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CME: Cattle on Feed Inventory Expected to Remain Level

23 September 2016

US - The September Cattle on Feed report will be released by USDA-NASS tomorrow, according to the latest Daily Livestock Report is published by Steiner Consulting Group.

Urner Barry’s published industry analyst survey of Cattle on Feed pre-report estimates shows a fairly wide positive range on both August placements and marketings but an on feed range as of September that is only about 2.5 percentage points wide and slightly over year ago levels.

We think, given the market dynamics in August, the result of this report will be a “maintenance level” in terms of on feed inventory. To start off the analysis, it will be key to remember that August of 2016 had two more slaughter days compared to August of 2015.

This is important when we think about them as business days, or two additional days for packers to process cattle and feedlots to move animals in and out. Normally, an extra slaughter day increases marketings about 5 per cent compared to year ago levels.

The average pre-report estimate for August marketings is up 17.5 per cent compared to 2015. On a daily average rate, which will allow us to adjust for the difference in slaughter days, this would be about a 7 per cent increase year-over-year.

That is an impressive increase and daily slaughter rate, but not one that is overly surprising as we continually saw daily slaughter levels of steers that were significantly higher than year ago. Additionally, heifer slaughter rates began to pick up noticeably starting in July and that definite trend has continued.

Moving on to placements, which are always the trickiest number to accurately forecast due to lack of publically available specific indicative data, the range on pre-report estimates is fairly wide (not uncommon for this variable).

Given the high level of marketings, and looking at 2015’s rather depressed levels of placements in August combined with our relatively larger supply of feeder cattle this year and the extra 2 slaughter days in August, it is not difficult to estimate placements above year ago.

The questions becomes, how much higher? Factors working against the high side of the placement estimates are estimated returns to cattle feeders that continue to be in the red and generally favourable forage conditions across most of the US that would allow producers to leave feeder animals out on pasture longer.

Preliminary data out of the Southern Plains estimates that region’s placements to be up only about 6 per cent year-over-year. Granted there are other major feeding states, for example Nebraska, which could have come on heavy in terms of placements during August.

However, the continued negative estimated returns to cattle feeders continues to be an issue in the industry. Even though marketing rates are high, until cattle feeders feel some relief in the pocket book, there is not a strong economic incentive to feed an increasing number of cattle.

This is our main reason for the comment in the first paragraph, it looks like the feeding industry may be at a sort of maintenance level in terms of inventory numbers on feed, until economic conditions improve.

While September 1 inventory levels are expected to be above year ago, slightly, that makes sense with a larger supply of feeder cattle in the country. This average estimate is still below the five year average however, and by no means an overly large inventory number.

TheCattleSite News Desk

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