Placements surprise in recent report

Markets
Dec 28, 2012
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The most recent Cattle on Feed report was released Friday, Dec. 21. Because of surprising placement numbers—down compared to last year, but not as down as expected—the report is being called bearish for live cattle futures by CME analysts. On-feed numbers were almost dead-on to pre-report expectations and marketings were slightly below expectations.

Cattle on feed at feedlots with 1,000 head or greater capacity as of Dec. 1 stood at 11.33 million head. Compared to the Dec. 1 onfeed count from 2011 of 12.06 million head, this year’s on-feed population was down 6 percent. This was in keeping with the average projected on-feed numbers of down 6.6 percent gathered in the Dow Jones pre-report surveys of commodity analysts. December’s on-feed population was a shy 1 percent above November’s number of 11.25 million head.

All of the major cattle-feeding states—Colorado, Kansas, Nebraska and Texas—saw decreases in the number of cattle on feed on Dec. 1. Colorado was down the most with a 12 percent decrease in its on-feed population compared to Dec. 1, 2011, with 1.02 million head on feed. Texas was next in line for percentage declines, being down 10 percent with 2.7 million head on feed this year compared to 2.99 million head last year. Kansas and Nebraska rounded out the on-feed losses, being down 8 percent with 2.17 million head and down 1 percent with 2.53 million head, respectively.

Some of the smaller cattle-feeding states saw some gains in their on-feed populations, but even relatively large percentile gains couldn’t offset the weight of numeric losses elsewhere. Iowa’s onfeed population remained steady with its Dec. 1, 2011, number of 610,000 head. Idaho saw a 4 percent increase with 245,000 head. And Washington saw an 11 percent increase with 261,000 head.

Like overall on-feed numbers, cattle placed on feed at feedlots of 1,000 head or more capacity during the month of November were down 6 percent. With 1.92 million head placed during November 2012 compared to 2.04 million head placed November of last year, this decline was less than the average anticipated 8.8 percent decline projected by analysts in the pre-report surveys. The actual decline in placements was above the highest range of those prereport expectations.

Once again, the major cattle-feeding states saw some declines in their placements as they did in their on-feed populations. Colorado’s decline was again the steepest at a 14 percent drop in placements this November compared to last with 150,000 head placed. Kansas’ placements dropped 5 percent with 355,000 head placed, and Nebraska placements fell 3 percent with 465,000 head placed. Texas saw the smallest percentage decline in its November placements with 465,000 head placed, a 1 percent decline from last year.

The greatest percentage declines and gains in placements across the states were again seen in the minor cattle-feeding states where lower actual numbers allowed for greater volatility.

The largest decline in placement numbers was in South Dakota where placements of 57,000 head represented a 19 percent decline. The biggest placement increase of up 6 percent was seen in Washington with its 57,000 head placed this November compared to last November’s 54,000 head.

Placements by weight class were very similar to what they were last month with preference going to heavier animals. Lightweight feeders—animals under 600 pounds—saw a 14 percent decline in placements, from 750,000 head placed last November compared to this November’s 645,000 head. Feeders weighing from 600-699 pounds saw a placement decline of 10 percent, from 500,000 head to 450,000 head.

Cattle weighing between 700-799 pounds saw a tiny decline of 0.5 percent with 375,000 head placed, just 2,000 head less than last November. Animals weighing 800 pounds or more were placed 10.5 percent more this November compared to last. This November saw 453,000 head placed, whereas last year during the same time, only 410,000 head were placed. This move towards placing heavier animals likely is the result of more expensive feed.

In commenting on the placement numbers, CME analysts had this to say:

“The number implies somewhat larger fed cattle supplies than what was being expected in late spring and early summer. But those supplies will still be very tight relative to last year and will still almost certainly result in record beef and cattle prices. We say ‘almost certainly’ because stuff happens and much could go wrong but the supply side of this equation will be tight indeed.”

The CME response to the Cattle on Feed report pointed out that comparing this year’s November placements to last year’s is misleading given the unusual events which drove placements last year. This year’s November placements are much closer to the five-year average, just being down by 2 percent. Still, in the past six months, 378,000 head fewer cattle have been placed, representing a 10.5 percent decrease compared to the five-year year-to-date average.

“The cumulative impact of those lower monthly placements is seen clearly in the feedlot inventory levels. December 1’s 11.33 million head marked the largest year-on-year decline that we have seen thus far in both numeric and percentage terms. That figure is 727,000 head fewer than last year and 335,000 head fewer than the average Dec. 1 inventory over the past five years. And the gap will likely grow as there aren’t going to be any more feeder cattle available for a while.”

Overall marketings made during November of this year were down 1 percent at 1.76 million head of cattle marketed. November of last year saw 1.77 million head marketed. This is below the average pre-report analyst estimated marketing level of up 0.2 percent, though it was within the low side of the projected range.

Marketings by state were mixed across the major cattle-feeding states. Both Colorado and Nebraska saw 7 percent increases in their November marketings— with 155,000 head and 400,000 head marketed, respectively—while Kansas and Texas saw declines. Kansas’ marketings dropped only 1 percent with 390,000 ketings, however Texas dropped by 8 percent with 415,000 head marketed. — Kerry Halladay, WLJ Editor

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