Friday afternoon will see the release of the July 1 Cattle on Feed report, the biannual Cattle Inventory numbers for July 1, and monthly Cold Storage report as of June 30. I’ll be talking about all three later in the day, but for this Report Preview the Cattle on Feed update is in the spotlight. Why? Because we get to use futures spreads to better understand what the cattle situation is in the US. I’ve attached a summary spreadsheet of live cattle futures spreads at the end of June that helps illustrate what I’m looking at. Let’s get started.
Cattle on Feed as of July 1
- The report for June 1 showed 11.846 million head, reportedly the largest June 1 number on record since the report began back in 1996
- The August-October spread weakened during June, dropping from the May 31 close of (-$5.775) to a June 30 close of (-$6.20)
- This tells us the number of cattle available to be marketed against the August futures contract remains large
- Theoretically, these would be the cattle placed during March and April, reportedly 1.85 mh and 1.99 mh respectively
- This tells us the number of cattle available to be marketed against the August futures contract remains large
Placed during June
- The October-December futures spread strengthened slightly over the course of June
- With the monthly low occurring on June 3 and monthly high on June 15
- The December-February futures spread strengthened by $0.20 during June
- I’m including this spread because there has been talk of increased placements due to the ongoing drought across the US Plains pulling cattle off pastures and into yards
Marketed during June
- I have mixed thoughts on this category.
- First, the June-August futures spread posted a spike rally as the nearby contract neared expiration.
- This would suggests marketings were light at the end of the month
- Second, the August-October spread weakened as June rolled along, hitting its monthly low of (-$6.725) on June 29
- This also tells me marketings weren’t heavy, as cattle were backing up throughout the month
- First, the June-August futures spread posted a spike rally as the nearby contract neared expiration.
The Bottom Line:
- On Feed: I think the number will be big once again, likely another record for July 1
- Placements: I think will be good sized as well, again given the drought across the US Plains
- Marketings: Cattle marketed during June should just come up short of offsetting the number placed during the month, allowing for steady to larger on feed number.
