures traded in Chicago have increasingly hit daily trade limits for upward and downward prices moves. That’s spooked cattle owners and deterred them from using the derivatives to protect against price swings, the 28,000-member NCBA said in its Jan. 13 letter.

Price Indicators

“You’re scared to buy, you don’t want to sell, it paralyzes you," said Ed Greiman, the chair of the NCBA’s marketing and international trade committee.

Volumes in the cash market have been falling for decades as cattle owners increasingly agree to sales contracts based on price formulas. These are often more efficient, resulting in a $25-per-head value for sellers, according to Stephen Koontz, an economist at Colorado State University. In some instances trade has effectively dropped to zero in some southern states, he wrote in research published last year.

When there’s a lack of price indicators from negotiated cattle trades, futures prices can’t be based on supply and demand fundamentals, Greiman said in an interview last week. He said that may have added to the spike in recent volatility.
Online Auctions?

Duffy downplayed the influence of high-frequency traders, telling the conference that they account for just 10 percent of cattle-futures trading, compared with about half of all the derivatives volume on the CME. The bourse hasn’t gotten complaints about volatility or high-frequency trading from other agricultural commodity groups such as pork and grain producers, Duffy said in the interview.

Still, the bourse is adding cattle, feed-cattle and lean-hog futures to its trader messaging system.

“I will be very aggressive to drive home change for cattle futures,” Duffy said.

In an attempt to expand cash-market trading, Greiman’s committee is working on developing an online auction for feed yards and meatpacking companies. A mock-up auction was conducted recently, Greiman said.

The NCBA is also forming a working group that will include representatives from the CME to drive more action and continue to address the volatility in futures, Colin Woodall, vice president of government affairs for the NCBA, said in an interview Friday.

“Our biggest concern is that intraday volatility, when you see cattle contracts trade limit up or down without any change in fundamentals to drive that,” he said. “When the market goes limit either way, the market stops for that day, and waiting to the next day can cost a lot of money.”

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January 29th: January 1 Cattle Inventory Up 3 Percent
USDA - National Agricultural Statistics Service (NASS)

All cattle and calves in the United States as of January 1, 2016 totaled 92.0 million head. This is 3 percent above the 89.1 million head on January 1, 2015.

  • All cows and heifers that have calved, at 39.6 million head, are 3 percent above the 38.6 million head on January 1, 2015.
  • Beef cows, at 30.3 million head, are up 4 percent from a year ago. Milk cows, at 9.32 million head, are up slightly from the previous year.
  • All heifers 500 pounds and over as of January 1, 2016 totaled 19.8 million head. This is 3 percent above the 19.3 million head on January 1, 2015. 
  • Beef replacement heifers, at 6.29 million head, are up 3 percent from a year ago. 
  • Milk replacement heifers, at 4.82 million head, are up 2 percent from the previous year. 
  • Other heifers, at 8.71 million head, are 3 percent above a year earlier.
  • All Calves under 500 pounds in the United States as of January 1, 2016 totaled 14.1 million head. This is 4 percent above the 13.5 million head on January 1, 2015. 
  • Steers weighing 500 pounds and over totaled 16.3 million head, up 4 percent from one year ago. 
  • Bulls weighing 500 pounds and over totaled 2.14 million head, up 2 percent from the previous year.
Calf Crop Up 2 Percent
  • The 2015 calf crop in the United States was estimated at 34.3 million head, up 2 percent from last year's calf crop. 
    • Calves born during the first half of 2015 were estimated at 24.8 million head. This is up 2% from the first half of 2014. 
    • The calves born during the second half of 2015 were estimated at 9.50 million head, 28% of the total 2015 calf crop.
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January 29th: Test Run of On-line Auction for Slaughter Cattle

A proposal for an online auction that could shake up the U.S. pricing model for slaughter cattle is set to make its public debut on Friday after a test run last week, with the support of a unit of the world's largest meatpacker.

Producers have worried for years that the country's existing method for pricing cattle headed to slaughter can undervalue animals because it is based partly on a declining market of cash sales that are concentrated in certain geographic areas.

A setback in prices from record highs reached in 2014 has recently refocused attention on efforts to improve the model, and a change could affect what consumers pay for steaks and burgers.

Ed Greiman, chair of the National Cattlemen's Beef Association's Cattle Marketing and International Trade Committee, said he observed a trial run of an online auction that included representatives of major meat packers.

Jordan Levi, managing partner for Arcadia Asset Management in Oklahoma City, organized the auction with the involvement of Mike Thoren, chief executive officer of JBS Five Rivers, a feedyard owned by meatpacking company JBS SA, Greiman said.

Levi and Thoren could not immediately be reached for comment. Greiman spoke to Reuters on the sidelines of a cattlemen's association event.

Other auctions already exist for cattle, but the online auction hopes to attract animals from some of the nation's larger feedyards, Greiman said. No cattle changed hands in the trial auction, and details of how an actual auction would be run are still being developed, he said.

The cattlemen's association will discuss the initiative on Friday at its annual meeting in California, said Colin Woodall, senior vice president of government affairs. A study on the drop-off of cash sales that the association commissioned from a Colorado State University professor is due to be completed this spring.

Greiman and Woodall said the decline of cash sales is back in focus because cattle prices have fallen.

Cash sales, in which producers and packers negotiate for cattle a few weeks before they are killed, have declined as producers have increasingly locked in prices months in advance. Still, prices for the advance sales are usually determined partly by average prices in the cash market.

Some producers said the shrinking cash market contributed to unprecedented volatility in cattle futures late last year because futures traders sometimes look to cash sales for cues on prices.

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January 29th: Shootin' the Bull Weekly Analysis
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In my opinion, the most important factor that developed this week has been the further stimulation of economies.  This time it was Japan implementing a negative interest rate on deposits.  This penalizes those that wish to keep money in a bank.  This issue caused our US bond market to soar to a new contract high while pushing the US dollar up sharply as well.  This will not bode well for commodity exports out of the US. 

The aspect of this development towards cattle would be perceived as indirect.  One, since Japan is our largest Asian buyer of US beef, their economy needing further stimulation does not lead me to anticipate an increase of consumption.  Second, in my opinion only, it is further evidence that stimulation does not work as previous multiple applications have yet to render a growing economy.  So, as the US markets attempt to digest this abrupt move by Japan, I would anticipate traders to continue to discount the stimulus with confirmation coming from further increases in bond prices and lower prices in equities. 

I write this comment without the prior knowledge of the inventory report.  Therefore anything said could be greatly exaggerated or negated.  All in all, the cattle market doesn't appear to be in bad shape.  Although I do not anticipate a trend to develop, I do anticipate the current price range to be traversed a multitude of times.  Each of these moves are anticipated to contract until the formation of a triangle or persistent sideways move marks enough time for the current fundamentals to change.  I would anticipate another 2 to 3 months of trading sideways. 

Feeder cattle are not much different.  I would anticipate outside market forces to exaggerate any negative aspect and mitigate any potential positive aspect.  On their own accord, I anticipate feeders to continue to trade within the already established range.  Albeit wide, time is needed for decisions to be made and cattle to be marketed.  The equity lost and guts wrenched, I just don't anticipate producers or purveyor's to be in a hurry to jump in with both feet.  Discounts on forward contracts are making wanting to enter into them difficult and futures are not offering anything in the way of help.  Volatility of futures and excessively high premiums for options are leaving producers with little means to protect price.  Therefore, less risk is anticipated to be assumed on the production side as the risk is more difficult to manage. 

Lastly, some appear exceptionally anxious for a rally.  Some cattlemen believe cattle prices will begin a long term bull market now.  I do not see this as I continue to perceive the consumer has adjusted consumption comparable to price.  So, with contraction having taken place with the consumer and packing sectors, feed yards consolidated, and expansion running at full speed, it appears a pretty even supply/demand scenario.  The only thing I can see of benefit would be an increase in discretionary spending or increase in disposable income.  At this time, I do not see either of those materializing. 

Corn is a bright spot in my analysis.  The perception that an initial wave 1 is in progress of unfolding leads me to watch for its termination and a buying opportunity on a correction. 

Christopher B. Swift is a commodity broker and consultant with Swift Trading Company in Nashville, TN. Mr. Swift authors the daily commentaries "mid day cattle comment" and "Shootin' the Bull" commentary found on his website @ www.shootinthebull.com

An investment in futures contracts is speculative, involves a high degree of risk and is suitable only for persons who can assume the risk of loss in excess of their margin deposits.  You should carefully consider whether futures trading is appropriate for you in light of your investment experience, trading objectives, financial resources and other relevant circumstances. PAST PERFORMANCE IS NOT NECESSARILY INDICATIVE OF FUTURE RESULTS.

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January 22nd: Cattle on Feed Report
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United States Cattle on Feed Down Slightly
  • Cattle and calves on feed for the slaughter market in the United States for feedlots with capacity of 1,000 or more headtotaled 10.6 million head on January 1, 2016. The inventory was slightly below January 1, 2015. The inventory included 7.16 million steers and steer calves, up 3 percent from the previous year. This group accounted for 68 percent of the total inventory. Heifers and heifer calves accounted for 3.41 million head, down 7 percent from 2015. January 1, 2016 heifers and heifer calves inventory is the lowest percent of total January inventory since the series began in 1996.
  • Placements in feedlots during December totaled 1.53 million head, 1 percent below 2014. Net placements were 1.45 million head. During December, placements of cattle and calves weighing less than 600 pounds were 375,000 head, 600-699 pounds were 355,000 head, 700-799 pounds were 355,000 head, and 800 pounds and greater were 440,000 head.
  • Marketings of fed cattle during December totaled 1.67 million head, 1 percent above 2014.
  • Other disappearance totaled 78,000 head during December, 8 percent above 2014.
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Cattle on Feed Inventory in 1,000+ Capacity Feedlots as of January 1st
Millions of Head
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Number of Cattle Placed on Feed in 1,000+ Capacity Feedlots in December
Millions of Head
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Number of Cattle Marketed from 1,000+ Capacity Feedlots in December
Millions of Head
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Cattle on Feed by State as of January 1st
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January 22nd: USDA Cold Storage Report
  • Total red meat supplies in freezers were down 1 percent from the previous month but up 12 percent from last year. 
    • Total pounds of beef in freezers were up 1 percent from the previous month and up 16 percent from last year. 
    • Frozen pork supplies were down 3 percent from the previous month but up 8 percent from last year. 
    • Stocks of pork bellies were up 30 percent from last month and up 13 percent from last year.
  • Total frozen poultry supplies on December 31, 2015 were down 1 percent from the previous month but up 18 percent from a year ago. 
    • Total stocks of chicken were down 2 percent from the previous month but up 21 percent from last year.
    • Total pounds of turkey in freezers were up 5 percent from last month and up 3 percent from December 31, 2014.
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January 22nd: Retail Beef, Pork, & Chicken Prices Decline
CME Group

USDA-ERS released their December protein retail price report on January 20th. Retail beef, pork, and chicken prices declined from November to December, with turkey showing the only increase in retail prices month-to-month. All proteins, except for turkey, were below their year ago retail prices in December compared to 2014. For retail All Fresh beef prices this was the only time they were below year ago values in 2015. Retail All Fresh beef prices came in at $5.89 per pound, almost $0.10 below December 2014. Retail pork prices sat at $3.85 per pound, down $0.15 compared to a year ago and retail chicken (whole fresh) prices were $1.44 per pound in December which was $0.10 lower than 2014’s. Turkey prices were $1.45 per pound, $0.12 higher than 2014’s. As a reminder, retail prices do tend to be sticky, that is they do not adjust very fast compared to live animal and wholesale prices. In the case of beef though, it appears retailers are becoming convinced that relatively lower live cattle and beef wholesale prices (compared to record highs of 2014 and first half of 2015) are here to stay at least for a while.

USDA-NASS released their monthly Livestock Slaughter report yesterday, with December data, confirming information that was already in the market of increased beef and pork production for the month. Pork production set a new record high for the month, up 3% from 2014, with equal slaughter days in both December of 2014 and 2015. Beef production was up 2% compared to December 2014. This increased pork and beef production was realized at the retail level, as the retail prices for December show. According to U.S. Department of Commerce data for retail sales from foodservice, restaurants, and grocery stores, consumers are responding to these lower prices as well. Foodservice and restaurant retail sales in December surpassed expectation, climbing 7.5% from a year earlier and grocery store sales were up 2.1%. The food sector as a whole increased sales 4.5% in December, which compares to a 3% gain in November and a 4.6% gain in October year-over-year. The health and strength of the domestic economy plays a huge role in these sales, and although our economy is feeling the fallout in oil prices and volatility in the stock markets, for December at least consumers continued to spend money and responded to lower priced proteins.

For 2015, foodservice and restaurant sales were up 8.6% from a year earlier, the biggest annual percentage gain since the current data series was created in 1992. The next biggest increase was in 2012, when foodservice and restaurant sales were up 7.5%. Grocery store sales were up 2.3% for the year, similar to gains that have been sustained during the prior three years. With restaurant sales being a very important aspect of beef demand, the increase in restaurant sales highlights consumer’s continued willingness to spend money on higher priced beef in 2015. The December increase in restaurant sales was likely in part due to more specials or features at the restaurant level, on the beef side.

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Janaury 21st: Monthly Livestock Slaughter Report

Commercial red meat production for the United States totaled 4.27 billion pounds in December, up 3 percent from the
4.14 billion pounds produced in December 2014.

  • Beef production, at 2.05 billion pounds, was 2 percent above the previous year. Cattle slaughter totaled 2.45 million head, up slightly from December 2014. The average live weight was up 25 pounds from the previous year, at1,388 pounds.
  • Veal production totaled 7.8 million pounds, 2 percent above December a year ago. Calf slaughter totaled 45,200 head, up 5 percent from December 2014. The average live weight was down 8 pounds from last year, at 295 pounds.
  • Pork production totaled 2.21 billion pounds, up 4 percent from the previous year. Hog slaughter totaled 10.36 million head, up 5 percent from December 2014. The average live weight was down 1 pound from the previous year, at 285 pounds.
  • Lamb and mutton production, at 13.2 million pounds, was down 1 percent from December 2014. Sheep slaughter totaled 199,600 head, slightly above last year. The average live weight was 132 pounds, down 2 pounds from December a year ago.
January to December 2015 commercial red meat production was 48.4 billion pounds, up 2 percent from 2014.

Accumulated beef production was down 2 percent from last year, veal was down 12 percent, pork was up 7 percent from
last year, and lamb and mutton production was down 3 percent. 

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 January 21st Seasonal Drought Outlook
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January 20th: Large Supply of Meat & Poultry

U.S. meat markets have been dealing with large supplies. Beyond domestic production, the U.S. supply available in the market includes the addition of imports, plus frozen stocks, minus exports.  So, there is a difference between the U.S. production level and the domestically available tonnage (market supply).  International trade and frozen stocks numbers are not yet in for the fourth quarter.  Projections by the LMIC indicate that in large part livestock, meat, and chicken prices in the fourth quarter of 2015 were pressured by large supplies facing domestic customers.

For the fourth quarter of 2015, domestically available beef was about 2.6% above 2104’s and nearly equal to 2013’s.  U.S. commercial production for the quarter is projected to be up year-over-year by 1.5%, the additional 1.1% in available domestic supply came from larger frozen stocks, smaller exports, and larger imports compared to quantities of recent years.

In 2015’s fourth quarter, the pork market supply situation was a bit different than beef’s. LMIC projects a 5.0% year-over-year increase in available supply, while the increase in production was 5.3%.  In 2015’s fourth quarter, both the level of supply and U.S. production were larger than any quarter in history.  To a small extent, net export tonnage (exports minus imports) helped cap the pork supply facing the U.S. market, still, a 5.0% gain is huge and resulted in large price declines.

With respect to broilers (young chicken), the story is similar to beef and pork, but is even more dramatic. In 2015, the available supply for U.S. consumers is projected to be larger than any prior fourth quarter.  Further, it was second only to the all-time quarterly high set in the third quarter of 2015. The year-over-year jump in available chicken was projected at 6.9%; however, the increase in domestic production is projected at a much more modest 1.6%. The difference was caused by the collapse in U.S. chicken tonnage exported.

Putting all red meat and poultry together and doing the above calculations paints a big picture of domestic supply.  For the fourth quarter of this year, supply facing the U.S. market is projected to be up about 4.4% year-over-year. Production increased by only 2.0%.

LMIC

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