Placements lowest on record

Sep 30, 2013

The most recent Cattle on Feed report again had bullish surprises in the placements area. Analysts expected placements to be down, but what actually happened was a shock. Placement numbers inspire questions; are cattle being held back or do they exist at all?

At 1.79 million head of cattle placed into feedlots with capacities of 1,000 head or greater during August, year-to-year placements declined 11 percent. This was down 2.6 percent more than the pre-report industry expectation of an 8.4 percent decline.

The 1.79 million head placed in August is the lowest August number on record since the report began in 1996. Steve Meyer and Len Steiner of CME’s Daily Livestock Report also pointed out that this was the second month in a row where placements were down over 10 percent in year-to-year placements.

Derrell Peel, Livestock Marketing Specialist at the Oklahoma State University Extension, was not surprised by the placement numbers. Rather, he said, the fact it has taken so long for this situation to develop, that is the surprise.

“Drought and several other factors have postponed this situation to some degree since at least 2011. Though the timing is different, changes in several cattle sector flows have supported feedlot inventories and beef production temporarily in the face of ever tighter cattle supplies.

“The largest component of this, no doubt, is the fact that drought has postponed heifer retention. Most recently, it appears that heifer slaughter has been augmented with heifers diverted into feedlots earlier this year due to extended winter conditions and lack of hay. These heifers, diverted from breeding, were part of the last gasp of higher placements in March and April of this year and are being reflected in higher weekly heifer slaughter at the current time. For the year to date, heifer slaughter is down nearly 7 percent from the average heifer slaughter during 2009-2011. With accelerated heifer retention, heifer slaughter may drop another 7-8 percent in 2014.”

Other two causes he cited as contributing to the dropping placements was the large import of Mexican feeders in years past, which unrealistically kept placements afloat relative to domestic feeder availability.

Mexico has since trailed off in its export of feeder cattle to the U.S., thereby allowing the domestic reality to be felt. Another, though slight, contributing factor he said was the slowdown in veal production which leaves more calves to go to become yearling feeders.

The low placement numbers spurred Meyer and Steiner to ask; “Are some lighter cattle being held on pasture or are there simply not very many of them out there?” Andrew Gottschalk of Hedgers Edge says no to the latter.

“Declining placements historically has never proven the lack of existence of supply. Severe and sustained cattle feeding losses normally is the catalyst for reducing placements. As such, the supply of feeders and calves on October 1 outside feed yards is likely above year ago levels. That said, recent widespread rains can spark expansion fever. Additional heifer withholding for breeding is likely which could at least partially offset any increase in the feeder and calf supply outside feed yards.”

Placements were, as they have been, skewed in favor of heavier animals. All weight classes saw placement declines, but placements of the heaviest cattle (over 800 pounds) declined the least—down 7.5 percent—and remained the most frequently placed class with 615,000 head placed.

Cattle under 600 pounds saw the biggest percentile decline in placements with 405,000 head placed, down 16 percent. Cattle between 600-699 pounds had the lowest placements based on actual numbers at 338,000 head (a 12.2 percent decline) and cattle between 700-799 pounds saw a 9.5 percent decline in placements with 430,000 head placed in August.

All four of the major cattle-feeding states—Colorado, Kansas, Nebraska, and Texas, which collectively feed 75 percent of the total inventory of surveyed lots— saw placement decreases. Colorado placements were down 24 percent at 145,000 head placed. Kansas was down 11 percent with 385,000 head placed, while Nebraska only declined 6 percent with 440,000 head placed. Texas dropped 9 percentage points on placements with 450,000 head.

The biggest percentile losses were seen in Oklahoma. With placements of 47,000 head, it declined 30 percent from its August 2012 placements. The only state to see placement increases was Arizona with 23,000 head placed Arizona increased 28 percent.

The number of cattle on feed in surveyed feedlots on Sept. 1 was low, but just barely within range of analyst expectations. At 9.88 million head on feed, a yearto-year decline of 7 percent, this was the lowest monthly inventory since Aug. 1, 2010. The real numbers were 0.5 percent lower than the average pre-report industry expectation.

Again, the big cattle-feeding states saw year-to-year declines in their on-feed numbers. Colorado was down 11 percent with 830,000 head on feed and Kansas was down 9 percent with 1.98 million head. Both Nebraska and Texas were down 7 percent at 2.09 million head and 2.43 million head respectively.

Oklahoma again posted the largest percentile declines for on-feed numbers, down 14 percent with 280,000 head on feed. California saw the largest yearto-year gains with 505,000 head on feed, a 5 percent increase.

Marketings during August were the one portion of the report which came in above expectations. Analysts surveyed prior to the report’s release expected a 4.5 percent year-to-year decline in marketings. Instead, with 1.88 million head marketed, marketings for August only declined 4 percent.

“The report will be considered a little friendly again as placement continue to run well below a year ago and below pre-report expectations, while we continue to market more cattle than we are placing,” said Troy Vetterkind of Vetterkind Cattle Brokerage.

Early indications following the report’s release supported this position with both near-term live and feeder futures going up near $1. — Kerry Halladay, WLJ Editor