Placements surprise, exceed estimates by 5 percent

Mar 28, 2014


—Placements now means cattle shortage later

There were some definite surprises in the most recent Cattle on Feed report, released Friday, Mar. 21. On-feed numbers were higher than expected and placements were much higher than expected. These realities paint a picture of the unique marketing situation facing the cattle world today.

On-feed numbers in feedlots with a 1,000-head capacity or greater as of Mar. 1 were down 0.5 percent at 10.79 million head. This surprised the industry, which had expected an average on-feed decline of 1.2 percent compared to Mar. 1, 2013.

“Relatively large placements in January and February have pushed the March 1 feedlot inventory to an unusual March seasonal peak,” said Derrell S. Peel, Livestock Marketing Specialist of the Oklahoma State University Extension.

“The normal March increase in feedlot marketings and likely smaller year over year March placements are almost sure to result in a lower April 1 feedlot inventory. In 14 of the last 17 years, the seasonal peak in feedlot inventories has occurred in December, once in January and twice in February but never in the history of the current cattle on feed data has the seasonal peak occurred in March.”

The top four cattle-feeding states—Colorado, Kansas, Nebraska and Texas—were mixed in terms of their individual on-feed numbers.

Colorado was down 5 percent compared to 2013 with 940,000 head on feed Mar. 1, 2014. Texas also trailed below its prior year numbers with 2.45 million head, a 3 percent decline. Kansas was a strong steady with 2.06 million head and Nebraska was up 3 percent with a smooth 2.5 million head on feed.

Placements are where the real surprise came to light. Pre-report analyst expectations had the placements into feedlots during February at an average of up 9.1 percent. The reality was a 14.7 percent increase at 1.65 million head placed into feedlots.

“Stronger than expected fed cattle prices so far this year have encouraged feedlots to market cattle aggressively and to place more cattle on feed,” noted Peel. He pointed out that the placement number was 1 percent higher than the fiveyear average for February, and amounted to “600,000 more head of cattle placed compared to the same period one year ago.”

The real placement number was within the range of estimates given, but decidedly on the higher end. The 5.6 percent increase over the average estimate was called “moderately bearish” by Steve Meyer and Len Steiner of CME’s Daily Livestock Report.

“The surge in placements was driven by opportunity (strong summer fed cattle futures prices, lower costs of gain) and, in some cases, necessity as dry conditions in many areas damaged winter wheat grazing conditions.”

Placements between the individual states were manic in their variation. Three out of the four top cattle-feeding states had doubledigit percentile gains during February 2014 versus February 2013, while the other—Colorado—had doubledigit losses. Colorado shed 13 percent of its Feb. 2013 placement numbers with 135,000 head placed this year. Kansas on the other hand gained 18 percent with 335,000 head placed. Texas placed 22 percent more cattle into feedlots this past February with 410,000 head, and Nebraska outdid that with 430,000 head placed, a 26 percent increase.

Meyer and Steiner stressed that context is important when considering the placement numbers, however. They conceded that the placements of the past months will push summer marketings higher, “But there will not be a flood of market-ready cattle come summer relative to historical levels. Just more than there have been—and the futures market obviously knows that already.

They also stressed that the numbers put out in the COF report are relative to the prior year and the details of the prior year’s supplies impact the numbers today.

“Recall that the total number of cattle outside of feedlots on January 1 was record-small and nearly 3 percent lower than last year. And last year’s feeder cattle supplies did not exactly support robust feedlot placement numbers, especially in the summer and fall. Placing cattle now means they cannot be placed in the future and the spring calf crop will not be available until fall or winter. Bottom line is that these placements are likely setting us up for low placements once again this summer and another Q1 cattle hole next year.”

As placements overall were up considerably, so too were the individual placement weight classes. The placement of the lightest category—cattle under 600 lbs.—during February was up 13 percent compared to the prior year with 390,000 head placed in this weight group. Cattle weighing between 600-699 lbs. saw 330,000 head placed, an increase of 29.4 percent. The 7-weight placements were up only 4.3 percent at 415,000 head, and cattle weighing over 800 lbs. were up 17.1 percent with 515,000 head placed in this category.

Marketings during February was the only category that nicely matched pre-report estimates. Analysts expected marketings would be down 3 percent and reality bore that out. At 1.55 million head marketed during February, the month’s numbers were down 3 percent from the same time last year.

Three out of the four top cattle feeding states saw declines in their February marketing numbers. Colorado and Kansas both declined 6 percent to 155,000 head and 315,000 head marketed, respectively. Texas’ marketing numbers were down 8 percent at 360,000 head. Nebraska, on the other hand, saw a 1 percent increase in its marketing level, with 375,000 head. Across all major areas, Nebraska has taken the cattle feeding crown from Texas.

Peel explained that the late peak in feedlot inventories noted earlier could point to one of two things: a late peak in marketings, or bunching of cattle into the peak of marketings in slaughter. He said which one it turns out to be will hinge heavily on placement weights, weather and market factors.

“In the past, peak marketings have occurred in June nine of the past 18 years; four times in May and five times in July. Based on the placement weights, it does not appear that the late March peak in feedlot inventories will result in a late peak in marketings. In fact, my current projections suggest that May marketings will be seasonally strong and may be as large or larger than June marketings. It should be noted over half of the large increase in February placements were cattle under 700 pounds that will not be marketed until late summer.” — Kerry Halladay, WLJ Editor