28 March 2012

3 minute read

North America

Pre-report expectations looked for cattle on feed to be up 2.3 per cent, so the reported value was mostly in-line with this estimate. Placements into feedlots during February totaled 1.714 million head, up 2.8 per cent from last year. Pre-report estimates pegged placements to be higher by 2.7 per cent, so again the reported number was about spot on. Cattle marketed during February totaled 1.755 million head, down 2.0 per cent from last year. The expectation was for marketings to be lower by 0.5 per cent, so the marketings number should be considered bearish (especially given that it was below the lowest estimate of -1.8 per cent).

The higher on feed number should not be too alarming. As has been mentioned in this write-up many times in the past, there were many lightweight cattle put on feed for the past six plus months and some of those cattle are still lingering in feedlots. The higher placements, on the other hand does buck the trend over the past two reports that showed lighter placements compared to year ago levels. The lower move in the corn market along with steady to higher prices throughout the month of February tilted the feeding profitability window into positive territory.

This led to an increased incentive for feedlots to procure cattle since they could, for all intents and purposes, lock in a profit. As a result feeders were aggressive in locating cattle to place on feed and this shows up in this month's report. Heavier cattle, those over 800 pounds, experienced the largest increases from year ago levels, which should not be a surprise since the drought had begun to take hold of the Southern Plains, which led to increased light weight placements and a smaller number of heavy weight placements.

Further implications of the drought have been the lack of available cattle in the US. This has led to an increase of feeder cattle from Mexico being imported to fill US yards. A quick look at data from LMIC show that the current four week average of imported cattle from Mexico is 5.8 per cent above 2011 and 45.5 per cent above the average from 2006-2010.

The lower marketings number was unexpected but is understandable. For most of 2012 fed cattle trade has been slow. The aggressiveness that was present to place cattle into feedlots during February was not present when it came to marketing cattle. Market ready cattle had high breakevens and therefore feeders were reluctant to pull the trigger.

The Markets

Beef and cattle markets reacted mildly to the Cattle on Feed report. Not only was it mostly neutral, but more importantly, lean finely textured beef remains at the forefront of market discussions. In the still fragile economic environment that we operate in, ground beef is a low cost, value product for households. The negative connotations that have been projected on this topic are weighing heavily on cattle and beef markets.

Five-area fed cattle prices were mostly steady last week. Wholesale Choice beef prices continued to slide lower and were lower each day of the week. Prices have slid $8.89/cwt. for Choice and $6.45/cwt. for Select since peaking the week of March 2. Feeder steers and steer calves in Oklahoma markets were steady to lower. Corn prices in Omaha were lower. Live and feeder cattle futures were lower last week as beef and cash markets provided little in the way of positive news. Corn futures moved lower as well in light of lower cash prices and news of early plantings across the US, which are expected to improve yields.

Further Reading

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You can view the full report by clicking here.