Monday, August 30, 2010

Placements of Cattle on Feed Has Slowed

USDA released its August Cattle on Feed report last Friday, reporting its inventory estimates for feedyards with 1,000+ head capacities. Net placements of cattle on feed during July, at 1.706 million head, were down 6.3% compared to last year, marking the first month since February to see a reduction in placements relative to 2009.

While July placements were still 1-2% higher than what the trade expected prior to the report’s release, it did confirm that the sharp increase in placements during May and June slowed last month. Part of this percentage decline in placements relative to a year ago is a function of Summer 2009 placements.

Last year, May and June placements were down sharply and July placements were above the 5-year average. Thus, larger placements this May and June and smaller July placements would be expected just for average placements. Feedlot profitability and grass conditions have also driven this summer’s placement pattern.

Good feedlot returns following the rally in fed cattle prices in April encouraged higher placements in May and June. Higher corn prices, strong feeder cattle prices, and the seasonal drop in fed cattle prices contributed to July placements forecasting breakeven or even negative margins. Additionally, very good pasture and range conditions are allowing stockers to remain on grass longer this year, and thus weren’t placed on feed in July.

The largest reduction in placements was observed for 600-699 lb. feeder cattle (down 16.4%) and <600 lb. feeder cattle (down 8.8%). Placements of cattle weighing 700-799 lb. were down only 2%, while 800+ lb. placements were steady with year-ago levels. The largest decreases in placements occurred in Texas (-17.7%), Oklahoma (-29.0%), and Arizona (-16.0%), while South Dakota, Iowa, and California saw increases of 13-14%.

Marketings for the month of July totaled 1.903 million head, 1.7% less than July 2009 and about 1.5% less than analysts expected prior to the release of the report. Although these numbers are somewhat negative, an improvement in slaughter numbers in August should mitigate the impact of the lower marketings.

Further, July 2010 had one less marketing day than July 2009, so average daily marketings were actually up about 3% compared to last year. As a result, feedyards continue to remain very current.

The number of cattle on feed for more than 120 days on August 1 was 8% less than one year ago. Additionally, steer dressed weights remain below year-ago levels (8 lb. lighter) and, despite seasonally increasing, are being held in check by excessive heat and humidity in the central U.S. cattle feeding areas. With slightly more placements and fewer marketings than expected in July, the August 1 cattle on feed inventory was slightly higher than expected as well. At 9.873 million head, the cattle on feed total was 2.4% higher than August 1, 2009, but 2.7% less than the 5-year average. Overall reaction to the report was viewed mostly neutral to slightly bearish. However, overriding bullish fundamentals have continued to support fed cattle prices. Strong exports, improving domestic demand, and purchases for the Labor Day weekend provided strong support in the fed cattle market last week.

Trade developed late Wednesday afternoon at sharply higher prices, and feedyards continued to sell cattle into the evening hours beyond what was on their showlist for the week. Prices in Nebraska were generally at $155/cwt on a dressed basis, or $97-97.50/cwt on a live basis. Additional sales continued in Nebraska on Thursday, at $155-156/cwt (dressed) or $99-100/cwt (live). Texas and Kansas also saw active trade on Thursday, reaching $100/cwt on a live weight basis.

For the week, the 5-area fed cattle price averaged $98.65/cwt (live) or $154.55/cwt (dressed), up $4-5/cwt for the week. These higher prices were underpinned by a strong rally in the boxed beef market. Choice boxed beef averaged nearly $5/cwt higher last week. Higher fed cattle prices supported yearling feeder cattle prices last week that were about $1/cwt higher in Oklahoma and $2.50/cwt higher in Nebraska. Calf prices, however, were more susceptible to the $0.08/bu increase in corn prices, and ended the week at steady to lower prices. Despite a small increase in distillers grain prices last week, they continue to remain a good buy for rations, with DDGS and WDGS price trading at 70% and 60%, respectively, of the corn price (dry matter basis).

Source: Darrell R. Mark, Department of Agricultural Economics, University of Nebraska–Lincoln

Farm Supply
Illustration: Antique Cattle I