Placements exceed expectations

Jul 29, 2011
by WLJ

The drought is forcing cow liquidation in the southern Plains, and it’s also pushing calves and lightweight feeder cattle into feedlots, according to USDA’s July Cattle on Feed report. The National Agricultural Statistics Service (NASS) reported that the number of cattle on feed in feedlots of 1,000 head or more in the U.S. rose 4 percent to 10.5 million head.

The report had a mildly bearish impact on the market last week as the number of cattle on feed and the number of cattle placed into feedlots during June came in larger than pre-report estimates.

Placements of cattle reached 1.7 million head, up 4 percent from June 2010. The increase was largely blamed on the drought in the South which has depleted pastures and other feed resources, forcing heavy culling and herd liquidation across the southern third of the country.

Chicago Mercantile Exchange analysts Steve Meyer and Len Steiner noted last week that the placement number exceeded pre-report expectations by a wide margin. Analysts had predicted that, on average, placements for the month of June would fall 6.6 percent.

"Our contacts indicate that the extra placements are coming from late fall and early spring calves for which there simply is little grass on which to graze from New Mexico all the way to the Carolinas," they reported. "How long will we continue to place more cattle than last year with USDA still estimating that the supply of feeder cattle is smaller than last year? We’ve posed that question several times and still think the answer is, ‘Not much longer,’ even though placements keep rolling in."

The placements of cattle into feedlots was concentrated on the lower end of the weight range. Placements of cattle under 600 pounds rose 5 percent while 600- to 699-pound placements increased 22 percent and cattle placements in the 700- to 799-pound class were 3 percent ahead of June 2010. Placements of heavyweight cattle in the 800-pound-plus category fell 10 percent.

Analysts last week noted that although placements are likely to decline in the near-term, the July 1 report may not have captured the full extent of shipments in the southern Plains, so the August report could see further year-over-year gains in placement numbers as conditions continue to decline in the heat.

Interestingly though, the number of cattle outside feedlots continues to decline. According to the NASS cattle inventory report, which was also released July 22, the number of cattle outside feedlots dropped 2.5 percent, or 960,000 head from a year earlier, the Livestock Marketing Information Center (LMIC) noted last week.

"Calf crop and feeder cattle supplies outside feedlots have both shrunk. USDA reported the first estimate of the 2011 U.S. calf crop at 35.5 million head (down 0.5 percent from a year ago)," LMIC analysts noted. "The calf crop was larger than anticipated and somewhat larger than historical relationships would indicate, so USDA may reduce that estimate in the Jan. 1, 2012, report."

As a result, it could mean there are even fewer feeder cattle that will come to market in the second half of the year, which could leave feeder cattle buyers scrambling to fill bunk space going into the fourth quarter and beyond. That could also have additional impacts on the marketplace. LMIC analysts said last week that the number of cattle on feed in lots of a one-time capacity of less than 1,000 head declined 1 percent according to the inventory report.

"Those feedlots are not included in the USDA-NASS monthly Cattle on Feed report. Overall, those smaller feedlots in the U.S. currently have about 4 percent less cattle in their feedlots than a year ago, while the monthly reported 1,000 head and larger feedlots have about 4 percent more cattle on feed," they said. "So, there is a structural change happening in the U.S. cattle feeding industry and the pace at which smaller feedlots are exiting the industry appears to be accelerating in 2011."

That structural change could also be having impacts on the numbers in the Cattle on Feed report. Because the smaller feedlots are not sampled by NASS for the Cattle on Feed report, it could be leading to a shift in how numbers are reported. For the second month in a row, the cattle marketing number has come in larger than expected, rising 5 percent during June to 2.10 million head.

LMIC’s Erica Rosa said last week that the increased proportion of cattle being fed in larger lots could have an impact on the report and may be causing that number to be reported higher than in years past.

"It may be that what we are seeing is the result of more cattle being fed in large lots that are being sampled by NASS versus small lots that aren’t surveyed. If that’s the case, the data would be capturing more of the cattle being sold than in the past, " she noted. "That’s one possibility that is being discussed, particularly because the marketing number is significantly higher than actual steer and heifer slaughter numbers, which were up just 1.9 percent for the same period." — John Robinson, WLJ Editor