Placements, marketings defy expectations

Markets
Feb 1, 2013
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The monthly Cattle on Feed report was released Friday, Jan. 25. This most recent report covered cattle on feed in feedlots with a 1,000-head or larger capacity as of Jan. 1, as well placements and marketing numbers for December 2012.

The report contained a number of surprises, specifically where they violated pre-report estimates. Shockingly low placements coupled with unexpectedly high marketings in December have spurred analysts and market watchers to call the report bullish.

Cattle on feed As of Jan. 1, there were 11.19 million head of cattle on feed. This is down 6 percent compared to last year’s Jan. 1 on-feed population of 11.86 million. Pre-report estimates had anticipated an on-feed level 95.6 percent of last year’s. The unrounded results were 94.4 percent, which was just within the low end of the pre-report estimate range.

State-by-state on-feed numbers have all the big cattle-feeding states decreasing significantly. By year-to-year comparisons, the Nebraska on-feed population was down 3 percent at 2.48 million head, Kansas was down 6 percent with 2.11 million head, Texas was down 7 percent at 2.72 million head, and Colorado was down 13 percent with 1 million head.

On the other hand, the only places to see above-the-average onfeed numbers were the smaller—and notably, more northern— states. Washington led the pack of small-feeding states with 247,000 head on feed, an increase of 6 percent compared to last year. Both Idaho and Iowa remained steady with their 2012 numbers at 230,000 head and 620,000 head, respectively.

“We are seeing somewhat of a shift in more cattle being fed in the north compared to the south given cheaper feedgrain alternatives and water concerns,” commented Troy Vetterkind of Vetterkind Cattle Brokerage.

The on-feed class distribution (steers vs. heifers vs. slaughter cows and bulls) showed a proportional movement towards more steers rather than heifers, though all classes saw actual raw-number decreases. On Jan. 1, 2013, there were 7.05 million steers or steer calves on feed, down 3 percent from the same time last year. Heifers and heifer calves stood at 4.07 million head, down 9.5 percent from 2012. And slaughter cows and bulls on feed numbered at 76,000 head, a 10 percent reduction compared to the prior year.

The class distribution was slightly more interesting, however. On Jan. 1, 2012, steers represented 61.4 percent of the on-feed population, heifers were 37.9 percent, and slaughter cows and bulls were 0.7 percent. On the first of this year, however, steers on feed were 63 percent of the total on-feed population while heifers went down to 36.4 percent.

Slaughter cows and bulls remained at 0.7 percent of the overall population.

While it’s possible the decrease in heifers on feed indicates heifers are being held back for herd rebuilding, Jim Robb of the Livestock Marketing Information Center suggested it might also be a reflection of the decreased influx of spayed heifers from Mexico. That would explain the significant decrease in heifers on feed in Texas—down 17.5 percent compared to Jan. 1, 2012—which feeds out a majority of the imported cattle from Mexico. In the other major cattle-feeding states, heifers on feed this year were down 5 percent for Nebraska, 7.5 percent for Colorado, and 13 percent for Kansas. If only the major cattle-feeding states were considered, heifers on feed declined 12 percent from Jan. 1, 2012, to Jan. 1, 2013.

By comparison, if one just looks at the small-feeding states, heifers on feed went up a half percent. There were heifer-on-feed increases in the smaller-feeding states of Arizona, California, Iowa and Washington. Some of this increase could be attributed to cull dairy heifers from those states, as the drought and subsequent feed costs have pushed dairymen to cull their herds mercilessly, but there is no way to know for sure.

Placements

One of the two big surprises in the most recent Cattle on Feed report was the low placement numbers. Overall, placements during December stood at 1.66 million, down 1 percent (0.5 percent unrounded) from December of 2011.

The surprise of that relatively small decrease stems from what had been expected prior to the report’s release. The average pre-report industry expectation was for a 4.1 percent increase in placements. Additionally, the range from the surveyed analysts from Dow Jones was the December 2012 placements would be 96.2-108.8 percent of December 2011 placements. It is also important to note that the 96.2 percent pre-report estimate was the extreme outlier of the analysts’ expectations, and the only prediction below 100.

“The 4.6 percent difference between the ‘expected’ and actual year-on-year change is, we think, significant and will likely be bullish for summer Live Cattle futures,” said CME analysts in the group’s response to the report.

“Continued high feed costs and extremely high breakevens remain the primary impediment to placing more cattle on feed. Most observers felt that limited grazing capacities and poor winter wheat conditions would drive cattle into feedlots. But that appears to have been trumped by high feed costs that are driving a trend for cattle to spend more time outside of feedlots.

“As that happens, the age of cattle coming to market will be higher. They will still almost all be under 30 months but older cattle in means heavier cattle in and heavier cattle out. Hard to see how they could get much bigger but we think it is likely.”

CME analysts also noted that December of 2012 was the 10th month of that year wherein placements had been below the same months in 2011.

Placements broken out by state told an interesting story. If one looked at the top six largest feeding states by volume—the aforementioned four plus Oklahoma and Iowa—without Colorado, placements would have been up the anticipated 4 percent.

Kansas and Texas were both up 4 percent with 365,000 head and 415,000 head placed, respectively, and Nebraska’s placements of 390,000 head represented a 3 percent increase compared to December 2011. Iowa was up 6 percent with 82,000 head placed, and Oklahoma was up 16 percent with 52,000 head placed.

But extreme losses to placement numbers in Colorado, and the remaining smaller-feeding states brought down the overall numbers. Colorado only placed 140,000 head last December compared to 160,000 head the year before, a 12 percent decrease. The greatest percentile loss was seen in Washington, where only 25,000 head placed represented a 43 percent decline in December placements.

“This suggests that, not surprisingly, the squeeze in the feedlot sector is more pronounced around the fringes where feedlots are often geographically disadvantaged with respect to feeder and feed supplies,” said Derrell Peel, livestock marketing specialist of the Oklahoma State University Extension.

“Additionally, the lack of winter pasture and other drought impacts in the center of the country no doubt contributed to a short run increase in regional feeder supplies as expected.”

Cattle placement by weights also showed the effects of the drought’s high price of feed. Placement of 7th Annual feeders weighing under 700 pounds (combining both the under 600-pound and 600- to 699-pound classes) was down 3 percent in December 2012 compared to December 2011. When just looking at the under 600-pound class, that decrease jumped to 10 percent.

“Given estimates of corn remaining in a $7-7.60 trading range until we get into new crop, lighter weight feeder cattle will continue to go into backgrounding or pasture programs so they don’t have to spend so much time on feed,” said Vetterkind.

The overall decrease in placements rested almost entirely on the shoulders of the declines in lightweight placements.

“Reduced placements of the less than 600-pound category accounted for 61 percent of the decrease,” added Peel. “This no doubt partially reflects that fact that the economics of cattle feeding favors heavier placement weights and thus reflects more feedlot demand for bigger feeders.”

Marketings

December 2012 saw 1.75 million head marketed across the country, a 2 percent decline from the prior year’s 1.78 million head. This is in contrast to the pre-report estimate average, which pegged December 2012 marketings at down 6.8 percent compared to the prior year. This, like the placement surprise, was called bullish.

“The marketing number is especially friendly given this December had one less marketing day than last December,” commented Vetterkind.

With the exception of Nebraska, the large cattle-feeding states saw declines in marketing numbers. Texas lost 10 percent of its December marketings, with 380,000 head in 2012 versus 420,000 head in 2011. Kansas marketed 425,000 head, a 4 percent decrease, and Colorado lost 3 percent with 155,000 head marketed. Nebraska’s marketings were up 12 percent at 425,000 head.

Increases—or at least breakevens—on marketing numbers in smaller-feeding states bolstered the overall marketing numbers which prevented it from being as low as was expected. Added to the increases of Nebraska, Iowa and California posted marketing gains of 8 percent with 68,000 head and 6 percent with 55,000 head, respectively. Idaho held steady with 40,000 head marketed, and the collective of “other states” gained 17 percent with 54,000 head marketed.

CME analysts claimed this Cattle on Feed report supports their forecast of a total cattle slaughter decline of 4.4 percent in the first half of 2013, though slaughter of females would be “the key wildcard.”

“The lack of forage will prevent producers from significant herd rebuilding in the short term. If rain comes to key cow/calf areas, we could see significant herd building beginning this spring and lasting into 2014. That would pull heifers out of the slaughter supply and tighten beef supplies even more. If rains don’t come in time for spring green-up, many producers will be in dire straits for roughage and more cows could move to slaughter, increasing 2013 supplies.” — Kerry Halladay, WLJ Editor

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