COF: Bearish Compared to Expectations

USDA's Cattle on Feed Report isn't bearish as it shows feedlot supplies continue to tighten compared to year-ago, the 17th straight month that's been the case. But with all three categories on the negative side of the average pre-report trade guesses, the report is bearish compared to expectations. The combination of much-heavier-than-expected Placements in January and slightly lighter-than-expected Marketings pushed the On Feed category above expectations. At 10,760 head, the Feb. 1 feedlot inventory is roughly 130,000 head more than anticipated.

January calf placements not only topped the average pre-report estimate by a wide margin, but also came in nearly two percentage points above the top end of the guess range. Record fed cattle prices and cheaper feed costs gave cattle producers more incentive to move animals into the feedlot last month. With U.S. calf supplies very tight, the sharp increase over year-ago implies more calves moved into the U.S. from Canada and Mexico.

The bulk of the price pressure from this report is likely to be felt in deferred live cattle futures Monday as the Placements category was the most negative. We don't expect the report data to have a lasting impact on cattle futures, however.