Cattle on Feed report called slightly bullish

Dec 30, 2013

—Lower than expected placements underscore tight supplies

In what has been called “moderately bullish,” the most recent Cattle on Feed report showed on-feed, placements, and marketing numbers below industry expectations. The decline in placements of cattle into feedlots with a 1,000-head-or-greater capacity was especially surprising and friendly to the markets.

Cattle on feed numbers for Dec. 1 were almost dead on with average trade expectations of a 4.6 percent year-over-year decline. At 10.73 million head of cattle on feed, this year’s Dec. 1 on-feed population was down 5.4 percent.

“These lower numbers underscore the continuing concern about fed cattle numbers going in to 2014,” said CME Daily Livestock Report’s Steve Meyer and Len Steiner. “This marks the 16th straight month in which feedlot inventories have been lower than one year earlier.”

All four of the major cattle feeding states—Colorado, Kansas, Nebraska and Texas—flirted with the national average decline in their state-specific on-feed declines. Colorado was down 5 percent with 970,000 head on feed, Kansas was down 6 percent with 2.05 million head on feed, Nebraska was down 4 percent with 2.43 million head on feed, and Texas was down 7 percent at 2.51 million head on feed.

Oklahoma saw the largest percentile declines in its on-feed numbers—down 23 percent with 265,000 head on feed—while California and Arizona tied for largest percentile increases at up 3 percent with 505,000 and 275,000 head on feed, respectively.

“The COF report also confirms regional changes in feedlot production,” noted Darrell Peel, Oklahoma State University Extension Livestock Marketing Specialist. “December feedlot inventories were down more, year over year, in the Southern Plains compared to the Midwest.”

He went on to speculate as to what this shift means for the future.

“Reduced feedlot production in the Southern Plains no doubt reflects the dramatic herd reductions in the region due to drought since 2010 but may also reflect longer term changes in cattle feeding competitiveness compared to the Midwest. It was noted in 2007 that generally higher grain prices combined with increased availability of byproduct feeds in the Corn Belt would shift cattle feeding competitiveness somewhat to the Midwest relative to the Southern Plains. It is difficult to separate long-term trends from short-term market impacts but time will tell.”

Placements were a mild surprise compared to pre-report expectations and have been viewed favorably by the market. Compared to average industry expectations of a year-to-year placements increase of almost 1 percent, placements were actually down 3.2 percent at 1.89 million head placed during November. It is also worth noting that this November had one less work day than in November, 2012. This makes the placement decline all the greater.

“There are several factors at play to explain the larger than expected decline in feedlot placements, the first being an increased amount of heifer retention to rebuild the cow herd,” noted Troy Vetterkind of Vetterkind Cattle Brokerage.

“Another factor is that a lot of lightweight cattle were being purchased to go on wheat pasture or into a winter backgrounding program as farmer/feeder folks are looking to market their cheaper corn through cattle. Whatever the reason, they didn’t end up in feedlots, and this will be viewed by the market as friendly for deferred month live cattle futures,” he said.

The top four cattle-feeding states saw wildly mixed yearto-year placement changes.

On the positive side, Colorado and Nebraska saw increases compared to November, 2012, placements. Colorado’s placements increased 13 percent to 170,000 head placed in November, and Nebraska increased 2 percent with 475,000 head placed. On the negative side, Kansas’ placement numbers declined 1 percent with 370,000 head placed and Texas’ fell 13 percent to 405,000 head placed.

Again Oklahoma saw the largest percentile decreases in its placement numbers— down 25 percent at 42,000 head placed—but Colorado took the largest percentile increases.

Placements by weight groups saw an interesting change from the trends set most of this year. Out of the four reported weight classes—under 600 pounds, 600- 699 pounds, 700-799 pounds, and 800 pounds or over— only the 600-699 pound group saw increases in placements. With 510,000 head of this weight group placed, it saw a 13.3 percent increase over the same time last year. Despite that weight group’s percentile increases, however, it was the lightest weight group that was the most voluminous at 585,000 head placed, though this was down 10.7 percent from November, 2012. Both of the heavier weight groups declined 6 percent, with the 700-799 group at 362,000 head placed, and the 800 pounds and over group at 425,000 head.

“This may be a bit bullish for summer contracts but we think it may simply reflect better (vs. last year) performance of cattle on this year’s better pastures,” said Meyer and Steiner, speaking of the increase in placements of 600-699 pound cattle.

Marketings were very much like on-feed numbers relative to the industry’s prereport expectations of down 5.4 percent. At 1.68 million head, 4.5 percent fewer cattle were marketed this past November than last. However, as noted above, there was one less production day this year compared to last.

Meyer and Steiner summed up the whole report, calling the numbers new, but the message old.

“Fed cattle supplies will be tight for at least the first half of 2014. Lower feed prices should allow weights to increase some in order to fill part of the decline in beef output but that increase will not be nearly enough to make up for the lower numbers of cattle that will be moving to slaughter. While these data do not speak to second half supplies, we expect them to be lower, as well, given recent cow prices and interest in retaining beef heifers.” — Kerry Halladay, WLJ Editor