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CME: Latest COF Report In-line with Pre-report Estimates

28 January 2020

US - Before we dive into Friday’s "Cattle on Feed" report, a highlight from last week was the volume of slaughter cows hitting a five year high, writes Steiner Consulting Group, DLR Division, Inc.

Total cow slaughter was 138.6 thousand head the highest weekly number since January 2013. Dairy cows hit another 70+ thousand head week, which is somewhat surprising given the rebound in milk price.

On Friday, the futures market bounced-back some from Thursday’s level. Wednesday’s and especially Thursday’s markets fell in light of very high beef production in December (+7 percent year-over-year), uncertainty regarding world markets, pre-report estimates showing larger placements than many market participants expected.

Coronavirus is spreading through Asia, closing public spaces during the Chinese new year celebrations in an attempt to slow the spread of this epidemic. Lean hog contracts are bearing the brunt of that disease concern. Friday’s lean hog futures in the first three contracts of 2020 were down.

Take-aways from COF: The report was in-line with pre-report estimates (for the most part). Placements were a touch higher, while marketings were a touch lower. Second, is that cattle feeders continued to search the country high and low to find 1000 lb+ animals to put on-feed. Those animals will mostly be fed against a lofty April Live Cattle contract that was $124.3 at Friday’s close.

Feedlots have been placing a larger number of cattle that weigh over 700 pounds since September. Much of that is driven by profitable feeding opportunities that emerged post Tyson beef packing plant fire. Live Cattle futures enabled those cattle to be hedged above breakeven levels.

Placements were above a year ago for all the placement categories. Drought continues to persist across much of Texas and the Four Corners area, which may be boosting some of the lighter weight placement categories. Texas placements in the under 700 pound categories were above a year ago.

Marketings were half a percent off what daily Federally Inspected slaughter would have suggested. Steer and heifer slaughter was 5.8 percent above a year ago in December. Canadian imports of slaughter ready cows, steers and heifers were very large, nearly double the import level in 2018.

USDA AMS no longer breaks out cows from steers and heifers. It is difficult to assess how many of those are cows versus steers and heifers. The total number of imports for weeks in December was 45,251 head, 20,189 head over December 2018.

Another AMS report summarizes national cow and bull negotiated sales on imported animals. This report would indicate that much of the increase is steers and heifers.

A market factor that is challenging is the number of cattle in feedlots that are under 1000 head capacity, which are not surveyed monthly. Those farmer feeder numbers are only counted twice a year. That number will be available in the 1 January cattle inventory report released later this week.

The number of heifers on feed climbed above a year ago for the 16th straight quarter. The ratio of steers to heifers did dip below the previous quarter to 38 percent, in part because steers on feed reached above a year ago for the first time in five quarters.


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