Pens are full but feeders may feel margins squeezed
October cattle futures prices in Chicago fell June 19 as the market digested news that there are more cattle in American feedlots than expected.
The June 16 United States Department of Agriculture cattle on feed report showed 9.5 percent more cattle in major feedlots in May compared to last year. The number was at the top of the range of analysts’ forecasts.
The number put into feedlots in May was up 12.4 percent, higher than the most optimistic forecast.
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The yield estimates for wheat and soybeans were neutral to bullish, but these were largely a sideshow when compared with corn.
The wave of cattle put in feedlots now will be slaughtered in mid autumn and that’s why the October contract price was falling.
Why are feedlots filling up?
Early worries about drought in the corn belt have eased and there is now talk of a bumper corn crop.
Also, while most of the corn belt is getting enough rain, dry pastures in parts of Texas, Nebraska, Kansas and southern states are forcing grassers to the feedlots.
The statistics point to record production of beef in the U.S. this year. Luckily consumer demand remains strong and exports are also running ahead of last year.
The demand for feeders to put in pens has pushed up their price. The cost of feeders now is such that feedlot profits are squeezed.
In May they might have lost money, and with the futures market signaling weaker fall prices, the pressure on feedlots could build.
Palm oil pressure
Recent developments in the palm oil market could affect canola prices.
Soaring palm oil production in Malaysia and Indonesia, the world’s top two producers, added to the glut of food oils on the market this year.
After a 27 percent increase in production in 1999-2000, Malaysia is encouraging producers to cut palm oil production by 450,000 tonnes a year, or four percent of its total production of 11 million tonnes, by replacing trees that are more than 25 years old.
Traders say the cut isn’t enough to affect the market and will only encourage Indonesia to produce more.
Malaysia’s problems worsened last week when India, its best customer, raised import duties on vegetable oils to encourage domestic production.
Analysts expect exporters will have to lower their prices to continue to do business with India.
In the longer term, palm production is expected to rise quickly and the veg oil market bible, Oil World, forecasts palm will surpass soybeans as the dominant product by 2020.
