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CME: Cattle on Feed 2.1% Higher than a Year Ago

27 February 2012

US - US cattle slaughter has declined below 600,000 head /week in three of the last four weeks as packers try to reconcile limited market ready cattle in feedlots (and hence higher cattle prices) with end user resistance to pay up for boxed beef, write Steve Meyer and Len Steiner.

More recently, the decline in beef slaughter also reflects fewer numbers of cows coming to market, with cow and bull slaughter last week estimated to be down 8% from the comparable period a year ago.

The latest USDA cattle on feed report will likely be viewed as moderately bullish by futures markets when they open on Monday (today). The feedlot survey results showed that total inventories are somewhat smaller than what market participants expected ahead of the survey (see chart). Below are some of the highlights and our take on implications of this report:

  • Total cattle on feed inventories on February 1 were 11.811million head, 2.1% higher than a year ago. Pre-report estimates were looking for a 2.5% increase in feedlot inventories.
  • The number of cattle placed on feed during January was estimated at 1.847 million head, 2.2% lower than a year ago compared to pre-report estimates looking fro a 1.2% decline in placements.
  • Marketings in January were 1.816 million head, 2.4% higher than a year ago and well above pre-report estimates looking for marketings to be about steady compared to last year.

The combination of higher than expected marketings and lower placements impacted the size of the overall inventory. In recent months there has been somewhat of a discrepancy between the marketing numbers reported by the feedlot survey and the slaughter data coming from NASS. The monthly slaughter data (published on Friday) shows that steer+heifer slaughter in January was 2.051 million head, down 1.9% from the previous year. Steer slaughter at 1.285 million head was up 0.2% vs. January 2011 while heifer slaughter at 766,000 was down 5.2%. As we noted in our report on December 19, the discrepancy may reflect changes in feedlot industry structure, whereby some smaller feedlots either closed down or grew in size and now are being captured in the feedlot survey which polls only feedlots with +1000 head of cattle on feed.

Different from the trend we saw last summer and fall, the January survey showed that feedlots placed more heavy feeders in January than they did last year. Placements of yearlings, feeder cattle weighing more than 800 pounds, were up 9% compared to last year while placements of feeder cattle in other weight categories were down, with the biggest decline in the 600-699 category, down 45k head or 9%. Feedlots placed a lot of light cattle in the fall and this has reduced the supply. Also, feed conditions in January 2012 are better than they were last year, especially with regard to winter wheat pastures. Some producers are currently weighing whether it may be more profitable to let cattle graze out their wheat crop as cattle prices hit record highs while wheat values decline.

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