Year ends with cattle on feed 4 percent

Dec 23, 2011

USDA’s Dec. 1 cattle on feed report showed the nation’s feedlots, over 1,000 head, held 4 percent more cattle than a year ago at 12.1 million head. This is the second largest number on record, and analysts are suggesting that cattle on feed numbers has reached its seasonal peak.

Cattle placed into feedlots were also 4 percent higher than a year ago, but only two weight categories showed growth.

Many market analysts were surprised by the increase and were expecting to see placements down from a year ago. Placements of cattle under 600 lbs. were 20.8 percent higher and cattle over 800 lbs. were 10.8 percent larger than a year ago with 2.04 million head going into feedlots.

Some analysts had expected a decline in placements because of the larger placement pattern that developed earlier this fall, forced by severe drought in the Southwest and the reduction in the number of available cattle. Some analysts are suggesting that wheat grass grazing has improved and light cattle in feedlots are being returned to grass, which would explain the larger than normal other disappearance, which was 65 percent higher than a year ago. “The Cattle on Feed reports are “ a little harder to decipher than they used to be,” said Jim Robb, at the Livestock Marketing Information Center.

Cash cattle prices in some areas soared to a record $127/cwt. last month, fueled by strong demand for Choice beef from retailers such as Wal-Mart.

This helped boost retail Choice beef prices in November to a record high $5 per pound, according to USDA data.

Fed cattle marketings were down two-tenths of a percent for the month of November totaling 1.77 million head. However, analysts pointed out that marketings were 3.9 percent above the fiveyear average for November.

According to CME, it is important to note that while producers continue to place more cattle on feed, the growth is driven by placement of very light cattle, primarily

calves less than 600 pounds. This implies that feedlots will need more time than usual to get these animals to market weight and despite the larger inventory, the number of market ready cattle is likely at or below year ago levels, CME reports said.

Andy Gottschalk at said that the weight distribution of cattle placements combined with positive marketing can limit the potential for backlog.

The sheer size of the total cattle on feed is manageable, so long as timely sales help to maintain the currentness of dressed weights.

Market analysts will be watching the marketing rate and carcass weights to gage whether or not cattle feeders are starting to backlog cattle.

The CME report said the higher placements in November were likely driven by rising cattle prices out front even as corn futures deteriorated. April 2012 live cattle traded in a range of $126-128 for much of November while corn prices dropped about 60 cents for the month, or 9 percent. This allowed feedlots to bid aggressively on cattle.

For the period Jan.- Oct., marketings out of feedlots are up 3 percent from a year ago while steer/heifer slaughter is down 0.4 percent. According Robb, the reason for this discrepancy is, in part, due to structural changes in the industry. USDA only surveys feedlots that have more than 1,000 head of cattle on feed on the first of each month. But, Robb points out, as smaller

feedlots have either exited the business or become larger in order to compete more effectively, this has increased the sample size and skewed the year-overyear comparisons.

“Clearly there is some structural change in the cattle feeding business,” Robb said.

According to Robb, some of the increases in feedlot numbers (both placements and marketings) may be driven by the fact that the survey is covering a larger portion of the industry rather than more head on the ground.

As far as states go, one of the big surprises was Iowa, according to Robb. “Iowa was up lots more than we anticipated,” he said.

“It appears Iowa has gone back to feeding primarily lots with 1,000 head and larger, which is a surprise because of high grain prices,” he added.

According to Gottschalk, there is little that can be done in the near future to remedy the tight supply of feeders and calves. “Any movement toward herd expansion would only exacerbate already limited supply conditions, as heifers are withheld for breeding purposes,” he said.

“The feeder and calf supply outside feed yards on Jan. 1 should be down by approximately 1.0 million head,” he added, sighting moisture and feed availability as key issues relating to herd expansion.

In Gottschalk’s report, he also pointed out the disconnect between fed cattle prices and retail beef prices, with fed cattle reaching $124–125 and retail beef reflecting only $112. “Our price forecast for 2012 has assumed that total beef demand would equal 2011 levels. As each week passes, the risk of not achieving a steady demand base for beef in 2012 increases,” Gottschalk said. — Traci Eatherton, WLJ Editor