Fed cattle inventory down 6% from last year

Fed cattle inventory down 6% from last year

July feedlot placements tallied only 90% of 2012's already reduced levels, foreshadowing much tighter cattle supplies in 2014.

HIGH feed costs have resulted in a sharp reduction in the U.S. cattle inventory, and 30 consecutive months of red ink have put a lid on feedlot placements.

According to the U.S. Department of Agriculture's August "Cattle on Feed" report, the number of cattle on feed in U.S. feedlots with a capacity of 1,000 head or more totaled 10.026 million, down 6% from a year ago.

Analysts polled by Dow Jones had anticipated a smaller fed cattle population than last year but had penciled a figure nearly 200,000 head larger, at 95.8% of last year's inventory. Instead, USDA reported a fed cattle inventory barely 94% the size of the number in feedlots on Aug. 1, 2012 (Table).

USDA reported July feedlot placements of just 1.72 million, 10% below 2012. Analysts had predicted placements tallying 97.5% of last year's figure; USDA instead reported that placements were only 90% of the July 2012 total.

"If placements come in below last year, I'd have to consider the report very friendly, if not bullish," Dennis Smith with Archer Financial said prior to the release of the report last Friday.

He explained that placements of 97-98% would be considered friendly to the market, and the USDA report came in well below that level — and well below the low end of traders' expectations.

In the "Daily Livestock Report" prior to the release of USDA's report, economists Steve Meyer and Len Steiner pointed out that placements last year declined some 10% from the prior year, so the July placements are being compared to already low placement levels in 2012.

"Forward feed costs may be lower, but spot feed prices in July were still very high for many feedlots, and cash cattle prices in July were weak, inspiring little confidence for an industry that has struggled with significant negative margins in recent months," they wrote. "Feed prices may decline once harvest kicks in, but the late-planted crop means the harvest will be delayed by weeks, and corn supplies will likely remain limited in August and September."

In other words, it has been a tough row to hoe for cattle feeders, and continuing to feed large numbers of animals at an economic loss wasn't all that appetizing this summer. While better days may be on the horizon, they're not here yet.

 

Slaughter trends

On a similar bent, USDA reported fed cattle marketings during July of 2.00 million head, 5% above 2012 and right in line with analysts' pre-report expectations.

While marketings were up in July, the sharply smaller placements mean that a big drop in marketings is coming in the first half of 2014.

"I'm expecting the beef supply to tighten up substantially as cow slaughter drops off this fall," Smith said in a note last Thursday. "For the first time in years, we might experience heifer retention in the Southeast and North. If this happens, with feeder supplies out of Mexico tight and our calf crop at a 60-year low, we've not seen anything yet (with regard to cattle prices), especially if my projection for $4.00 corn pans out."

Meyer and Steiner also cited the sharp decline in Mexico's feeder cattle shipments to the U.S. as having a significant effect on feeder cattle availability in Texas, Oklahoma and the surrounding states. Imports of feeder cattle from Mexico in July declined 54% from a year ago, totaling only 43,000 head.

Add to that the fact that feeder cattle prices gained nearly $10/cwt. in July, and it's easy to understand why feeders didn't place nearly as many animals this year.

Farm Progress editor John Otte reported that feeder cattle imports from Mexico through mid-August were down about 45% from 2012, although they were partially offset by an uptick in feeder cattle imports from Canada, accounting for a net reduction of about 300,000 head.

"The nation's beef cow herd (being) down more than 6 million cows from the recent peak of 35.3 million in 1996 means the long-term trend in slaughter cattle supply is lower," Otte wrote. "The cattle industry has been able to hold beef production relatively steady by boosting efficiency through technology, better genetics, higher calving percentages and heavier slaughter weights."

However, with one production-enhancing tool — Merck's zilpaterol product — on the sidelines for now, analysts are assuming that slaughter weights will likely start coming down in the final quarter of 2013. So, already tight beef supplies are going to get even tighter, and record cattle and beef prices are likely to go even higher.

Cow liquidation may have tapered off as pasture conditions improved this spring and held into summer. Slaughter through the first half of the year was up 2.1% from a year ago, but weekly cow slaughter has drifted below year-ago levels in recent weeks: From June 20 to Aug. 3, slaughter was down 8% from last year.

Likewise, the market is expecting dairy cow slaughter to slow as milk producer margins improve with lower feed costs and stronger dairy prices.

What's interesting is that, while U.S. fed cattle numbers declined sharply in the most recent report from USDA, the Australian Lot Feeders' Assn. (ALFA) reported that the fed cattle inventory in Australia grew 9%. While that inventory is still a fraction of the U.S. fed cattle population, it continues a trend going back to at least 2007, with inventories showing a steady trend-line increase since then.

"Feeder cattle prices started the June quarter with a continuation of the easing from the March quarter before bottoming out in mid-May and then recovering through June," ALFA president Don Mackay said. "Rises in feed grain prices dampened further increases in cattle numbers on feed, particularly during the latter part of the quarter."

Mackay said barley, sorghum and wheat prices were up anywhere from 39% to 57% year over year. Total Australian fed beef exports for 2012-13 were 198,158 tons, up 2% on the year and up 5% compared with the five-year average as exporters shipped significantly larger volumes to the European Union and China.

Australian cattle feeders have more room to grow, however, with 872,992 head on feed in June, compared with an ALFA-estimated capacity of 1.19 million head, or roughly 73%.

 

Feedlot inventory as of July 1, million head

 

 

 

 

2013 as a

Category

2011

2012

2013

% of 2012

July 1 inventory

10.433

10.710

10.368

97

July marketings

1.918

1.913

2.000

105

July placements

2.135

1.922

1.722

90

Aug. 1 inventory

10.579

10.656

10.026

94

Source: U.S. Department of Agriculture.

 

Volume:85 Issue:35

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