Placements down 15 percent in recent USDA report

May 25, 2012

This month’s USDA cattle on feed report defied projections for a bullish result. Pre-report estimates placed the cattle on feed on May 1 at 100.5 percent of last year’s numbers, placements at 88.5 percent, and marketings at 98.5 percent. Actual reported numbers for cattle on feed and placements were below estimates, and marketings exceeded expectations.

Cattle on feed in lots with 1,000 or more head capacity stood at 11.11 million on May 1, down 1 percent from last year’s 11.18 million. According to the North American Risk Management Services (NARMS), however, this year’s cattle on feed numbers are above the five-year average (1.3 percent) and well above 2010’s May 1 numbers (about 6 percent). CME Group points out that this is the first monthly inventory in two years that has been smaller than the prior year.

Four states saw year-to-year increases in cattle on feed numbers: California, Iowa, Nebraska and Washington. California saw a 6 percent gain with 475,000 head of cattle on feed. Iowa gained 2 percent, going from 640,000 head in 2011 to 650,000 head this year. Nebraska, the only one of the group which could be called a big player, went from 2.37 million head on feed on May 1, 2011, to 2.46 million head this year, a 4 percent increase. Washington saw the biggest percentile increase at 12 percent, but much of this is due to their small starting numbers: 200,000 head in 2011 vs. 224,000 head this year.

Year-to-year losses in cattle on feed numbers were relatively tame. The biggest percentage loss—17 percent—was seen in Oklahoma, which saw 355,000 head on feed in 2011 and dipped to 295,000 head this year.

The other big cattle-feeding states of Colorado, Kansas and Texas saw year-toyear cattle on feed numbers decline. Colorado lost 6 percent, going from 1.1 million head in 2011 to 1.03 million head this year. Kansas dropped 4 percent, with 2.08 million head on feed this May 1 vs. last year’s 2.17 million head. Texas only dropped 1 percent and maintained its position as top cattle feeder with 2.71 million head on feed compared to last year’s 2.73 million head.

No states saw month-tomonth cattle on feed increases.

Overall placements across the country were down 15 percent with 1.52 million head placed in April 2012 compared to 1.79 million placed last year. This is a greater decrease than the average industry predictions with expected placements to be at 88.5 percent of last year’s numbers.

Year-to-year placement numbers were up in only two reported states, Arizona and South Dakota. Arizona placed 4 percent more cattle on feed in April 2012 than in 2011 and South Dakota saw a 3 percent increase. Both states, however, are on the small end of reported cattle feeding states with 26,000 and 32,000 head, respectively.

Large placement percentage increases were seen in the states not traditionally reported on in this category. “Other states” saw a 20 percent increase in placements to 60,000 head placed on feed during April 2012 compared to the 50,000 head placed during the same period in 2011.

Nebraska and Washington held steady with their prior-year placement numbers. Nebraska had 370,000 head placed on feed and Washington had 28,000 head. No states saw monthto-month increases in placements.

Percentage losses for cattle placed on feed were high across most reported states. Oklahoma gave the most ground, losing 38 percent. Last year, Oklahoma placed 76,000 head while, this year, it only placed 47,000 head in April. As with Washington’s impressive gains in cattle on feed numbers, Oklahoma’s relatively small placement numbers amplified the changes.

All other large cattlefeeding states besides Nebraska saw double-digit April placement decreases compared to 2011. Colorado dropped 27 percent, from 165,000 head placed in 2011 compared to this year’s 120,000 head. Kansas lost 21 percent at 300,000 head, down 80,000 from the previous year. And Texas lost 18 percent from 500,000 head to 410,000 head.

Placements across the weight classes were all down to varying degrees with few state-specific exceptions. Placement of light feeders under 600 pounds (lbs.) was down 20 percent compared with 2011, falling from 445,000 head overall to 355,000 head. Placement of the 600-699 lbs. weight class dropped 19 percent, from 310,000 head in 2011 to 250,000 head this year.

The 700-799 lbs. class saw the greatest decrease in placements, going from 485,000 head in 2011 to 380,000 this year, a 22 percent decline. Conversely, the heaviest weight class— cattle 800 lbs. and over— saw the least drop in placement numbers, losing 2 percent at 536,000 head placed this April compared to last year’s 545,000 head placed on feed. This weight category also saw the only state-by-state increase in placements, with Nebraska placing 20 percent more heavy-weight cattle this April than last.

Jim Robb of the Livestock Marketing Information Center explained the reason for the larger-thanexpected decline in placements.

“The year-on-year decline was due to: 1) large numbers forced into feedlots last year because of drought; 2) huge red ink on feedlot closeouts and no opportunity in April to lock-in anything close to a breakeven sales price for purchased feeder cattle using riskmanagement tools; and 3) shrinking cattle supplies.”

Marketings this April were just slightly over last year’s numbers at 1.82 million head compared to 2011’s 1.81 million head, a 0.4 percent increase. The increase was the wash of a lot of the smaller cattle states posting large yearto-year increases and mixed results among the big cattle states.

Pre-report estimates anticipated marketings at 98.5 percent of last year’s numbers. These largerthan-expected marketing numbers have helped hold down the front end supply of fed cattle, according to NARMS.

Small cattle-feeding states which saw increases in marketings include Arizona (50 percent), California (5 percent), Idaho (57 percent), and South Dakota and Washington with 3 percent increases each. Iowa and Oklahoma—the remaining small cattle-feeding states reported upon— each saw marketings fall by 5 percent. All of the aforementioned states marketed less than 75,000 head, with most trading in the mid-40,000-head area.

The large cattle-feeding states of Colorado, Kansas, Nebraska and Texas had mixed marketing results for April 2012. Colorado held steady with 2011’s numbers at 150,000 head. Nebraska saw a 14 percent increase in marketings at 420,000 head compared to last year’s 370,000 head. On the other hand, Kansas marketings dipped 1 percent—from 385,000 head in 2011 to 380,000 head this year—and Texas lost 12 percent, marketing 465,000 head, down 65,000 head from last year.

Other disappearance was up significantly in April 2012 as compared to April 2011. Overall non-marketing disappearance stood at 78,000 head, up 30 percent from 2011’s 60,000 head other disappearance.

“These removals are likely cattle that had been grown in yards on relatively low energy diets with the express idea of moving them to grass this spring,” said CME analysts. “Other disappearance usually peaks in April or May each year as pastures become more available. That did not happen in 2011 due to very dry conditions in the Southwest.”

Anticipations for the future vary across sources, but one thing that is agreed upon is that feeder supplies are going to get tighter. In its commentary on the cattle on feed report, CME said it projects a continued trend of lower placement numbers. Numerous other analysts made similar comments.

Despite this report’s results of cattle on feed being down slightly and marketings being up slightly, several sources pointed out a longer-term discrepancy between the two. CME set up the situation well.

“For the 18 months from June 2010 through December 2011, the inventory of cattle in these 1,000-head and over feedlots averaged 4.1 percent larger than one year earlier. Allowing a sixmonth feeding period, steer and heifer slaughter for December 2010 through January 2012 averaged 0.9 percent lower (using weekly data) than one year before.

Why the lower slaughter relative to cattle numbers?” Both CME and Robb point to a changing dynamic in the cattle feeding business. Simply put, bad margins are forcing smaller feeding operations to diversify and/or feed fewer cattle, meaning more cattle which previously would have been at the smaller, less-than-1,000-head feedlots not tracked by USDA are going to the large lots and thereby showing up on the cattle on feed report radar.

“A result has been that the report can show inventory and marketing numbers above a year ago, but steer and heifer slaughter does not increase proportionally; in fact, slaughter has often posted year-onyear declines. Expectations that ‘more market ready cattle are ahead’ have tended not to materialize,” explains Robb.

CME also floats the idea that some of the smallercapacity feedlots have grown large enough to gain USDA’s reporting attention.

“Finally, we believe there are now more yards being included in the survey as some mid-western operations have grown due to the availability and cost advantages of distillers dried grains with solubles from ethanol plants. More 1,000plus feedlots mean a larger universe for the inventory survey while slaughter is still counted the same way it always was.”

So it’s more of a numbers game with the reporting procedures rather than an imbalance of available cattle to marketing rates. As cattle feeding consolidates into the yards tracked by USDA, the cattle on feed reports appear to show increasing numbers of available cattle, but to take that at face value is ill-advised. — Kerry Halladay, WLJ Editor