With the end of the first quarter just a stone's throw away, it's probably safe to start passing out report cards in the cattle market. True, official trade data won't be available for another several weeks. But few doubt the trends documented in the Jan-Feb period (i.e., smaller importers and mixed exports) have substantially changed this month.
For the first three months of 2016, the 5-area fed steer averaged right at $135, 17% below the same period last year (i.e., $27 lower). Even if I was one of those soft teachers that valued self-esteem above all else (e.g., giving bonus points for correctly spelled names and readable penmanship), it would be impossible to award the feedlot class more than a charitable "D."
Admittedly, the market deserved more than an "F" if only because the level of red ink did manage to recede significantly from the disastrous flood stages of late 2015. Nevertheless, the market's poor performance continued to skate dangerously close to complete failure thanks much more to problems of demand than supply.
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Commercial beef production in the quarter just completing is just under 5.5 billion pounds. While that represents an increase, the Jan-Mar tonnage probably exceeded the first quarter of 2015 by less than 2%. Such an additional supply burden (i.e., assume a generally neutral trade balance) might explain a 2-4% reduction in feedlot prices. But 17%?
Beef demand simply carried quite an odor through the first quarter, at least compared with 2015. It stunk up the place big time.
I thought this was especially obvious in terms of weekly export data, a system of private reporting that provides a picture distinguishing between beef purchased by foreign buyers from week-to-week and beef actually loaded on ships. The difference between the two is called "outstanding sales," a critical total that helps indicate the urgency (or lack of) packers have relative to futures production.
As of March 17, outstanding sales (i.e., beef export sales booked but not yet shipped) totaled 75,667 metric tons, 18% below 2015 and 19% short of the three-year average. Such an ominous lagging in outstanding sales strikes me as a very troubled sign of foreign demand for U.S. product.
This piece may not explain all of the demand problem experienced so far in 2016, but it surely sticks out like a sore thumb.
For more of John's commentary, visit http://feelofthemarket.com/…
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