Placements surprise

Apr 29, 2013

The April Cattle on Feed report (COF) came out Friday, April 19. The report covers numbers of cattle on feed in feedlots of 1,000 head or greater capacity as of April 1, and the number placed and marketed during March. The biggest surprises came from the number of cattle placed, which was well above both year ago levels and pre-report estimates.

As of April 1, there were 10.91 million head of cattle on feed.

This number was 5 percent below the 2012 April 1 11.48 million head count and only slightly above March’s on-feed population. Pre-report industry estimates of the April on-feed number pegged it at 6 percent decline compared to last year, making the actual 5 percent decline nothing particularly surprising. Analysts Steve Meyer and Len Steiner of CME’s Daily Livestock Report called it “not a market mover.”

“The down 5 percent year-to-year comparison in this report is the smallest such number since October 1, 2012 where inventories were only 2.6 percent lower than one year earlier,” they observed.

State by state, all four of the major cattle-feeding states saw on-feed declines compared to 2012. It is worth noting the range of declines among them and all other reported states were relatively very narrow and centralized in the down 5 percent area.

Colorado was down 8 percent at 980,000 head on feed, Texas was down 7 percent with 2.59 million, and Kansas and Nebraska were both down 4 percent at 2.09 million and 2.43 million head, respectively.

With the exception of Arizona and Washington, which both saw weak but steady on-feed populations, all other reported states saw decreases. South Dakota saw the largest statistical drop—down 10 percent at 230,000 head—and California saw the smallest drop of 2 percent at 480,000 head.

Placements were the big surprise of this report, being not onlywell above the same time last year, but far outstripping the prereport estimates. Analysts surveyed by the Dow Jones prior to the report’s release anticipated placements would be down 1 percent from the prior year.

“The 1.899 million head placed was 6 percent higher than last year when analysts expected placements to be marginally lower,” said Meyer and Steiner. “As such, fed cattle supplies in August through October will likely be larger than expected and put pressure on those deferred contracts.”

State to state, three out of the top four cattle feeding states saw some of the largest increases in placements compared to the same time last year. With 540,000 head placed during March, Texas saw a 26 percent increase over its March 2012 placement numbers. Kansas was up 13 percent with 425,000 head, and Colorado was up only 3 percent with 165,000 head placed. Nebraska, the remaining of the top four cattle feeding states, saw 400,000 head placed in March, but this was a 9 percent decrease from the same time last year.

All weight categories saw placements increase, though the largest percentile increase was seen in the 700-799 pound category. With 540,000 head placed in that weight group compared to last year’s 500,000 head, the class saw an 8 percent increase. The other weight categories—under 600 pounds, 600-699 pounds, and 800 pounds and over—all saw placement numbers 5 percent higher than during March of 2012. The heavyweight class was the most numerous with 634,000 head placed.

“March-placed cattle were 0.2 percent larger than one year ago and 0.7 percent larger than the average of 2007-2011,” explained Meyer and Steiner. “These higher weights would suggest slightly earlier marketing of the cattle placed this March vs. history, suggesting that we may see some positive supply impacts in August— pending a LOT of other factors like weather and feed costs.”

The pair did point out, however, that the longer high weights persist and grow, the less impact they will have on year-to-year production changes as has been the case of the recent past. As they put it, “today’s high weights are compared to equally high weights of last year.”

Marketings during March were down 8 percent at 1.77 million head. Pre-report industry expectations had put the decrease at 7 percent. Despite that, the fact March 2013 had one less marketing day than March 2012 makes the number a bit deceiving. All in all, it is said to be in line with expectations.

In something of a reverse on the placements situation, three of the four major cattle feeding states saw declines in their marketings.

Texas was the only one of the four which saw increased marketings compared to last year, at up 3 percent with 485,000 head marketed. The other major states saw declines close to or greater than the average decline.

Colorado saw 6 percent fewer marketings in March at 165,000 head compared to last year’s 175,000 head. Kansas’ marketings dipped 9 percent, falling from 395,000 head to 360,000. Nebraska saw the largest percentile declines, its 400,000-head marketing being a 13 percent decrease from the prior year.

In terms of percentiles, Iowa had the largest increase in its March marketings at up 8 percent with 77,000 head. Conversely, Oklahoma saw the steepest declines in its marketings. At 53,000 head compared to 74,000 head, Oklahoma’s marketings were down 28 percent.

Overall, the report was called very bearish, mostly for deferred futures as it seems the farther-out supply of cattle will be larger than anticipated. Meyer and Steiner summed it up humorously, saying:

“We think [the report] still indicates that beef supplies will be tighter—there are still 473,000 fewer cattle on feed than there were just one year ago—but not as tight as we had once expected. Sort of same song, repeated verse on that one, right?”

Cold Storage

The monthly Cold Storage report also came out last week on Monday, April 22. As of March 31, total red meat in cold storage was up compared to both the previous month and the same time in the prior year. Poultry in cold storage was down on a month-to-month basis, but was up year to year. The report has been called bearish for beef.

Beef in cold storage in all warehouses amounted to 513.24 million pounds, a 2 percent increase from March 31, 2012. This was also a 5 percent increase over the prior month’s numbers of 489.98 million. All of the growth in beef stocks came from boneless beef. Comparatively, muscle cuts in cold storage were down 22 percent.

Speaking of the increased stocks of beef, Andrew Gottschalk of Hedgers Edge had this to say:

“This helps to confirm that consumption is being constrained supporting our conclusion that total demand for the first quarter is down 3 percent.”

Beef represented 43.3 percent of all red meat in storage and 23.1 percent of all meat (red meat plus poultry) in storage. This is down proportionately speaking from the same time in 2012 where beef represented 44.1 percent of red meat and 24.1 percent of all meat.

Troy Vetterkind of Vetterkind Cattle Brokerage pointed out early last week that, despite the bearishness of both the COF report and the Cold Storage report, cattle futures held their ground very well on hopes of the long-awaited seasonal uptick of consumer demand.

Pork in cold storage was up 6 percent with 648.79 million pounds. Pork was also up 2 percent on a month-to-month basis. Pork represented 54.7 percent of all red meat in storage and 29.2 percent of all meat. Rounding out the red meat category, other red meat (veal, lamb and mutton) in cold storage was down 11 percent at 23.47 million pounds. This decrease was led by lamb and mutton decreases, which overshadowed the 28 percent increase in stored veal.

Overall poultry in cold storage was up 7 percent year to year, but down 2 percent month to month with 1.02 billion pounds. Chicken, at 617.89 million pounds, was up 8 percent compared to March 31, 2012, but down 4 percent compared to February’s numbers. It was these monthly declines in chicken which resulted in the overall losses of poultry on the month-to-month comparison. — Kerry Halladay, WLJ Editor