Is a market recession looming? Maybe not
There’s reason for optimism in the cattle complex as we approach year-end.
Nevil Speer, BEEF Magazine
Nov 07, 2019
The fed cattle market, now three months out since the Tyson fire, is seemingly on solid ground. On the live side, the fed market has clawed its way back from the post-fire deficit. The market ended October with sales at mostly $113 per cwt—that’s even better than the week of the fire (Figure 1). Business has apparently adjusted to the new normal with the Holcomb plant out of commission.
Most important, beef throughput has barely skipped a beat thanks to ramped-up Saturday kills across the complex. The three-month production average is about even with last year (Figure 2). Extra work on Saturdays has helped ensure that cattle keep moving and prevent sizeable back-up—especially significant for those feedyards that regularly ship cattle to Garden City.
That reality was reflected in USDA’s October Cattle on Feed report. Fed cattle marketings have remained on pace with last year. Better yet, while the front-end supply (4.1 million head) is somewhat higher than last year, the 120-day inventory pattern is right in line with seasonal expectations.
Implications on two fronts
First, it’s enables the feeding sector to avoid an inordinate backlog of market-ready cattle. Therefore, subsequent market leverage going into early spring should remain relatively intact. Moreover, the Holcomb plant is expected to be back online within the next 60 days. That means the industry should be able to absorb bigger supplies in the coming months.
CME’s fed cattle contracts have priced in those dynamics. For example, the April ’20 contract is trading at lifetime highs ($124-125 per cwt) with some analysts calling for $130 before the rally begins to meet some resistance.
Second, those Saturday kills and subsequent slaughter pace also benefits the feeder market. That is, steady marketings on one side translate into systematic placements on the other side. Therefore, feedyards have remained regular purchasers of feeder cattle. September arrivals were pegged at nearly 2.1 million head—just slightly bigger than 2018—and with a pace right in line with the normal seasonal pattern.
All that has underpinned the feeder market ...
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