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Cattle on Feed Shows Structural Change

23 May 2012

US - Reviewing the Cattle on Feed report released last Friday afternoon. For the first time in any month during the last two years the on-feed count was below a year ago. As of May 1, the year-on-year decline was 0.6 per cent (65,000 head), writes James Robb, Centre Director for the Livestock Marketing Information Centre.

Severe drought in southern states last year had a significant impact on cattle placement patterns and therefore careful interpretation is still required of statistics like the, often referred to, number of cattle on-feed for 120 days or more. But, simultaneously with the drought another less apparent force came into play -- the US cattle feeding industry has been going through some structural change.

Structural change has been indicated in the monthly Cattle on Feed reports for over a year. Fewer-and-fewer cattle are being fed in feedlots with a one-time capacity of less than 1000 head. Those farms often include cropping enterprises and have made adjustments caused by high crop prices and negative cattle feeding margins. USDA’s monthly Cattle on Feed report only includes feedlots with over 1000 head capacity and those feedlots represent an increasing proportion of US cattle being fed. A result has been that the report can show inventory and marketing numbers above a year ago, but steer and heifer slaughter does not increase proportionally, in fact slaughter has often posted year-on-year declines. Expectations that “more market ready cattle are ahead” have tended not to materialise.

Marketings during April were larger than pre-report estimates (including those of the LMIC), as has often been the situation in recent months. Analysts expected marketings below a year ago (down about 1.5 per cent), but producers reported to USDA numbers slightly above a year ago. Marketings in the report historically track rather well with steer and heifer slaughter, after making adjustments for the number of Canadian animals imported directly for harvest. In fact, USDA figures put steer and heifer slaughter for the month of April at 4.5 per cent below 2011’s.

As expected, placements of cattle into feedlots were below a year ago during April, down 15 per cent. The average of pre-report estimates indicated a 12 per cent drop. The year-on-year decline was due to:

  1. large numbers forced into feedlots last year because of drought;
  2. huge red ink on feedlot closeouts and no opportunity in April to lock-in anything close to a breakeven sales price for purchased feeder cattle using risk-management tools;
  3. and shrinking cattle supplies. Head placed in all weight categories were below a year ago, with the lightweight category (under 600-pound) down 20 per cent.

What are the implications of the latest Cattle on Feed report? In terms of futures market prices for fed cattle, the lows have most likely already been set for this year. The June contract rebounded this past week. As has been the case for some time now, steer and heifer slaughter will be smaller than a cursory view of the report indicates. Based on recent trends and the May 1 number of cattle on-feed in the 1000 head and larger feedlots at one per cent below a year ago, steer and heifer slaughter in several coming months down at least three per cent would be consistent.

Further Reading

You can view the full report by clicking here.

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