Fed cattle inventory down 5% in November

Fed cattle inventory down 5% in November

Cattle inventories are smaller; beef and pork production trailed year-ago levels in November; tighter supplies continue to support meat prices across the board.

CONTINUING a long-standing trend, the U.S. Department of Agriculture reported last week that the number of cattle on feed in the nation's major feedlots as of Dec. 1 fell roughly 5% from the same period a year ago, totaling 10.7 million head and representing the second-smallest December inventory since the data series began in 1996.

While the trade was more or less on the mark in terms of average pre-report estimates of inventory and marketings, the number of cattle placed in November was actually 4% smaller than traders had expected, which was viewed as moderately bullish.

The monthly inventory report continues to show smaller supplies of fed cattle than a year ago, but the November data suggest that big-time feeders did slow down their purchases of high-priced feeders somewhat in an effort to preserve some long-awaited and sorely needed profits.

As with this time last year, supplies point to cattle prices that will be record high in the year to come, which means that beef demand will again be critical to the success of packers and feeders.

In last year's analysis of the December inventory data, Bob Price at North America Risk Management Services Inc. told Feedstuffs that the market at that time — cattle at $127/cwt. and the Choice cutout at $194/cwt., along with April futures priced at $137 — suggested that April Choice beef needed to be $215 in order for packers to maintain margins and pay for April cattle.

If that scenario were to come true, he said at the time, consumers would need to "dig deep" to buy beef.

Guess what? The same scenario is true again as the calendar turns to a new year. With cattle prices at $131/cwt., the Choice cutout at $196/cwt. and April futures priced at $135, the cutout needs to improve significantly, and consumers need to again "dig deep" to buy beef.

The Choice-to-Select spread continues to be a source of concern, with the spread getting dangerously close to $4/cwt. at one point during Christmas week before widening to a still-too-close-for-comfort $6/cwt. as of press time.

"Daily Livestock Report" economists Len Steiner and Steve Meyer noted that December marked the 16th consecutive month of smaller year-over-year feedlot cattle inventories. The smaller placements figure underscores an ongoing issue in the cattle markets, they said.

"November placements do little to fill what we believe is a 'hole' in cattle numbers that began developing last summer and fall, when September and October placements fell over 7% short of year-earlier levels," they wrote. "November's -5.5% is actually the closest that placements have been to year-ago levels since July. The 5.9% lower placements in August will begin reaching market weights in late January and February, and we expect to see sharply lower fed cattle supplies at that time."

Steiner and Meyer concluded that lower feed prices should allow slaughter weights to increase some in order to fill part of the decline in beef output but cautioned that the increase will not be nearly enough to make up for the lower numbers of cattle that will be moving to slaughter.

 

Red meat supplies

According to USDA's "Livestock Slaughter" and "Cold Storage" reports out earlier this month, the supply of red meat produced in November was smaller than year-ago levels. Commercial red meat production was down 4% from last year, although some of that shift could be explained by November 2013 having one less weekday of production than the same month in 2012.

Beef production fell 7% from last year. Slaughter of 2.57 million head was down 8% but was somewhat offset by a 17 lb. per head increase in the average liveweight. Cheaper feed is allowing producers to pack on some additional pounds despite the absence of zilpaterol hydrochloride (Zilmax), Merck's embattled beta-agonist. Liveweights averaged 1,338 lb. per head in November, according to USDA.

Year to date through Nov. 30, beef production was down just 1% compared with the first 11 months of 2012.

The supply of beef in commercial freezers, however, actually increased slightly in November, up 1% from last month and up 1% from Nov. 30, 2012. Frozen beef stocks tallied 445 million lb.

Pork production in November, on the other hand, fell just 2% from last year. Hog slaughter was down 7% at 9.65 million head, but slaughter weights increased 7 lb. per head from the previous year to 283 lb. Production totaled 2.04 billion lb.

Supplies of frozen pork as of Nov. 30 topped 546 million lb., down 3% from last month and down 2% from last year's inventory. The major shift in pork supplies, however, was the inventory of frozen pork bellies, up 81% from last month and up a whopping 103% from last year's levels.

While bacon continues to be in good demand, the huge increase in belly stocks has yielded a major dip in prices. According to data from USDA's Agricultural Marketing Service, pork belly prices dropped more than $20/cwt. in the week prior to Christmas, falling below $100/cwt. for the first time in many months.

While belly prices had rebounded to $110/cwt. as of press time, the price for the popular primal is a far cry from the recent high of $139/cwt. recorded Oct. 21. The more than 20% drop in belly prices, while putting bacon somewhat closer to more historically normal prices, is at least part of the reason the pork cutout has softened in the fourth quarter.

 

Market recap

Perhaps coming as no surprise, the markets largely held steady in the last full week of 2013. Cattle prices continued to hover in the $130-131/cwt. range, carcass hog prices continued to hold in the $76-77/cwt. ballpark and whole broiler prices held at $1.0425/lb. for the fifth week in a row.

With no real change in market fundamentals in recent weeks, the hog markets were treading water ahead of Friday's "Hogs & Pigs" report, and the cattle market is eager to see USDA's annual cattle inventory due out in January, which will be the first official estimate of the cattle herd's size since January 2012 (the midyear inventory was scuttled due to the sequestration).

The corn and soybean markets, likewise, finished the week within their December ranges, with corn prices near $4.25/bu. and soybean prices near $13.20/bu. on the nearby futures contract.

 

Dec. 1 feedlot inventory

 

2011

2012

2013

2013 as %

Category

-Million head-

of 2012

Nov. 1 inventory

11.889

11.254

10.597

94

November marketings

1.774

1.761

1.681

95

November placements

1.959

1.943

1.882

97

Dec. 1 inventory

10.579

11.348

10.725

95

Source: USDA.

 

Volume:85 Issue:53

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