Cattle futures are following the equity markets and clearly remain quite volatile. Early this week live cattle futures fell to their lowest level in nearly a month along with the sharp break in the stock market. However, futures turned higher, trading up the daily 3-cent limit on Thursday as equities staged a recovery. The swings in the stock market are seen as a barometer for risk tolerance, but falling global equities are also viewed as a sign of slowing economic growth, which is negative for export demand.

Domestically, after a three-week surge that carried beef prices up more than $40/cwt, wholesale quotes eased this week. Beef demand tends to hit a lull in mid-to-late winter. Even so, packer margins have improved dramatically along with the higher beef prices. As a result, packers have plenty of room to bid more aggressively for fed cattle, especially as near-term supplies are cleaned up. Carcass weights are declining seasonally and winter storms could also negatively impact performance.  

USDA will issue the monthly Cattle on Feed report Friday. Based on pre-release estimates, the trade expects December placements to be down about 5% from a year ago and cattle marketed during December as being up about 2%. Such numbers would put January 1 cattle on feed down 1.2% from a year ago. Falling fed cattle prices and poor feeding margins during the first half of December, along with lower feeder cattle imports from Mexico and Canada, likely contributed to the decline in feedlot placements.

We expect fed cattle prices to work gradually higher through winter into early spring to a seasonal high in the low $140s/cwt. Cash prices usually peak around that time, due to annual lows in slaughter rates and early grilling season demand.