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Pre Report Estimates Say Cattle on Feed Will Lift

21 November 2013

US - Market commentators are expecting lower corn prices and better cattle values to influence placements reported in the US Department of Agriculture's Cattle on Feed release.

USDA’s November Cattle on Feed report will be released at 2:00 p.m. CST on Friday. The results of ThomsonReuters’ pre-report survey of analysts appear at right, write CME analyst Steve Meyer and Len Steiner.

There were eleven respondents to the survey. As can be seen, analysts expect a sharp increase in placement in this month’s report. Lower corn prices and good — though lower —live cattle futures prices are driving the interest in placing cattle right now. That — and the fact that, according to the Livestock Marketing Information Center (LMIC), cattle feeders have actually made money on cattle sold in October.

Now $25 and change for one month in no way makes a dent in the massive cattle feeding losses of the past two years but cattle feeders have gotten excited about placing cattle over much less than that! At least one respondent to Reuters survey thinks they will get pretty excited this time, increasing placements over 18 per cent.

Those higher placements come at a cost — or are the reason for the higher cost — as feeder cattle have gone out of sight this fall.

Southern Plains 700-800 pound steers have been over $165/cwt. the past three weeks and the spread between feeder cattle over fed cattle has been over $35 every week since August.

That level is not a record but to have the spread sustained for this long is a new phenomenon. Clearly, lower corn prices are the primary driver of that spread. When feed costs fall, feeder animals have a greater value relative to finished animals.

But making up $35/cwt. in price differential will be very difficult and, even with lower-priced corn, projected breakevens from LMIC exceed $140/cwt. live weight from December through February. As we have pointed out before, that breakeven figure would apply to custom fed cattle that pay a yardage fee and a markup on feed so breakevens on yard-owned cattle or on cattle being fed by private feeders would be somewhat lower.

But the effort to keep yard utilization rates at reasonable levels have left too many bunk spaces chasing FAR TOO FEW cattle. The number of feeder cattle available isn’t going to increase any time soon. We still expect some rationalization in feedlot capacity, most likely in the Southern Plains.

While feedlots, even with lower feed costs, will likely struggle, cow-calf operators are completing a good 2013 and looking forward to what will likely be a record 2014.

Record feeder cattle prices have driven record-high calf prices at a time when feed — both grain and, perhaps more important, hay — prices are down sharply.

In addition, 38 per cent of U.S. range and pasture land was rated in good or excellent condition in USDA’s final ratings of the year. Only 28 per cent was rated in poor or very poor condition. Those numbers compare
to 21 per cent good-excellent and 54 per cent poor-very poor one year ago. 

USDA announced this week that it would again suspend the July Cattle (usually called Cattle Inventory) report in 2014. 

That was about the only casualty among major livestock and poultry reports in the sequestration battle and the agency says tight budgets will keep the report on hold next year. With the beef sector in one of its more dynamic periods in years, this report would have been a great help in discerning just what was happening in the U.S. cow herd.

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