Cattle on feed up 5 percent

Markets
Oct 29, 2011
by WLJ
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Cattle and calves on feed for slaughter market in the U.S. for feedlots with capacity of 1,000 totaled 11.3 million head on Oct. 1, 2011. The inventory was 5 percent above Oct. 1, 2010, and the second highest October inventory report since the series began in 1996.

Arizona, California, Texas and Washington posted the largest gains, up 17 percent, 10 percent, 12 percent and 15 percent, respectively.

Placements during September were reported at 2.469 million head, slightly above 2010. This was unchanged from the prior year. Net placements were 2.4 million head. By weight category, those over 800 pounds declined 3.6 percent, 700- to 799-pound placements declined 16.5 percent, 600-699 pounds declined 8.8 percent, while calves under 600 pounds placed on feed increased 34 percent.

“The placement weight distribution continues to be positive and will aid in preventing a backlog of cattle from developing in the foreseeable future,” ac cording

to Andrew Gottschalk at HedgersEdge.com.

The inventory included 6.95 million steers and steer calves, and accounted for 61 percent of the total inventory. Heifer and heifer calves accounted for 4.32 million head, also up 5 percent from 2010.

According to Gottschalk, the weights showing higher placements of cattle under 600 pounds going on feed will adjust the weight distribution in cattle on feed during the next 120-plus days. “Therefore, the numerical buildup is less of a concern than in prior years,” he added.

The surprisingly high rate of placements in September may be in part because corn prices have become relatively inexpensive, at least in relation to forages, according to analysts.

December corn futures fell by $1.75 per bushel during September, which was enough to shift the feedlot outlook from bleak to rosy, according to Chris Hurt, Purdue University Agricultural Economist.

“The implication of placing such a large number of young calves is that they will be on feed a long time and eat a lot of feed grains. The broader implication for the corn market is that most end users of corn saw a similar shift in their industry’s outlooks as corn prices fell,” said Hurt, discussing the October report.

Average placement weights increased to 712.7 pounds, a sharp increase from August to September, comparable to the five-year average, but 14 pounds lower than one year ago.

The report showed a more normal pattern of placements without much obvious drought impact, according to Oklahoma State University Extension Livestock Marketing Specialist Derrell Peel. Peel noted that overall, placements were even with a year ago and enough to hold cattle on feed totals even with last month at 105 percent of year ago levels.

However, feedlot inventories should begin to drop for the remainder of the year and into next year, he predicted.

J.P.Morgan analyst Ken Goldman agreed. “This should help relieve the rise in cattle prices that has hurt industry packing margins of late.” Goldman added that the number of cattle on feed will likely fall, as ranchers in drought-stricken areas run out of animals to sell.

Beef demand maintained positive gains during the third quarter, making it the fifth consecutive quarter for improvement. Total demand was up 10.9 percent, with exports adding to the value of fed cattle. But Gottschalk points out that weekly exports, for the last three weeks, are trailing levels from the same time last year.

Retail beef demand for the third quarter was up 5.9 percent, with ground beef leading the demand. “Middle meats have simply been priced out of range for many consumers, at home and at the local restaurant. This change in buying patterns has added support to values of end-cut items,” Gottschalk said.

Contributing to the interest in putting young calves in the feedlot has been a bullish finished cattle market, according to Hurt.

April 2012 live cattle futures moved $2 per cwt. higher in September, and have since added another $2 in October. On October 21, April 2012 futures approached $130.

According to Hurt, the three main factors driving the bullish market include: the anticipation of very limited 2012 domestic beef supplies; foreign buyers of U.S. beef who are willing to pay the high prices; and a more optimistic tone for the world economy. Per capita availability of beef in 2012 will be down to just 54.3 pounds, according to USDA estimates. That is a startling 17 percent reduction since 2007 when high corn prices (and drought more recently) set the beef industry into a liquidation tailspin.

Marketing of fed cattle during September totaled 1.81 million, 1 percent above 2010. Marketings were inline with analysts’ expectations. “To maximize the benefit of the positive weight distribution pattern of recent months, producers need to maintain an aggressive marketing posture in the upcoming months,” Gottshalk said.

The feeder and calf supply outside feed yards declined to 28.81 million head, down 1 million head form the prior year, leading to the bullish market, according to analysts. “The ‘supply’ side of this category of cattle projects to remain positive for the next two years. Demand for beef, which will ultimately determine the value of fed cattle, and lack of fed cattle profitability are the hazards to higher feeder and calf prices,” Gottschalk’s report said.

Other disappearance totaled 74,000 during September, 37 percent above 2010.

Trade forecast leading up to the Cattle on Feed report expected placements to be down 3.5 percent, marketings up 0.6 percent, and the October 1 on-feed number to be up 3.9 percent. The report was seen as bearish for spring and summer cattle prices, according to the CME Group’s Daily Livestock Report.— Traci Eatherton, WLJ Editor

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