Cattle on feed numbers up 9 percent

Cattle Market & Farm Reports, Editorials
Oct 29, 2007
by WLJ

—Cattle 700 pounds and heavier account for 54 percent of total placements.

Cattle on feed numbers were down again according to the Oct. 1 USDA cattle on feed report. According to the National Agricultural Statistics Service, total on feed numbers were estimated at 11 million head, 4 percent lower than a year earlier. However, the number remains 5 percent higher than 2005.

Total inventory included 6.83 million steers and steer calves, or 62 percent of the on feed numbers, down 5 percent from last year. Heifers and heifer calves accounted for 4.07 million head, down 1 percent from 2006, an indication that U.S. herd numbers will grow only slightly, if at all, when the end of the year inventory report comes out in January. It is likely that high grain prices and a solid calf market are causing some producers to put off herd size increases for the time being.

On feed numbers in key states continue to show a preference for states where there are large supplies of less expensive feedstuffs available, particularly those in the north. States reporting a decrease in the number of cattle on feed were led by Idaho, which was down 21 percent. Colorado numbers were down 11 percent, Kansas was down 6 percent, Nebraska was down 4 percent, and Texas was down 3 percent from 2006. Iowa led the way for states increasing in on feed numbers, with an increase of 11 percent. South Dakota and Arizona reported a 4 percent increase and California rose 3 percent.

The placement figure was perhaps the only surprising portion of the report, exceeding analysts’ expectations. September feedlot placements totaled 2.43 million head, 9 percent more than September 2006 and 3 percent above the same month in 2005. The shift toward heavier placement weights continued last month. Placements of cattle under 600 pounds totaled 610,000 head, while those in the 600-699 pound range were 505,000 and cattle placed in the 700-799 pound class totaled 570,000. Placements of cattle weighing more than 800 pounds were 740,000 head.

As a result of increased feeding costs, feedlots have been showing a preference for heavier weight classes to cut the number of days on feed. Oklahoma State University Extension Livestock Marketing Specialist Derrell Peel noted that as of this most recent report, nearly all placements into feedlots are now yearling cattle.

“In many ways, this (the Oct. 1 report) reflects the first chance that the market has had to respond to the signals that started one year ago. It was difficult to provide increased numbers of heavy feeders last winter and spring, especially given the dry conditions and lack of wheat pasture last year,” Peel said. “Placements were low this summer as the growing season provided the first significant opportunity for taking feeder cattle to heavier weights on forage and it is those cattle that were placed in September. Not only were placements higher in September, but placement weights were higher as well. Placements weighing over 700 pounds were up nearly 20 percent, while placements that weighed less than 700 pounds were down 1.5 percent. It has taken a year, but the industry has now transitioned almost entirely to a yearling based flow of feeder cattle.”

He said the premium for adding pounds to calves in grazing programs will continue to be a preferred method of lowering feeding costs, particularly in areas where grass and other low-cost forage is available, although he noted there is likely to be a decline in the number of caves heading to wheat grass this year.

“There will continue to be an incentive for forage-based gains as long as feedlots keep looking for heavy feeder cattle to place. The lack of wheat pasture in the southern Plains means that more cattle will remain in other stocker and backgrounding programs around the country this winter,” Peel said.

American Farm Bureau Federation Chief Economist Jim Sartwelle said the number of lightweight placements will be important next month as producers work to find winter forage for calves, which may be difficult to come by this year as a result of high wheat prices.

“Given how tight feeder cattle supplies have been since late summer, and with fall weaning fast approaching, I have to wonder if we may see a larger number of lighter-weight feeders going into the feed yards in the next 30 days,” Sartwelle observed. Further, “as reports come out of Oklahoma indicating less wheat pasture will be made available for grazing this winter, we will watch the placement weight sections of the next two monthly USDA Cattle on Feed reports carefully for indications that light-weight feeders are being diverted from the wheat field to the feed bunk.”

Marketings remain a tough spot for the cattle feeding business as cattle are fed to heavier weights to spread expensive cost of gain over more pounds. At the same time, beef demand remains lackluster, making margins in the beef business tough to maintain. The result last month was a drop in marketings from September 2006 levels. Total marketings for the month were reported at 1.71 million head, 3 percent below 2006 and 6 percent lower than two years ago.

Although analysts continue to predict tight supplies of fed cattle through the fourth quarter and well into the first quarter of 2008, the failure to market cattle in a timely manner could result in a backlog of fed cattle next summer, hurting prices.

Sartwelle said that is the exact scenario analysts are watching for signs of trouble in the feeding industry.

“Calf and feeder cattle prices will follow the strong fed cattle market only as long as demand for them remains high,” he said. “We do not expect the profit crunch cattle feeders have endured recently to relax any time soon. Continued red ink in the feeding sector will eventually spill over into the feeder cattle and calf markets. We continue to monitor this sector closely.”

However, for now, Sartwelle said he expects the industry to benefit from the tight supply of fed cattle numbers expected through the end of the year.

“The bottom line is the trade expects tight supplies to continue into the second quarter of next year, with the April 2008 fed cattle futures contract trading at a $3.50 premium to the June 2008 contract,” Sartwelle said. “I do not see any news in this report that has not likely been built into the recent $90 to $92 fed cattle trade.” — John Robinson, WLJ Editor