Feedlot cattle supplies to tighten in third quarter.

Krissa Welshans 1, Feedstuffs Editor

June 25, 2018

2 Min Read
Cattle in Nebraska feedlot
CAPACITY CONSTRAINTS: Expanding beef processing capacity today may be fixing yesterday's problem as cattle cycle turns to lower production. DarcyMaulsby/iStock/Thinkstock.

The U.S. Department of Agriculture latest “Cattle on Feed” report showed that inventories on feedlots with a capacity of 1,000 head or more totaled 11.6 million head on June 1, a 4% increase from the same period last year. This is the highest June 1 inventory since the series began in 1996, USDA said. Ahead of the report, analysts had expected a 3.4% increase.

Derrell Peel, Oklahoma State University extension livestock marketing specialist, said it is the 18th straight month of year-over-year increases. In fact, he pointed out that feedlot inventories have been increasing year over year for 26 of the last 28 months.

Using a 12-month moving average of feedlot inventories, which Peel said removes seasonality and allows for month-to-month comparisons of feedlot totals, the current monthly average feedlot inventory is the highest since November 2012.

Peel noted that the rapid buildup in feedlot inventories last fall and during early 2018 peaked in March, whereas in 2017, the inventory was 108.8% higher than 2016.

“As was noted at the time, early placements fueled by poor winter pasture conditions don’t change the overall number of cattle and are offset later with smaller placements,”  he explained.

The latest report showed placements in feedlots during May totaled 2.12 million head, slightly above 2017. Analysts had expected a 4.4% decrease. Net placements were 2.05 million head.

“Longer term, cattle numbers are still increasing, and a general trend of growing feedlot inventories is expected for several more months, at least. Placement patterns the last few months have impacted the timing of feedlot production, and the fed cattle market has been struggling a bit under the weight of bunched fed cattle supplies in the second quarter,” Peel said.

Marketings during May totaled 2.06 million head, 5% above 2017 and in line with pre-report estimates.

According to Peel, annualized monthly average feedlot marketings began increasing in late 2015 following the herd expansion that began in 2014, and current 12-month monthly average feedlot marketings are at the highest level since November 2011.

“Increased feedlot marketings translate into increased cattle slaughter and increased beef production,” he explained. “Increased beef production in the second half of the year will depend on the how much cattle slaughter increases and on how much carcass weights rebound from last year’s decline. At the current time, annual beef production is projected to be up 4.0-4.5% year over year.” 

Peel pointed out that May feedlot placements included a 9.8% year-over-year increase in placements under 700 lb., which was probably augmented by poor summer grazing conditions in some areas that likely deflected some cattle into feedlots. Placements of cattle over 700 lb., on the other hand, were down 4.6% from last year.

“This suggests that feedlot cattle supplies will tighten relatively in the third quarter," he said. "Fed cattle prices are expected to be lower year over year in the second half of the year, but the timing of fed cattle marketings will reduce the price pressure relative to the second quarter.”

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