Feedlot placements lower than expected

Oct 26, 2012

Both the most recent Cattle on Feed report and the most recent Cold Storage report shows cattle and beef down. For the Cattle on Feed report, the numbers were down as expected, but they were well below industry expectations and surprising. On the cold storage front, beef remained fairly steady, but was not as heavily represented as other meats, suggesting better movement of product than in the past.

According to the most recent Cattle on Feed report from USDA, cattle in feedlots with capacities at or above 1,000 head as of Oct. 1 stood at 10.99 million. This is down 3 percent as compared to 2011’s Oct. 1 on-feed level at 11.28 million head. The average pre-report estimates had expected only a 2 percent drop.

Most of the big cattle feeding states saw declines in their on-feed numbers compared to the same time last year. Colorado’s on-feed numbers as of Oct. 1 decreased 7 percent, at 1 million head compared to last year’s 1.07 million head. Kansas dropped 4 percent with 2.23 million head on feed versus 2011’s 2.32 million head. And Texas, at 2.68 million head on feed on Oct. 1, lost 9 percent compared to 2011’s 2.94 million head on feed.

Of the big states, Nebraska was the only one to see year-to-year increases in its on-feed numbers, gaining 5 percent with its 2.33 million head compared to last year’s 2.21 million. The smaller states to post on-feed gains were Idaho and Iowa, up 5 and 7 percent, respectively. Idaho had 230,000 head on feed on Oct. 1 and Iowa had 590,000 head.

When it came to the type of cattle on feed, steers and steer calves on feed stayed relatively unchanged at 6.96 million compared to last year. Heifers and heifer calves on feed, however, dropped 8 percent, going from 4.3 million on feed on Oct. 1, 2011, to 3.97 million this year. Cows and bulls on feed jumped this year by a whopping 27 percent, up to 62,000 head from last year’s 49,000 head.

At 2.004 million head placed on feed during September, placements fell 19 percent compared to September the prior year. This was well below pre-report expectations of a 15 percent decrease and has been called evidence of the poor conditions of the cattle and beef markets.

All of the big cattle-feeding states—Colorado, Kansas, Nebraska and Texas—saw double-digit drops in their placement percentages this year compared to last year.

Colorado dropped 18 percent with 225,000 head placed in September this year compared to last year’s 275,000 head placed. Kansas was down 25 percent at 375,000 head placed this year versus 500,000 head last year. Nebraska and Texas were down 16 and 14 percent, respectively, down to 470,000 head placed for Nebraska and 480,000 head placed for Texas after both placed 560,000 head in September of last year.

The biggest percentage losses and gains in placements were seen in the more volatile small numbers of the small cattle-feeding states. Arizona was the only state to have higher placements this year than last— at 20,000 head rather than 19,000 head—while Oklahoma saw the biggest decrease, down 35 percent, with its 57,000 head placed this September compared to 88,000 head placed last year.

Across the board, placement of very light and very heavy feeder cattle was down in September 2012 compared to September 2011. Placement of light feeders under 600 lbs dropped 25 percent, from 685,000 head in 2011 to 515,000 head this year. On the other end of the spectrum, placement of feeders 800 lbs or more was down 20 percent at 690,000 head versus last year’s 865,000 head.

Placements of feeder cattle between 600-699 lbs and feeder cattle 700-799 lbs were down 14 and 12 percent, respectively.

On a location-specific view, this trend was broken only by Texas, which saw increases in its placements of midweight feeder cattle. For feeders between 600-699 lbs, Texas saw a 4 percent increase—from 125,000 head to 130,000 head—and for feeders between 700-799 lbs, it was up 16 percent at 100,000 head compared to last year’s 85,000 head.

“The feeder cattle supply outside feed yards calculated to minus 523,000 [year-to-year] for October 1,” said Andrew Gottschalk of Hedgers Edge. “We previously cautioned that the trade was overestimating this [year-to-year] decline; expecting a drop in excess of 1.0 million head. What the trade was overlooking was the record drop of 907,000 head in [year-to-year] third quarter placements. Such a significant drop in placements lays the foundation for sharply higher fed cattle prices during the first-half of 2013.”

It is expected that cattle coming from south of the border may continue to decline. Recent health concerns regarding cattle coming from Mexico have stalled some imports. Additionally, as heat and drought conditions begin to let up, more cattle are being retained rather than sent to be fed and slaughtered in the U.S.

As with the other areas of the report, marketings were down in September compared to the same time the prior year. With 1.6 million head marketed, September saw a 12 percent decline compared to last year. This number was again lower than the average pre-report industry projections of marketings down 11 percent.

There were fewer marketing days in September this year as compared to last year.

Most of the big cattle-feeding states saw marketing declines. Colorado’s marketings in September dropped 19 percent, from 185,000 head to 150,000 head. Kansas saw a similar decline with its 310,000 head marketed, down 17 percent compared to last year’s 375,000 head marketed. Texas split the difference between the percentile losses of the other two states, shedding 18 percent of last year’s September marketings with 400,000 head marketed this year.

Of the big states, Nebraska was the only one to post any marketing gains. Compared to last year’s 350,000 head marketed in September, Nebraska gained 6 percent at 370,000 head. Two other states saw year-to-year gains on their September marketings, California and South Dakota. California gained 6 percent with 52,000 head marketed, and South Dakota gained 11 percent with 39,000 head marketed.

Oklahoma saw the biggest percentile losses with marketings, dropping down 43 percent to 45,000 head compared to 79,000 head marketed in September of last year.

The most recent Cold Storage report was released from USDA Monday Oct. 22. The report showed that red meat in cold storage in all warehouses as of Sept. 30 had increased 15 percent compared to the same time last year, at 1.08 billion pounds (bp). The increases came mostly from pork, but also from veal, lamb and mutton.

Beef in cold storage in all warehouses as of Sept. 30 was reported at 425.62 million pounds (mp). This was statistically steady though actually slightly down from last year’s 427.59 mp for the same time. Compared with Aug. 31’s 432.78 mp, September’s numbers are a reduction.

Beef represents 39.3 percent of all red meat (including pork, veal, lamb and mutton) in cold storage, and 18.8 percent of all meat (the aforementioned plus chicken, turkey and ducks) in cold storage. Beef’s portion of red meat stores dropped this year as compared to the same time last year. In September of 2011, beef represented 45.3 percent of red meat in cold storage, and was 20.1 percent of all meat stores.

Overall meat in cold storage—including all red meat and all poultry—is at a five-year high at 2.26 bp. CME commentators had this to say about the issue:

“In the past, an increase in inventories was seen as an indication of slowing demand and packers having trouble moving product. Today the picture is a bit more complicated. In some cases, the rise in inventories reflects efforts on the part of end users to build stocks as a hedge against expected rising prices in the future.”

Pork was the main contributor to the increase in red meat increases, up 28 percent at 630.66 mp compared to last year’s 491.91 mp on Sept. 30. Some of the buildup was attributed to producers accelerating marketings on the anticipation of increased feed costs and storing up product in advance of ham-heavy holiday traditions.

Though overall chicken in cold storage was down 3 percent at 651.75 mp, the distribution of stored chicken told a very different story.

“The surge in broiler wing ending stocks is a great example, as end users are afraid of even more significant price appreciation going into the Super Bowl at a time when broiler producers are indicating they expect further cutbacks due to record high feed costs,” said CME, referring to the report’s numbers reflecting end users hedging against future costs. — Kerry Halladay, WLJ Editor