Feedlot Slaughterings Will be Front Loaded24 July 2013
US - Although cattle on feed results were close to expectations, Steve Meyer and Len Steiner say that close data analysis of weights shows that slaughter numbers will be 'front loaded'.
The latest USDA cattle on feed report continued to illustrate the impact that high feed costs have had on the cattle business, write agricultural markets analysts Steve Meyer and Len Steiner.
Faced with a sharp increase in feed costs and the resulting jump in the cost of gain, producers have sought to maximize the pounds they put on cattle outside of feedlots.
Cattle placements last summer declined by almost 1.3 million head compared to the previous year, slowing down the flow of feeder cattle into feedlots. The result of this was evident in the January 1 survey, showing that despite an ever shrinking calf crop (down 2.9 per cent in 2012) the supply of cattle outside of feedlots as of January 1 was estimated at 25.556 million head, 175,000 head or 0.7 per cent larger than the previous year (source: LMIC).
Those extra feeders have been coming to market at weights well above year ago levels. In the past six months, feedlots have placed 10.643 million head of cattle on feed, about 21,000 head more than a year ago. But keep in mind that imports of feeder cattle from Mexico declined sharply
in the first six months of the year.
When accounting for the change in feeder imports, placements of cattle from US operations actually have increased significantly compared to a year ago. In part this is due to those extra cattle outside of feedlots at the beginning of the year. It also suggests that producers continued to place females on feed rather than hold them back.
In the first six months of the year, US imports of Mexico feeder cattle (based on weekly data) were 496,843 head, down about 406,000 head (-45 per cent ) compared to the same period a year ago.
Unfortunately USDA has discontinued the July 1 cattle survey, so we will have to wait until early next year to understand the full scope of the changes taking place. Suffice to say, however, that feeder supplies going forward will be notably tighter, paving the way for smaller placements and reduced slaughter for 2014.
If lower feed costs materialize, we could see supplies decline further as the number of heifer placements declines. The latest cattle on feed survey results were close to analyst estimates so on the face of it the report could be construed as neutral.
However, the weight distribution of cattle placed on feed in June implied that slaughter numbers will be front loaded. Total placements in June were estimated at 1.587 million head, 4.6 per cent less than a year ago.
Analysts polled ahead of the report were expecting placements to be down 5.1 per cent . Almost 40 per cent of the cattle placed on feed in June were over 800 pounds. Indeed, in the past three months, placements of heavy feeders have accounted for about 39 per cent of all placements.
This implies that supplies of cattle coming to market this fall may not be as small as earlier expected. On the other hand, we could see a marketing hole develop going into the holiday season and early next year.
The market has already acknowledged this dynamic, with the spread between Oct-Aug spread now at $4.25 compared to around $3.00 in early May. The difference between February and October cattle also has been trending higher and the latest feedlot survey results will do little to change that trend.
Total feedlot supplies as of July 1 were 10.368 million head, 3.2 per cent lower than a year ago and 0.2 per cent points lower than prereport estimates. Placements are expected to remain limited in the next few months, limiting the number of cattle coming to market.
Some forecasts call for slaughter by late 2013 and early 2014 to fall some 6-7 per cent from year ago levels. In part this reflects the lower feedlot inventories but also the expectation that lower feed costs will reduce the number of cows coming to market later this year.
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