Drovers/CattleNetwork news source   |   Updated: May 21, 2012

Source: James Robb, Center Director, Livestock Marketing Information Center

Monthly Cattle on Feed reports by USDA’s National Agricultural Statistics Service provide valuable and timely market data, but those reports often need to be put into a larger context, especially when unusual situations are happening.  Of course, severe drought in southern states last year had a significant impact on cattle placement patterns and therefore careful interpretation is still required of statistics like the, often referred to, number of cattle on-feed for 120 days or more.  But, simultaneously with the drought another less apparent force came into play -- the U.S. cattle feeding industry has been going through some structural change.

Structural change has been indicated in the monthly Cattle on Feed reports for over a year.  Fewer-and-fewer cattle are being fed in feedlots with a one-time capacity of less than 1000 head.   Those farms often include cropping enterprises and have made adjustments caused by high crop prices and negative cattle feeding margins.  USDA’s monthly Cattle on Feed report only includes feedlots with over 1000 head capacity and those feedlots represent an increasing proportion of U.S. cattle being fed.  A result has been that the report can show inventory and marketing numbers above a year ago, but steer and heifer slaughter does not increase proportionally, in fact slaughter has often posted year-on-year declines.  Expectations that “more market ready cattle are ahead” have tended not to materialize.

Now, let’s review the Cattle on Feed report released last Friday afternoon.  For the first time in any month during the last two years the on-feed count was below a year ago.  As of May 1, the year-on-year decline was 0.6% (65,000 head).

Marketings during April were larger than pre-report estimates (including those of the LMIC), as has often been the situation in recent months.  Analysts expected marketings below a year ago (down about 1.5%), but producers reported to USDA numbers slightly above a year ago.  Marketings in the report historically track rather well with steer and heifer slaughter, after making adjustments for the number of Canadian animals imported directly for harvest.  In fact, USDA figures put steer and heifer slaughter for the month of April at 4.5% below 2011’s. 

As expected, placements of cattle into feedlots were below a year ago during April, down 15%.  The average of pre-report estimates indicated a 12% drop.  The year-on-year decline was due to: 1) large numbers forced into feedlots last year because of drought; 2) huge red ink on feedlot closeouts and no opportunity in April to lock-in anything close to a breakeven sales price for purchased feeder cattle using risk-management tools; and 3) shrinking cattle supplies.  Head placed in all weight categories were below a year ago, with the lightweight category (under 600-pound) down 20%. 

What are the implications of the latest Cattle on Feed report?  In terms of futures market prices for fed cattle, the lows have most likely already been set for this year.  The June contract rebounded this past week.  As has been the case for some time now, steer and heifer slaughter will be smaller than a cursory view of the report indicates.  Based on recent trends and the May 1 number of cattle on-feed in the 1000 head and larger feedlots at 1% below a year ago, steer and heifer slaughter in several coming months down at least 3% would be consistent.

The Markets

As last week unfolded and futures market prices strengthened: 1) it became increasingly apparent that there was not a backlog of market ready fed cattle; 2) Cattle on Feed pre-report estimates were viewed as supportive; and 3) wholesale beef markets strengthened.  Cash fed cattle prices gained ground, especially during the late Friday trade.  Live slaughter steers were up $2.88 per cwt. for the week and were 14% above a year ago.  The weekly average wholesale price of Choice beef (Boxed Beef) increased to the highest level since early March.  Yearling and calf prices were generally higher compared to the prior week, with sale volumes seasonally declining, and many auctions from Kansas north have ramped-down sales for the summer.  Compared to a year ago, in Oklahoma calf prices (500- to 600-pound) were up fully 23% while yearlings (700-to 800-pound) were up a more modest 16%.  Corn costs increased during the week as reports circulated of smaller South American crops due to drought and buying interest from the Chinese.  For the week, corn prices at Omaha increased by 44 cents per bushel, but were 11% below a year ago.  For the week, Distillers Dry Grains (DDGS) costs increased some.       

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