Traders are bracing for an uptick of slaughter-ready cattle supplies next year after feedyards placed more livestock than expected in lots for fattening.
The U.S. Department of Agriculture said on Friday that cattle placements in September rose 13% from a year earlier, to 2.15 million head, well above pre-report estimates that forecast a 7% increase.
That is likely to add to already burdensome cattle supplies when those herds reach their required slaughter weights early next year, increasing pressure on cash-market and futures prices.
"Seasonally [placements] are heavier during this timeframe," said Craig VanDyke, an analyst at Top Third Ag Marketing. "Cattle on feed has been a bearish report the past 9 months."
Total cattle on-feed on Oct. 1 rose 5% from a year earlier, to 10.8 million head, in line with expectations. Cattle sent to slaughterhouses in September, or marketed, rose 3%. That was also in line with expectations, though lower than last month.
Mr. VanDyke said that the lower rate of cattle sent to slaughter was concerning, given that a brisk pace of marketing had helped offset higher placements in previous months.
Cattle futures rose ahead of the report. October live cattle contracts climbed 0.4%, to $1.11675 a pound, at the Chicago Mercantile Exchange, down slightly for the week. Later months were also higher.
Cash prices for slaughter-ready cattle climbed before the report. Meatpackers in both northern and southern states bought cattle from feedyards for $111 per 100 pounds live and $175 dressed, up from $109 earlier this week.
Analysts said the prospect of rising cattle supplies could give packers more leverage to lower prices in follow-up trade this afternoon, however, in addition to weighing down futures when they reopen on Monday.
John Welsh, of the PRICE Futures Group, said beef demand was strong enough to limit longer-term pressure on prices from the higher supplies.
"I think they're going to be absorbed," Mr. Welsh said. "We've reached a peak in terms of slaughter weights."
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(END) Dow Jones Newswires
October 20, 2017 16:30 ET (20:30 GMT)