Sort & Cull

Getting excited over the Oct. 1 on-feed report finally released on Thursday (i.e., nearly two weeks late thanks to the government shutdown) seemed as pointless as betting on Monday Night Football's instant replays.

While it applied another nice coat of bullish supply paint, it didn't really tell us anything new. Feedlots have been emptying like a cracked cistern all year long, a simple function of improving pasture and backgrounding options on one hand and nonstop herd liquidation on the other.

I suppose the authority behind an official USDA audit made some producers and traders feel more confident about the tightness of late-year fed cattle numbers. The big lot inventory as of Oct. 1 totaled 10.14 million head, 8% below 2012 and the shortest fall bunk line recorded since 1998.

Yet this is nothing that couldn't have been imagined on Sept. 20 when the Sept. 1 on-feed report hit the newsstand. Furthermore, the explosive performance of the cash market over the last 30 days has told us more about the bullish reality of supply than if the NSA had bugged every sale barn and feedlot phone in the country.

Between mid-September and late October, the price of choice steers and heifers surged by more than $8 per hundredweight. When marketing units suddenly jump $100 in value without the spurring of a major demand event, you hardly need the expensive visors at Pricewaterhouse to confirm that country supplies are extraordinarily short.

Even if the next few on-feed reports actually come out on time, I fear they will be about as inspirational as a sober Presbyterian preaching to the yawning choir. In other words, "Yeah, yeah, numbers are historically tight (e.g., 8-weight placement so far this fall suggests that big lots will have 10% fewer cattle finishing in January than they did a year earlier), tell us something we don't know."

And what don't we know? Obviously more than I can list. But our critical market ignorance at this particular time concerns the potential strength of beef demand over the next several quarters.

The six-letter words of "supply" and "demand" always work to define one another. Adequate supply is a function of demand and vice versa.

I always think of the ambitious street entrepreneur working to hawk pencils for $1,000. When asked whether his pricing policy was adversely impacting total sales volume, he calmly answered, "Maybe, but I only have to sell one."

How much further can supply bulls drive the market higher without tapping into extraordinary demand?

I don't have the answer. But given how deferred live cattle futures have surrendered large premiums in recent weeks, it's clear many are asking the same question.

(AG)

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