Cattle on feed 7 percent higher

Cattle Market & Farm Reports, Editorials
Aug 28, 2006
by WLJ
— Placements 17 percent above last year.
— Marketings slightly higher than 2005.

The USDA National Agricultural Statistics Service (NASS) cattle on feed report released Aug. 18 was mostly in line with analysts’ pre-report expectations. The total number of cattle on feed as of Aug. 1 was up 7 percent over 2005, at 10.82 million, the second highest on record behind 2001 when NASS reported 10.89 million head on feed. The Aug. 1 number is down only 50,000 head from the July 1 number. NASS statistics show the normal decline is closer to 300,000 head between July and August.
Erica Rosa, agricultural economist with the Livestock Marketing Information Center (LMIC), said the numbers were pretty much as she expected, with nothing too surprising showing up in the report.

“Even though placements were up, it was mostly lighter weight calves which were placed earlier as a result of drought conditions and a lack of available forage,” Rosa said. “We don’t expect those placements to create a problem later this year. In fact, we expect beef production will actually be down in the second half of the year.”
According to several analysts, the report was expected to have little impact on the direction of trade, despite its slightly bearish nature. For almost two weeks prior to the report’s release, market economists were warning the industry to expect a jump
in the number of cattle on feed and July placements as
a result of the summer’s ongoing drought.

During the month of July, feedlot placements numbered 1.96 million head, 17 percent higher than last year and 14 percent above 2004. This year’s placement number, while high, was expected as more calves have been weaned early and shipped to feedlots to reduce pressure on pastures and cow herds.

Placements in South Dakota, which is suffering through severe drought, showed the greatest increase, rising 60 percent above last year. California however, reported placements dropped 24 percent from 2005 and Oklahoma, where many cattle moved to feedlots early, was down 6 percent.

Placements of lightweight cattle less than 600 pounds were 570,000 head in July. Placements of cattle in the 600- to 699-pound class were 403,000 head and 700- to 799-pound placements totaled 490,000 head. Perhaps the only surprise for analysts in this report was the continued strong number of heavyweight cattle 800 pounds and over last month, with 500,000 head being placed on feed in July.

Rosa said most of those heavy placements were yearlings from the northern tier which had been held over by producers for placement on feed this year. She said the continued dry conditions in the north had finally pushed those heavier cattle into feedlots.
Marketings of fed cattle during July reached 1.96 million head, 2 percent above the same month during both the past two years. Rosa said the marketing rate was in line with LMIC’s pre-report expectations.

Feedlots in South Dakota sold 27 percent more cattle last month than the prior year. Iowa feeders also were well above normal, marketing 16 percent more cattle this July than in 2005. California was also well above the prior year, marketing 14 percent more fed cattle.
Bob Price at North American Risk Management Services, Inc. cautioned cattle feeders about the current rate of marketings and front end ready supply. Feedlot operators have heard the advice frequently over the past several months.

“Marketings projected from weight breakdowns of placements show a decline in numbers in the September and October before jumping sharply higher in November to February time frame. However, the front end numbers and the computed carryover remain record-high. This should mitigate to some degree the drop off in cattle placed against September and October as more front end cattle are carried into that time frame.”

Price said there was some good news ahead for cattle feeders who have done a good job so far in the month of August with liquidating cattle.

“July marketings were reported at 1.955 million head, up slightly from last year's record low number and well below the five-year average. The computed carryover grew by 164,000 head,” Price said. “August sales have been brisk and this should help whittle down the carryover coming out of this month.”

Several states were below last year’s marketings number including Colorado, which was down 10 percent, Idaho, where feedlots sold 11 percent fewer cattle, Washington, with fed cattle marketings down 13 percent and Oklahoma, where feedlot sales declined 15 percent from July 2005.

Price echoed what many analysts said about the report's overall impact on the market.
“This report should have much less of a reaction on the futures than the last two reports have had,” Price said. He said he believes the report’s big placement number could keep some pressure on the February live cattle contract though. — John Robinson, WLJ Editor