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 capacity of 1,000 or more head totaled 10.026 million, down a whopping 6% from a year ago.
Analysts polled by Dow Jones had anticipated a smaller fed cattle population than last year, but had figured on a figure nearly 200,000 head larger, at 95.8% of last year’s inventory. Instead, USDA found a fed cattle inventory barely 94% the size of that in feedlots as of Aug. 1, 2012.
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 placements were only 90% of July 2012’s total.
“If placements come in below last year, I’d have to consider the report very friendly, if not bullish,” said Dennis Smith with Archer Financial prior to the release of Friday’s report. He said that placements of 97-98% would be considered friendly to the market, and the report came in well below that level, and well below the low end of traders’ expectations.
Writing at the Daily Livestock Report prior to USDA’s report, economists Steve Meyer and Len Steiner pointed out that placements last year declined some 10% from the year prior, 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 plated crop means the harvest will be delayed by weeks and corn supplies will likely remain limited in August and September.”
In other words, it’s 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.
Feeder cattle imports down 300,000 head
On a similar bent, USDA reported marketings of fed cattle 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 means 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 Thursday note. “For the first time in years, we might experience heifer retention in the SE 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 noted the sharp decline in Mexican feeder cattle shipments to the U.S. as having a significant effect on feeder cattle availability in Texas, Oklahoma and the surrounding states. July imports of feeder cattle from Mexico declined 54% from a year ago, totaling only 43,000 head.
Add to that the fact that feeder cattle prices gained nearly $10 per hundredweight 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 Friday that feeder cattle imports from Mexico through mid-August were down about 45% from 2012, although partially offset by an uptick in Canadian feeder cattle imports, accounting for a net reduction of about 300,000 head.
“The nation's beef cow herd 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.”But with one production-enhancing tool – Merck’s Zilmax – on the sidelines for now, analysts are assuming that slaughter weights are likely to 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.