Drovers/CattleNetwork news source   |   Updated: June 27, 2012

Source: James Robb, Director, Livestock Marketing Information Center

USDA’s National Agricultural Statistics Service released the monthly Cattle on Feed report on June 22nd.  As of June 1, 2012, U.S. feedlots with a one-time capacity of 1000 head or larger had 2% more cattle on-feed than a year ago, which was about 1% more than anticipated.  Just a month earlier (as of May 1st), for the first time in any month during the prior two years the on-feed count was below a year earlier.  Several factors bolstered placements of cattle into feedlots during May. The on-feed count also increased due to lower than expected feedlot marketings.

Placements of cattle into feedlots were above a year ago during May.  Even though the year-over-year increase was large (up 15%), that was about what market analysts expected.  Several factors contributed to that jump.  The most important factor was a return to more normal placement patterns this year in the Southern Plains, compared to what happened last year.  In 2011 placements occurred in months prior to May because of drought.

Several secondary factors also combined to significantly increase feedlot placements, in order of importance those were: 1) U.S. imports of feeder cattle were above a year ago (driven by on-going severe drought in Mexico and by high U.S. pries pulling cattle from Canada);  2) dryness precluding animals under 600 pounds going on summer grazing programs, which in much of the U.S. traditionally begins on May 1st;  3) more cattle weighing over 800 pounds due to the availability of wheat graze-out in the Southern Plains and back-grounded cattle in the Central and Northern Plains (largely placed into Nebraska and Colorado feedlots); and 4) Holstein calves being placed into feedlots rather than harvested for veal.

After surprisingly large marketings in April, the May data were much smaller than expectations.  There was one more slaughter day than a year ago in May and analysts expected marketings about 5% above 2011’s, but that number came in up only a very modest 1%.  Averaging the marketings reported by feedlots to USDA over the last two months may paint the most realistic picture.  Market analysts will be looking very closely at the marketings number in the next report from USDA to detect patterns.

Year-on-year increases in the number of cattle in feedlots suggest that feeders can be rather passive buyers of animals for the next two to three months.  Additionally, the current financial status of many cattle feeders will greatly limit purchasing calves or yearlings that have little hope of making money.  Last year aggressive contracting for cattle on western and High Plains ranches for late summer and fall delivery was widespread, it appears that a repeat this year is not likely.

Forage conditions and corn prices will be the drivers of calf and yearling prices for the balance of 2012, neither of which has been supportive of calf or yearling prices during the last several weeks.  As a result, this summer, prices of calves and yearlings could be more volatile than last year.  Calf and yearling prices will remain above a year ago with just a little cooperation by Mother Nature.  But, calf and yearling prices could easily drop to year ago levels if both national forage conditions and corn yield potential continue to deteriorate at June’s rate.

The Markets

As last week unfolded, futures and cash market prices were under continued pressure.  Over the two week period, fed cattle prices eroded about $6.00 per cwt., packers were cautious buyers and feedlots were rather willing sellers.  As June progressed, calf and yearling prices also eroded because feedlots have become increasingly cautious buyers given their on-going red ink on closeouts and uncertainty about future feedstuff costs.  Further, in the last two weeks some regional auctions were inundated with cattle due to drought.  Live slaughter steers dropped about $3.00 per cwt. for the week, but remained above a year ago (up about 4%).  The weekly average wholesale price of Choice beef (Boxed Beef) slipped only slightly.  Yearling and calf prices were under significant pressure.  In Oklahoma, steers weighing 700-to 800-pounds dropped $3.35 per cwt. from a week ago. Still, compared to a year ago, in Oklahoma yearling steer prices (700-to 800-pound) were up fully 12%, while calves (500- to 600-pound steers) were up 22%.  Corn costs dropped for the week (down 19 cents per bushel) but remained high at well over $6.00 per bushel.        

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