Inventories, production behind year-ago levels

Inventories, production behind year-ago levels

Tight cattle and hog supplies keep production numbers running smaller than last year; expansion is in the works, but very, very slowly.

RECORD-HIGH cattle prices and much more favorable feed costs led to a 10% jump in feedlot placements in October, according to the latest data from the U.S. Department of Agriculture.

In its monthly "Cattle on Feed" report, USDA said placements in feedlots during the month totaled 2.39 million head, a significant jump compared with the same month in 2012.

Even so, the nation's feedlot inventory was still 6% smaller than it was as of Nov. 1, 2012, clocking in at 10.6 million head. Generally speaking, USDA's monthly inventory was pretty close to traders' pre-report expectations (Table).

"The report was neutral compared to expectations," analyst Dennis Smith with Archer Financial Services said. "The placements figure appeared rather large at 110% of last year's number, but this figure was actually 1% smaller than the five-year average placement figure."

Smith's point underscores why many economists have started discussing the challenges of making year-over-year comparisons in markets that have been operating near historical extremes — as was the case last year, when a record drought saw feedlot placements all but dry up.

Indeed, the 2.18 million head placed during October 2012 was the smallest on record for that month. Even with a 10% jump in placements, the figure is still the second smallest on record, according to North Dakota State University Extension economist Tim Petry.

Looking at the total fed cattle inventory, USDA found only 10.607 million head on hand as of Nov. 1, almost 6% below Nov. 1, 2012, and marking the 15th consecutive month with lower cattle on feed numbers than the previous year. Historically speaking, the November inventory was the smallest number of cattle on feed as of Nov. 1 since the data series began in 1996.

"Smaller inventories imply lower beef production ahead," Petry said. "The Livestock Marketing Information Center is projecting fourth-quarter 2013 beef production to decline about 5.2% from last year. That would result in a 1.5% decline in beef production for the year."

Looking at the broader slaughter picture, Petry pointed out that if U.S. pasture and range conditions continue to improve, declining cow slaughter plus lower fed cattle slaughter could result in 2014 beef production that is some 6-7% smaller than in 2013.

Based on the inventory and placement figures, economists Len Steiner and Steve Meyer predicted that fed cattle numbers will likely be 5-6% smaller next spring despite the bump in placements.

While the possibility of turning a profit given record live cattle prices and cheaper feed had cattle feeders bidding up feeder cattle in recent weeks, the fact remains that there are simply fewer cattle to be had in the first place.

Marketings of fed cattle during the month of October grew 1% compared with last year, according to the USDA report. The agency also released its monthly "Livestock Slaughter" report last week, putting total cattle slaughter at 2.90 million head, down 2% from a year ago.

October 2013 contained the same number of weekdays and Saturdays as the previous year, making the year-over-year comparisons a little more relevant than in months where the number of workdays shifts from one year to the next.

Total beef production for the month tallied 2.32 billion lb., 1% smaller than the previous year. Despite killing fewer head, production was only slightly smaller due to an increase in the average liveweight of 9 lb. per head. Both the number and weight of cattle slaughtered imply fewer cows slaughtered this year and last, which would be consistent with an industry now considered to be in expansion mode for the first time in many, many months.

In USDA's "Cold Storage" report, stocks of beef in commercial freezers were somewhat smaller than the previous month at nearly 443.6 million lb. Even so, the stocks figure is up 3% from the same month in 2012. Nevertheless, this is not a huge concern for the industry as recent retail pricing and consumption data suggest that beef demand is holding fairly solid as 2013 draws to a close.


November cattle on feed report (million head)




% of









Cattle on feed, Nov. 1


















*Sources: U.S. Department of Agriculture, Dow Jones.


Hog slaughter

Tight supplies of hogs persist, with USDA reporting October pork production of 2.17 billion lb., down 2% from the previous year. Heavier hogs — the average liveweight being 4 lb. more than the prior year — partially offset a 4% drop in the number of hogs processed.

According to University of Missouri economists Ron Plain and Scott Brown, hog slaughter weights in Iowa and Minnesota set a new record for the third consecutive week as of Nov. 22, at 281.2 lb., up 0.4 lb. from a week earlier and up 7.3 lb. from a year ago. Cheaper feed and decent hog prices are combining to encourage producers to put a few more pounds on hogs before they head to market.

Porcine epidemic diarrhea virus (PEDV) is still the proverbial sword of Damocles over the industry's collective head, keeping a lid on any hopes of industry expansion, it seems.

Testing data from the National Animal Health Laboratory Network showed that as of Nov. 10, PEDV had been confirmed in 1,161 swine premises in 19 states, an increase of 92 locations from the prior week.

"It would appear that the worst impact of the disease is ahead of us," Steiner and Meyer said in a recent update. "Given the five- to six-month lag, spiking PEDV cases in the winter could constrain supplies in late spring and summer, a time of year when hog numbers seasonally decline."

By the end of October, the network had found roughly double the number of cases reported in May and June, but the reporting data are not wholly reliable because there is no distinction between "double-counted" farms, where more than one diagnostic test is reported on the same premises.

PEDV notwithstanding, Purdue University economist Chris Hurt said low corn prices present an excellent opportunity for end users looking to add value to corn. For the 2013-14 marketing year, he estimated that hogs are offering $6.85/bu. if the profits from hog production are assigned to the value of corn.

He said the market is signaling producers to produce more pork.

"At first glance, the incentive appears to be very huge," Hurt said. "During the period that spans the 2013-14 corn marketing year, live hog prices are expected to average about $67/cwt., with costs of production closer to $56. That means an expected profit of $32 per head and relates to the $6.85/bu. for corn marketed through hogs."

Because feed prices are expected to remain closer to current levels than to the record-high prices seen in 2012, Hurt said the next three to five years could mark a "mini-boomlet" for food animal production as the industry expands.

He said three positive demand drivers will also materialize: higher U.S. per capita consumption, modest domestic population growth and continued export growth.


Market recap

USDA reported that frozen pork supplies were down 6.1% from a year ago in its October "Cold Storage" report.

While stocks are still 8.2% larger than the five-year average, Meyer and Steiner said a recent string of smaller-than-expected slaughter runs fueled a pretty large drawdown in frozen inventories.

Through October, accumulated pork production was down 1% from last year, according to the monthly slaughter report. With plenty of pork on hand and more hogs coming to market in recent weeks, packers haven't been overly aggressive with bids.

For the week ending Nov. 22, hog prices were $1-3 lower, with a national average negotiated carcass price for direct-delivered hogs up $5.09 from a year ago. Prices firmed somewhat heading into the Thanksgiving weekend, with the western Corn Belt weighted average base price above $80/cwt. for the first time in two weeks.

Carcass values continued to run softer than last month, with prices down more than $5/cwt. from the first day of November. Futures prices still show some upside potential in the hog markets, and recent record retail prices should indicate that some upside potential remains for producers.

Cattle prices retreated somewhat over the past two weeks, with a fairly lightly traded market backing down from the record $132-133/cwt. prices seen earlier in the month. Prices appeared to remain above $130 heading into the holiday, however, and futures prices continue to show fed cattle prices improving through midyear in 2014.

The cattle on feed report was essentially neutral to the markets, and the Choice boxed beef cutout surged into the holiday break, crossing back above $200 after a brief dip during the past week. Keeping cutout values at or above current levels will be critical to supporting packer and feeder profits in 2014.


Volume:85 Issue:49

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