Feedlot placements set record low in August

Tight beef supplies likely to stay that way for the foreseeable future, with smallest September feedlot inventories since 2003.

SKEWING toward the low end of market analysts' pre-report estimates, the U.S. Department of Agriculture's latest "Cattle on Feed" report showed a fed cattle inventory that is much smaller than a year ago, with August feedlot placements actually setting a new record low.

Placements in feedlots with a capacity of 1,000 head or more during the month of August totaled 1.79 million head, 11% fewer than were placed during the same month last year (Table). August placements were the smallest since the data series began in 1996.

Analysts had expected placements to be 91.6% of last year's total, so an 89% figure was closer to the bottom end of expectations than to the average of analysts' predictions.

This comes on the heels of an August "Cattle on Feed" report that, likewise, showed placements to be smaller than the trade had estimated, further illustrating the "long tail" of the multiyear drought that is plaguing much of cattle country.

"This marks the second straight month in which placements of cattle into feedlots have been more than 10% lower than one year earlier," economists Steve Meyer and Len Steiner noted in the "Daily Livestock Report." "The normal seasonal pattern for placements is for significant growth in numbers in both July and August. This year, the figures are showing a decided break from the normal seasonal pattern."

Smaller-than-expected placements drove USDA's estimate of cattle and calves on feed to a mere 9.9 million head as of Sept. 1, a 7% smaller fed cattle inventory than last year's figure. Analysts had expected an inventory figure roughly 93.5% of last year's, so the report was slightly smaller than anticipated.

The feedlot inventory as of Sept. 1 is the smallest the market has seen for the month since 2003.

Fed cattle marketings in August totaled 1.88 million head, down 4% from the previous August and the second lowest since the data series began in 1996. Analysts had expected marketings to be 95.5% of last year, which was fairly close to the actual figure.

"All three of these categories were missed slightly by the average of analysts' predictions, to the friendly side of the cattle market," Farm Progress economics editor John Otte said. "Friday's report further deepens the potential hole in December-March fed cattle marketings. Holes in marketings fuel predictions of higher prices to come."


Feedlot inventory as of Sept. 1, million head





2013 as %





of 2012

Aug. 1 inventory





August marketings





August placements





Sept. 1 inventory






Price outlook improving

Last week, CME Group announced that the Chicago Mercantile Exchange will no longer accept delivery of cattle finished on Merck's beta-agonist zilpaterol hydrochloride (Zilmax).

While the CME announcement is something of a moot point, given that the company has already suspended sales of the beta-agonist in favor of a scientific audit of the product and its effect on animal health and welfare, the exchange made a fairly strong statement, with one spokesman telling Reuters that cattle fed the product are "no longer merchantable" based on announcements from Tyson and Cargill barring the additive from their cattle supplies.

Under CME's contract specifications, "merchantable" means that animals must be readily saleable in normal marketing channels; not being able to sell cattle to two of the nation's largest packers would seem to be an impediment, certainly.

The ongoing uncertainty regarding zilpaterol's future is relevant given the presumed effect its absence will have on slaughter weights in the fourth quarter and into next year.

Looking at 2014, University of Missouri livestock economist Scott Brown said last week his outlook is definitely "glass half-full," and he is calling for fed cattle prices to top $130/cwt. next year.

"The fundamentals are there; fed cattle prices will range much higher than they did in 2010," he told producers at a university field day. "Cattle inventories are low, and short supplies lead to higher prices."

While demand remains something of a question when it comes to domestic consumers, he said USDA data show that consumers are willing to pay for higher-quality beef, with Prime and Choice values improving while Select values are slipping.


Market recap

Live cattle prices continued to range from $123/cwt. in the South to $125 in the West, staying pretty well inside a range of $122-126. Slaughter through last Thursday was up 3,000 head from the previous week but was still down 15,000 compared with the same week last year.

With cash corn prices now trending toward the mid-$4 range, the steer:corn ratio has improved significantly from levels seen just a couple of months ago. After bleeding red ink for so long, the prospect of margin relief is almost palpable for producers at this point.

Boxed beef values held mostly steady for the week, with the Choice cutout slightly firmer at $193.60.

In the futures market, feeder cattle futures set new all-time highs in last Thursday's trading, at $159.55 for the September issue and $164.37 for the October contract. Meanwhile, live cattle futures set fresh monthly highs.

USDA's monthly "Cold Storage" report showed that beef supplies in commercial freezers were down 6% from last month, although still slightly larger than last year. Meyer and Steiner saw that as a "much faster pace than normal" for this time of year and indicative of the higher prices seen in the market — and likely supportive of prices into the fourth quarter.

Cash hog prices moderated considerably last week, on the other hand, with the eastern Corn Belt weighted average falling $5.32 from the previous week to $89.64/cwt. in Thursday's trade, while the western Corn Belt average fell $3.40 to $92.30/cwt.

"Some dealers say they continue to see fewer available hogs than normal for this time of year, possibly due to a delayed reflection of death losses due to outbreaks of porcine reproductive and respiratory syndrome and porcine epidemic diarrhea virus (PEDV)," Otte said. "Traders hope Friday's USDA quarterly 'Hogs & Pigs' report will answer nagging questions about how much PEDV may be trimming production."

Hog slaughter in the first three weeks of September totaled 6.322 million head, down 574,000 head, or 8.3%, from the same period a year ago. Weekly slaughter through last Thursday was 1.711 million hogs, down 15,000 from the previous week and down 28,000 from last year; slaughter was projected to be off nearly 6% from 2012 levels.

Loin prices and cutout values improved at week's end, with loin prices up $1.84 to $104.95. Last Thursday's carcass value, meanwhile, was more than $1.50 higher than the five-day average.

USDA reported that frozen pork supplies were down 1% from the previous month and down 8% from last year, with pork bellies down 32% from the previous month (albeit up 35% from last year).

Editor's Note: Feedstuffs will have an update on the USDA "Hogs & Pigs" report, as well as the Sept. 30 "Quarterly Grain Stocks" report, at www.Feedstuffs.com.


Volume:85 Issue:40

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