Goldman Sachs left its price forecast for live cattle futures unchanged, despite the recent rally, as it saw increased pressure coming on prices thanks to the successful rebuilding of the US herd.
Goldman said that data from the US Department of Agriculture “reinforce our view of continued (albeit slowing) herd re-building in the US, keeping downward pressure on prices over the long-term”.
The bank suggested that prices have “overshot,” encouraging higher feedlot placement which will work its way through to more fed cattle availability in months to come.
Prices for live cattle, which are cattle that have reached slaughter-ready weight, rallied hard in late 2016.
Second-month live cattle futures rallied 16% in the last three months of the year, to $1.16 a pound, and have sustained at around that level since.
Goldman saw the rally in prices driven by slow cattle placements on feedlots, earlier in the year, meaning few cattle available at slaughter weight.
“While we had seen large and heavy cattle placements over spring and summer 2016, placements fell at a much faster pace than normal and by the last three months of 2016, fed cattle inventories were well below the five year average,” Goldman said.
“Part of this was due to mild winter weather (keeping animals outside of feedlots for longer), but most appears due to poor feedlot margins.”
“Ultimately, feedlots became more current, spot prices rallied 16% over the last quarter of 2016 and producer margins were pushed back into positive territory.”
But Goldsmith suggested that the rally has been overdone, with government data suggesting rising feedlot placements.
“The January cattle of feed figures suggest that fundamentals have overshot, with a 9% higher-than-consensus estimate for cattle on feed, pointing to an overly strong supply response in late 2016,” Goldman said.
Goldman maintained its forecast, for prices to fall to $1.00 a pound in six months’ time, and holding at that level out to a 1-year horizon.
June live cattle futures are currently trading at about $1.06 a pound, with futures for February 2018 trading at about $1.03 a pound.
(Source – http://www.agrimoney.com/news/goldman-warns-live-cattle-prices-have-overshot–10468.html)