Derrell S. Peel, Oklahoma State University
After a tremendous string of record cattle prices in the first three quarters of the year, the market was ripe for a significant correction. For the past six weeks cattle futures and cash markets have been dominated by a near continuous stream of political rhetoric, speculation, and fears mixed with a small amount of reality. Hopefully, the federal government is distracted now by other things and will spend less time meddling in cattle and beef markets.
The political uncertainty provided outside money in cattle futures, with big long positions, an opportunity to take some profits, and aided by computer algorithms, have no doubt pulled Live and Feeder futures too low (and taken cash markets with them). Much of the outside money will likely reset positions going forward. After all, futures markets left several chart gaps in this correction that look to be filled going back up.
Maybe cattle markets can get back to the fundamentals, which have not changed through all of this. With some government data flowing again, the fundamental picture has clearly not changed from the trajectory heading into the shutdown. The October and November Cattle on Feed reports show continued slow erosion of feedlot inventories with placements and marketings showing a more dramatic picture of tight cattle supplies. October placements were the lowest in the data series back to 1996 and the 12-month moving average of placements shows that average feedlot placements the past year have been the lowest since July 2016, a bit over nine years ago. October feedlot marketings were the lowest for the month since 2015, with average marketings for the past twelve months the lowest since October 2016. November 1 feedlot totals were down 2.2 percent year over year and average inventories the past year are the lowest since November 2018 after twelve consecutive months of declining feedlot inventories. Feedlot inventories are expected to continue decreasing with smaller feeder cattle supplies, no Mexican feeder imports and heifer retention still ahead. The October heifer on feed inventory was 38.1 percent, unchanged from the July level.
So far this year, fed steer and heifer slaughter is down 5.2 percent but since June has been down 7.6 percent from one year ago. Steer and heifer carcass weights are higher again this year but not enough to offset declining slaughter. Fed beef production is down 2.7 percent so far this year and combined with an 8.2 percent year over year decrease in non-fed beef production leads to a decrease in total beef production of 3.6 percent year over year. In the past 24 weeks, beef production has been down 5.8 percent.
Cattle markets are expected to recover from the correction but the timing is unclear. With the year winding down and holidays approaching, cash and futures may mostly coast out the remainder of the year and reset in January. However, if the politicians will be quiet, significant recovery might happen in the next couple of weeks before December finally wraps up. Volatility is still a major factor in cattle markets.
