Fed Cattle Market Struggles, But Optimism Lies Ahead
Fed cattle markets have been unable to put together any sort of spring rally this year with cash markets trading in a narrow range for several weeks. The 5-market fed cattle price has averaged $113.81/cwt. for the past six weeks with weekly averages ranging from $113.62/cwt. to $114.07/cwt.
Fed cattle markets have struggled with ample supplies thus far in 2021 aggravated by winter weather disruptions in February. Steer plus heifer slaughter is up 0.8 percent year over year for the first nine weeks of the year with steer and heifer carcass weights 13 to14 pounds heavier year over year. Carcass weights are declining seasonally and relative to last year and may be below year ago levels for much of the rest of year.
The March Cattle on Feed report pegs March 1 feedlot inventories at 12.0 million head, up 1.6 percent year over year. February placements were 98.1 percent of last year with winter weather reducing placements during the month. February marketings were 97.6 percent of one year ago also disrupted by the massive winter storm in February.
The cattle on feed report was well anticipated with placements, marketings and the on-feed total all close to pre-report expectations. February placements of cattle less than 700 pounds was down 4.5 percent year over year and cattle placed weighing more than 700 pounds were almost unchanged, just fractionally lower than last year.
Feedlot supplies are expected to tighten in the coming months. Total feedlot placements the past six months were down 2.3 percent year over year. In the last six months, placements of cattle under 700 pounds is down 4.5 percent year over year with placement over 700 pounds down by 0.6 percent compared to last year.
Feedlots have been somewhat front-loaded thus far in 2021 which has contributed to the sluggish fed cattle markets in the first quarter of the year. Feedlot supplies should tighten in the second half of the year after working through current inventories. However, interpretation of cattle on feed reports will be difficult in the next few months because 2021 will be compared against the monthly volatility in placements and marketings due to pandemic disruptions in 2020.
There is considerable optimism for fed cattle markets going forward beginning in the second quarter and especially in the second half of the year. Currently Live Cattle futures for April and June are trading at roughly the same level with June, at times, premium to April. This is unusual because June is usually at a significant discount to April Live Cattle futures.
In fact, the previous five-year average discount of June to April Live Cattle futures in March is -$8.47/cwt. The fact that April and June are at equal levels this year is due to weak April prices relative to June expectations. Live Cattle futures prices for October and December reflect additional optimism for fed cattle markets in late 2021 and heading into 2022.
