Surprisingly high placements called bearish

Feb 28, 2014

— Beef in cold storage declines

The most recent Cattle on Feed report was called bearish for the markets as on-feed populations and placements were higher than expected, and marketings were lower than expected. The most surprising of the numbers was placements, which far outstripped industry expectations.

Cattle on feed in feedlots with a 1,000 head or greater capacity, as of Feb. 1, was down 2.8 percent compared to Feb. 1, 2013 with 10.76 million head. Despite being lower than the prior year, the number was higher than pre-report industry predictions that had expected on-feed numbers to be down 4 percent. Steve Meyers and Len Steiner of CME’s Daily Livestock Report opined that the surprise was bearish for the market, a sentiment echoed by Troy Vetterkind of Vetterkind Cattle Brokerage.

Tim Petry, Livestock Economist of North Dakota State University Extension Service, noted that February represented the 18th consecutive month with lower on-feed numbers than the prior year, and was the lowest Feb. 1 population since 2003.

“Fewer cattle on feed numbers imply lower fed cattle slaughter and beef production ahead,” he pointed out, noting the Livestock Marketing Information Center predicts a 6 percent decline in beef production for 2014.

“The wild card will be cow slaughter that declined in the second half of 2013 as U.S. pasture and range conditions improved. Parts of the Southern Plains are dry, along with much of the Southwest including record drought in California. Parts of the rest of the U.S. cattle producing regions are less than a year removed from drought conditions, so ample spring and summer rainfall will be necessary for lower beef cow slaughter to occur.”

Recent tightness in cow slaughter—and thereby grinding meat—has led to a run-up in trim values. On Friday, Feb. 21, 90 percent trim breeched $250. According to the most recent US- DA data on federally inspected cow slaughter, allcow slaughter was down 10,000 head to 109,300 head (dairy and beef cows) last week compared to the same week in 2013.

None of the four major cattle feeding states—Colorado, Kansas, Nebraska, and Texas—saw on-feed numbers increase from Feb. 1 last year. Only Nebraska saw a weak steady with a 10,000-head decline to 2.46 million head; the rest lost several percentage points. Colorado declined 4 percent to 970,000 head on feed and Kansas lost 3 percent of its hausted small grains pasture in parts of Kansas, Oklahoma, and Texas. That caused many winter stocker cattle to move to market in January. The extreme drought in California also forced significant movement of winter grazing cattle into feedlots. Placements in California were up 27 percent over last year.”

Placements by weight group were something of a two-humped camel. Cattle under 600 lbs. were up 4 percent at 470,000 head. The next group, cattle ranging from 600-699 lbs., were up 12.8 percent at 440,000 head. The 700-799 lbs. group was up 5.6 percent on-feed population with 2.05 million. Texas ceded its position as most populous on-feed state to Nebraska after the Texas population declined to 2.44 million head, down 7 percent compared to 2013.

As an interesting side note, Minnesota was added to the list of reported states. It had 137,000 head on feed, up 1 percent from the prior year. Though the inclusion of the state in the now-dozen states individually reported was new, it did not impact the ultimate U.S. numbers.

Placements of cattle into feedlots during January were up 8.6 percent compared to January 2013 at 2.03 million head. This was a surprise compared to pre-report estimates that had expected placements to be up 2.8 percent. “The number was driven largely by a sharp jump of placements in Nebraska (up 80,000 head or 17.2 percent) and a significant jump in Texas (up 20,000 head or 5.2 percent),” reported Meyer and Steiner. “We need to keep in mind that these are January placements that occurred during the spike highs for cutout values, cattle prices and Live Cattle Futures.”

As mentioned, Nebraska’s placement numbers were up 17 percent at a total of 545,000 head and Texas’ numbers were up 5 percent at 405,000 head. Colorado was steady with last year at 190,000 head while Kansas was up 2 percent with 435,000 head placed into feedlots.

“That increase may sound surprising to some given the 1 percent smaller calf crop in 2013,” said Petry, explaining another cause for the extreme uptick in placements. “That, along with a 1.7 percent increase in beef replacement heifers, and fewer feeder cattle imports resulted in a 2.7 percent decrease in feeder cattle outside of feedlots on Jan. 1. However, dry conditions and cold temperatures ex with 560,000 head and the over-800 lbs. groups gained 12 percent with 559,000 head.

January marketings across the country were down 5 percent at 1.79 million head compared to last year and slightly lower than the expected 5.2 percent decline expected by industry experts. Add to this the fact that this January had two additional marketing days compared to last January and the industry has a much smaller marketing level than expected.

“Supplies of market-ready cattle remain very tight,” stressed Meyer and Steiner. “Cattle on feed 120 days and more as of February 1 were still 19 percent lower than one year ago. That is an improvement over Jan. 1’s remarkable down 21.5 percent but still says that finished cattle numbers will be very tight through March. The number of cattle on feed for 90 days and more remains 9 percent lower than one year ago. That figure, too, is an improvement over the past three months in which the number was over 10 percent lower than year-earlier levels. But it still says fed cattle supplies will be tight through May.”

Nebraska wound up marketing 2 percent more cattle this January than last with 470,000 head marketed, but it was the only major cattle-feeding state to make that claim, and one of the only reported states to boast a positive year-to-year change. Colorado’s marketings were down 3 percent at 170,000 head marketed, and Kansas’ numbers were down 6 percent at 385,000 head. Texas’ marketings took the hardest hit, being down 16 percent also at 385,000 head.

Cold Storage

The most recent monthly and the annual Cold Storage reports were released right along with the Cattle on Feed report. Overall red meat and poultry in cold storage as of January 31 was down 4.4 percent compared to Jan. 31, 2013, but 4.7 percent higher than the prior month. Most of this increase came from increased levels of pork with a little help from chicken.

Beef in cold storage declined in all measurable ways. The actual poundage in storage declined over 55 million pounds (mp) to 429.3 mp, a decline of 11 percent. Beef declined in terms of its proportion of red meat in cold storage and its proportion of total meat in cold storage, representing 39.7 percent of red meat (compared to 43.5 percent in 2013) and represented 20.9 percent of total stores of meat (compared to 22.6 percent in 2013).

Meyer and Steiner noted that, while the largest percentile decline among types of beef in cold storage was in beef cuts, the roughly 12 mp decline in boneless beef inventories was more important. They said the decline, “as we approach spring weather and its likely enhancement of the push to retain cows and grow the beef cow herd, is not a good thing for boneless beef output and supply. Further, lower steer and heifer slaughter is keeping fat trim (50 percent lean) supplies very tight. Unfortunately, USDA provides little detail for the beef in freezers.”

Pork’s actual numbers increased from Jan. 31, 2013, as did its representation in storage. While in 2013, pork made up 54.4 percent of red meat in cold storage and 28.3 percent of the total, this year it represented 57.7 percent of red meat and 30.4 percent of all meat with its 623.2 mp in storage.

In poultry, stores of chicken increased, as did its representation of poultry and overall. Despite that, poultry as a percentage of total meat in storage declined in the face of pork’s advances. Most of the decline in poultry came from turkey, which went from 360 mp in Jan. 31, 2014, to 275 mp this year.

The annual Cold Storage report compiled the monthly reports for 2013. The results for the three major proteins in 2013 can be seen in Table. 1. — Kerry Halladay, WLJ Editor