Placements drop in October

Cattle Market & Farm Reports, Editorials
Nov 27, 2006
by WLJ

— Cattle on feed numbers remain record high.

— Marketing rate a disappointment.


The Nov. 1 cattle on feed report from USDA again showed record high numbers of cattle in U.S. feedlots. According to USDA calculations, there were 11.95 million head of cattle on feed at the first of the month, up 4 percent from last year. That figure is the highest recorded since USDA began the data set in 1996. The number of cattle on feed was mostly inline with analysts’ pre-report estimates.


“Cattle on feed increased 2 percent less than normal from October 1 to November 1,” said Andy Gottschalk at HedgersEdge.com. “This pattern will prove to be beneficial to the market midway through the second quarter of next year. A continuing trend toward lower placements this month will only reinforce that potential benefit.”


However, the placement number at 2.43 million head was the second lowest October number since the data series began in 1996 and was well below analysts’ guesses. The October 2006 placement level was 13 percent below last year and 10 percent lower than 2004. After the report was released, analysts predicted that the lower number of placements would support the market next year.


Placements in all weight classes of cattle were down, but heavyweight placements showed the largest declines from last year, largely due to advance marketings and drought which forced feeder cattle into feedlots earlier than normal this year. Placements of cattle under 600 pounds were down 5.5 percent from last year. Cattle placed in the 600-699 pound range and those in the 700-799 pound range were 18 percent lower than last year. Heavyweight placements of cattle, over 800 pounds, were down 13 percent from year ago levels. The trend was also expected to be supportive of the overall market picture next year, as the lighter placement weights allow more flexibility in how and when cattle are marketed by feedlots.


According to Len Steiner and Steve Meyer, analysts with the Chicago Mercantile Exchange (CME), the placement rate was directly impacted by the higher grain prices which started climbing sharply last month. That climb has probably slowed feedlot purchases of feeder cattle this fall.


“It certainly appears that feed costs may be having an effect on the decision process this year,” they said. “Corn in the Texas panhandle cattle feeding region last week at $3.82 per bushel. That compares to $2.15 per bushel one year ago and $2.71 per bushel as recently as September 1. It that doesn’t affect some decision making, we’re not sure what will!”


Marketings, as reported by USDA, were the single biggest disappointment in the report. At only 1.8 percent above last year with the help of an extra marketing day, the marketing rate for fed cattle during the month of October was actually behind last year's levels. The decline, mostly a result of lackluster beef demand and high retail prices, has boosted steer and heifer carcass weights to all-time record levels. Although steer weights have started to decline seasonally, last week’s heifer carcass weights were still at their peak levels. The additional carcass weight is adding to the heavy supply and packers are having a difficult time clearing inventory. Analysts last week said they expected carcass weights to continue to trend lower as is typical this time of year. High feed grain prices, particularly corn, are expected to hasten the decline in weights as cattle feeders work to limit the costs associated with feeding already expensive cattle.


One possible method of reducing feed costs is wheat pasture grazing, although high wheat prices this year and slow growth progress may limit the availability of its use this year. According to Steiner and Meyer, the number of cattle moving out of feedlots onto wheat pastures this year has been lower than normal.


“We have been concerned that Other Disappearance could grow dramatically this fall if wheat pasture conditions were favorable. USDA’s weekly crop progress report...shows wheat emergence is ahead of last year and the five-year average in Texas but trails those two measures in Oklahoma and Kansas,” they said. “Other disappearance was in fact considerably higher (23,000 head more) than last year, but that is more a function of low disappearance in October 2005.”


They said the level of disappearance this year is close to normal and does not indicate a large movement of cattle out of feedlots to wheat pasture grazing. They called the movement at present a “non-factor” for the current cattle market.


On the CME cattle contracts, last Monday, in fact, behaved much as expected. Live cattle were largely mixed, with near-term contracts trading slightly lower. Deferred months, however, moved higher in the day’s session. Feeder cattle contracts were sharply lower after a rally the prior week. Early last Monday, corn prices surged after news that Argentina halted export shipments of corn. That sent feeder cattle contracts tumbling to trade near contract lows.


Canadian cattle on feed report


It was also reported last week that north of the border, Canadian producers have been ramping up their beef production. Since regaining access to a good portion of its international market, Canadian production has been on the rise. According to CanFax, Canada's current cattle on feed numbers for feedlots in Alberta and Saskatchewan totaled 1,001,473 head on Nov. 1. This was 10.1 percent more than one year ago and 6.8 percent more than two years ago. The last time the cattle on feed number was above the one million mark was in April of this year.


The number of cattle placed on feed during October in Canada declined 2.1 percent from a year ago to 315,130 head. This was also down 15.5 percent from two years ago.
During October, fed cattle marketings totaled 186,166 head. This was up 16.9 percent from last year and up 13.6 percent over two years ago. — John Robinson, WLJ Editor


 

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