Price action: Cattle futures rebounded modestly to end the week, with February live cattle rising 67.5 cents to a close at $156.625. That represented a weekly loss of $1.10. And while expiring January feeders slid 17.5 cents to $177.925, most-active March climbed 87.5 cents to $180.975, which marked a weekly loss of $1.90.
5-day outlook: Friday’s cattle rally may have been partially driven by short-covering to the end the week, but we suspect packers were unable to force cash prices as low as they hoped (although the Monday-Thursday average fell $2.54 from the week-prior to $155.07) and/or didn’t get the cattle numbers they wanted. The fact that February futures held at and rebounded from the upward trendline drawn across their fall lows likely triggered technical buying as well. This week’s slaughter did top the year-ago figure by 9,000 head, but news that steer carcasses averaged ‘just’ 919 pounds per head during the first week of the year, down 9 pounds from year-ago, also implied feedlot marketings remain generally current. Today’s rally likely anticipated fresh strength next week and during the weeks ahead as fed cattle supplies dwindle on a seasonal basis.
Bulls may also have been anticipating a supportive USDA Cattle on Feed report at 2:00 PM, since industry analysts were expecting a 9% annual drop in December feedlot placements. That’s largely what they got, as the report stated the actual figure at 8.0% below year-ago. December marketings fell about 6% from the comparable year-ago level. A calendar-driven loss of a workday last month caused the bulk of that drop, but the USDA figure came up about 1% short of expectations. The net result was a Jan. 1, 2023 Cattle on Feed total at 11.682 million head, down 2.9% from last year, whereas the industry expected a 3.2% drop, so the result might be seen as slightly bearish for Monday’s opening.
30-day outlook: Wholesale beef prices remained mixed to weak Friday morning, with choice-grade product averaging $271.70. Select beef cutout rose $1.47 to $257.16, which narrowed the choice/select spread to just $14.54, the narrowest it’s been in months. We suspect the recent reduction in the spread has reflected improved consumer demand for select product as much as it has an increase in market-ready cattle supplies (and choice-beef production). If we’re correct on this point, cattle and beef prices seem likely to march higher on a seasonal basis during late January and February. Conversely, a surprisingly large rise in choice cattle and beef supplies could limit the size and speed of the anticipating seasonal move.
90-day outlook: Cattle slaughter typically reaches some of lowest non-holiday weekly totals of the year in late February and March. This roughly coincides with the exit dates for low late-summer placements of steers and heifers born 2-3 years ago, with the fall placement surge being greatly supplemented by calf purchases. But such calf-fed animals generally don’t exit lots until mid-to-late-spring at the earliest, which is one reason why the market tends to remain strong through early spring. We also believe retail beef prices, particularly those for steaks, that fell below year-ago levels in late 2022, will spur renewed consumer offtake and help power and sustain the expected seasonal advance into spring.
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